CS Professional

Chapter 4 Procedural Compliance under GST – CS Professional Advance Tax Law Notes is designed strictly as per the latest syllabus and exam pattern.

Procedural Compliance under GST – CS Professional Advance Tax Law Study Material

Question 1.
Determine with reason, whether the following statements are true or false with reference to provisions of GST law:
(i) “A registered person shall issue separate invoices for taxable and exempted goods when supplying both taxable as well as exempted goods to an unregistered person”. (June 2019, 2 marks)
(ii) “A Non- banking financial company (NBFC) can issue a consolidated
tax invoice at the end of every month for the supply made during that month”. (June 2019, 1 mark)
(iii) “It is mandatory to issue a tax invoice in case a registered person has opted for composition levy scheme”. (June 2019, 2 marks)
Answer:
(i) The given statement is false.
Where a registered person is supplying taxable as well as exempted goods or services or both to an unregistered person, a single “invoice cum bill of supply” may be issued for all such supplies (Rule 46A of the CGST Rules, 2017).

(ii) The given statement is true.
A non-banking financial corppany is allowed to issue a consolidated tax invoice or any other document In lieu thereof for the supply of services made during a month at the end of the month. [Rule 54(2) of the CGST Rules, 2017].

(iii) The given statement is false.
A registered person paying tax under the provisions of Section 10 of CGST Act, 2017 (composition levy) is required to issue, instead of tax invoice, a bill of supply containing the specified particulars in the prescribed manner [Section 31 (3)(c) read with Rule 49 of the CGST Rules, 2017].

Question 2.
State with brief reasons whether the following are true or false; as per GST law:
(i) When the refund is issued beyond 60 days from the date of application, interest is payable @ 8% per annum.
(ii) Final return has to be furnished within 3 months of the date of order of cancellation of registration of GST.
(iii) Commissioner can grant time for payment of GST liability in maximum of 20 instalments for the self assessed tax shown in the GST return, as per section 80.
(iv) Under section 10, the ‘due date for’ filing return by a registered person is 20 days after the end of each quarter. (Dec 2019, 1 mark each)
Answer:
(i) False. As per section 56 of the CGST Act, where any tax ordered to be refunded is not refunded to the applicant within 2 months from the date of the application, the applicant shall be paid interest at such rate not exceeding 6%. as may be prescribed by Board.
Vide Notification No. 13/2017-C.T., dated 28-6-2017, the Government has notified the rate of interest for the purpose of Section 56 @ 6%.

(ii) True. As per section 45 when a registration is cancelled such person shall furnish a final return within 3 months of the date of cancellation or date of order of cancellation – whichever is later.

(iii) False. As per Section 80 of the CGST Act, the Commissioner cannot grant payment of tax in instalments in respect of self assessed tax. However, In respect of any amount due other than self assessed tax the Commissioner can provide monthly instalments not exceeding 24 for the purpose of payment of tax.

(iv) False. As per section 39(2) the due date for filing return by the composition person is 18 days after the end of each quarter.

Question 3.
State with reasons whether the following statements are true or false under GST Law:
(ii) No e-way bill is required if a Registered person from West Bengal purchases goods from Delhi valuing ₹ 1,12,000 (including tax) and carries the same with him in train. (Aug 2021, 1 mark)
(iii) A person exclusively dealing in goods not liable to tax or wholly exempt from tax having a turnover of ₹ 1,00,00,000 is required to get registered under GST. (Aug 2021, 1 mark)
(iv) TCS is not required to be collected on supplies on which the recipient is liable to pay tax on Reverse charge basis. (Aug 2021, 1 mark)
Answer:
(ii) False. E-way bill is necessary. It has to be generated by either the supplier or the recipient either before or after the commencement of the movement of goods when goods are transported by railways.

(iii) False. As per Section 23 (1) of the Central Goods and Services Tax Act, 2017, any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods & Services Act, 2017 (IGST Act), is not liable for registration.

(iv) True. TCS is not required to be collected when the recipient is required to pay tax on Reverse charge basis as according to the explanation to section 52 of Central Goods and Services Tax Act, 2017 the expression net value of taxable supplies or when TCS is to be collected shall means the aggregate value of taxable supplies of goods or services or both other than services notified under section 9(5) made during any month by the registered person through the operator as reduced by aggregate value of taxable supplies returned to the supplies during the said month.

Question 4.
State with reasons, whether the following statement is true or false under GST law:
TDS under section 51 of CGST Act, should be paid to the Government by the deductor within 15 days after the end of the month in which the deduction is made. (Aug 2021, 1 mark)
Answer:
False. As per Section 51(2) of Central Goods and Services Tax Act, 2017 the amount deducted as tax under Section 51 shall be paid to the Government by the deductor within ten days (10 days) after the end of the month in which deduction is made in such manner as may be prescribed.

Question 5.
Write short notes:
Common Portal (Dec 2017, 1 mark)
Answer:
“Common Portal” means the common goods and services tax electronic portal referred to in section 146. [Section2(26)]

Question 6.
Who are required to file Annual Return under CGST Act, 2017? Also explain the time limit for filing such return. Is there any requirement of furnishing of the audited annual accounts? (Dec 2017, 5 marks)
Answer:
Every registered person, other than an Input Service Distributor, a person paying tax under section 51 or section 52, a casual taxable person and a non-resident taxable person, shall furnish an annual return as specified under sub-section (1) of section 44 electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

Annual return for every financial year to be filed electronically in prescribed format and in such manner as may be prescribed on or before the 31st December of the next financial year.

Question 7.
State the Form Number and the due date for its filing under CGST Act, 2017 of the return by:
(i) a composition scheme taxable person
(ii) a registered person deducting tax at source
(iii) an input service distributor. (June 2018, 1 mark each = 3 marks)
Answer:

Question 8.
Briefly explain provisions related to e-way bill as per CGST Act, 2017 relating to:
(i) What is e-way bill and when it is being required? (June 2018, 1 mark)
(ii) What is its validity period? (June 2018, 2 marks)
Answer:
(i) E – way bill is an electronic way bill for movement of goods which is generated on the GSTN portal. It is required when a “movement” of goods is of more than ₹ 50,000 in value. A registered person cannot move goods without an e – way bill.

(ii) The validity period of e – way bill is tabulated as under:
Distance Validity period
Upto 100 kms One day
For every 100 kms or part thereof thereafter One additional day

Question 9.
Discuss the provisions relating to refund of balance in electronic cash ledger as per the GST law. (Dec 2018, 2 marks)
Answer:
As per Section 54 a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of Section 49, may claim such refund by submitting a refund application form RFD-01.

Question 10.
What are the documents required to be prepared by the recipient of supplies from an unregistered person as per GST law? (Dec 2018, 3 marks)
Answer:
(i) A registered person who is liable to pay tax under reverse charge shall issue an invoice in respect of goods of services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;

(ii) A registered person who is liable to pay tax under shall issue a payment voucher at the time of making payment to the supplier.

Question 11.
Briefly discuss the provisions related to Levy of late fee as per section 46 of CGST Act, 2017 on a person who fails to furnish the details of outward or inward supplies required under section 37 or 38 or 39 or 45 of CGST Act, 2017. (Dec 2018, 3 marks)
Answer:
As per Section 47 of CGST Act, 2017 read with notification No. 64/2017- Central Tax and 4/2018 – Central Tax, any registered person who fails to furnish the return under Section 37 or 39 or 45 or 52 of CGST Act, 2017 shall pay the late fees of ₹ 25 for every day during which such failure continues and ₹ 10 in case of nil return subject to a maximum of ₹ 5,000.

As per Central Government notifications the late fees has been reduced to ₹ 25 for every day during which such failure continues and ₹ 10 in case of nil return subject to a maximum of ₹ 5,000.
Note: ₹ 25/₹ 10 is late fees in CGST Act, equal late fees shall be charged under respective SGST Act of the state.

Question 12.
When can Summary Assessment order be made by the proper Officer under the provisions of the CGST Act, 2017? Can such an order be requested to be withdrawn and if yes, then how and before which authority? (Dec 2020, 5 marks)
Answer:
As per Section 64 of the CGST Act, 2017, ‘Summary Assessments’ can be initiated by the proper officer to protect the interest of revenue when:
(a) has evidence that a taxable person has incurred a liability to pay tax under the Act, and
(b) believes that the delay in passing an assessment order will adversely affect the interest of revenue.
Such order can be passed after seeking permission from the Additional Commissioner /Joint Commissioner.

In certain cases, like when goods are under transportation or are stored in a warehouse, and the taxable person in respect of such goods cannot be ascertained, the person in charge of such goods shall be deemed to be the taxable person and will be assessed to tax.

A taxable person against whom a summary assessment order has been passed can apply for its withdrawal to the Jurisdictional Additional/Joint Commissioner within thirty days of the date of receipt of the order.

The Jurisdictional Additional/Joint Commissioner, if finds that the order is erroneous, he can order for withdrawal and direct the proper officer to carry out determination of tax liability in terms of Section 73 or 74 of CGST Act. The Additional/Joint Commissioner can follow a similar course of action on his own motion, if he finds the summary assessment order to be erroneous.

Question 13.
Discuss and explain in brief the provisions relating to refund of the amount of advance tax deposited by a casual taxable person under section 27(2) of the CGST Act, 2017. (Dec 2020, 4 marks)
Answer:
As per provisions of section 54(13) of CGST Act, 2017, the amount of advance tax deposited by a casual taxable person under section 27(2), shall be refunded only when such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39 of the CGST Act, 2017.

Further, as per 4^th proviso to Rule 89 of the CGST Rules, 2017, refund of any amount, after adjusting the tax payable by the applicant out of the advance tax deposited by him under section 27 at the time of registration, shall be claimed in the last return required to be furnished by him.

Question 14.
(i) Discuss briefly the salient features of Quarterly Return Monthly Payment (QRMP) scheme under GST. (Aug 2021, 2 marks)
(ii) Explain the provisions of CGST Act, and rules regarding Annual Return for the financial year 2021 -22. (Aug 2021, 3 marks)
Answer:
(i) Quarterly Return Monthly Payment (QRMP) Scheme
To help the small tax payers whose aggregate annual turnover is up to ₹ 5 crore in the preceding financial year 2021-22. CBIC has launched Quarterly Return Monthly Payment (QRMP) scheme under GST. This scheme allows the taxpayers to file form GSTR-3B on a quarterly basis and pay tax every month. This is an optional scheme. Registered person opting for the scheme would be required to furnish the details of outward supply in FORM GSTR-1 quarterly as per Rule 59 of the GST Rules. At the same time, the tax payer has been given a facility to upload their tax invoices on monthly basis on Invoice Furnishing Facility available on GSTN Portal.

(ii) Annual Return
Every Registered person otherthan an Input Service Distributor (ISD), a person paying tax under section 51 or section 52 a casual taxable person shall furnish an annual return as specified under section 44 (1) of Central Goods and Services Tax Act, 2017 electronically in FORM GSTR – 9. However a person paying tax under section 10 shall furnish the annual return in FORM GSTR – 9A and every electronic commerce operator requires to deduct tax at source under section 52 shall furnish the annual return in FORM GSTR – 9B.

The due date in above cases is 31st day of December following the end of such Financial Year.
As per section 44 of the Central Goods and Services Tax Act, 2017 and notifications issued thereunder. Annual return for Financial year 2021-22 was required to be filed by all registered person whose aggregate annual turnover during the year 2021 -22 did not exceed two crore rupees shall have the option to furnish the annual return.

In other words, filing GSTR-9 was optional for registered persons having turnover upto rupees Two Crores and mandatory for registered person having turnover above 2 crores. The last date for furnishing the Annual Return for 2021-22 was 31.03.2023. However registered Person having turnover below Rupees two crore would be deemed to have furnished their Annual Return if they fail to do so.

In case of registered person whose turnover exceeds Five crores it is also mandatory to get their accounts audited under GST from a practicing Chartered Accountant or a practicing Cost and Management Accountant and to submit a copy of Audited Annual Accounts and a reconciliation statement duly certified in FORM GSTR – 9C for the financial year 2021-22.

Question 15.
State briefly the features of Quarterly Return Monthly Payment (QRMP) scheme of furnishing GST return under CGST Act, 2017. (Aug 2021, 4 marks)
Answer:
A new scheme named Quarterly Return Monthly Payment (QRMP) under GST has been launched recently to help small taxpayers having aggregate annual turnover up to ₹ Five Crores in the preceding Financial Year 2021 -22.

1. The scheme allows the taxpayers to file Form GSTR – 3B on a quarterly basis and pay taxes every month.
2. It is an optional scheme.
3. The registered persons opting for the scheme would be required to furnish the details of outward supply in Form GSTR -1 on a quarterly basis.
4. However, the registered persons opting for such scheme can furnish the details of outward supply on Invoice Furnishing Facility.

Question 16.
Explain the system prescribed under the CGST Act, 2017 to facilitate smaller dealers or dealers having no IT infrastructure and who are also not Information Technology Savvy to comply with the procedural requirement under the CGST Act, 2017. (Dec 2021, 5 marks)
Answer:
Under the Central Goods and Services Tax Act, 2017 to facilitate smaller dealers or dealers having no IT infrastructure and who are. also not Information Technology Savvy following facilities shall be made available:

(i) Tax Return Preparer (TRP) : A taxable person may prepare his registration application/ returns himself or can approach the TRP for assistance. TRP will prepare the registration document/ return in prescribed format on the basis of the information furnished by the taxable person. The legal responsibility of the correctness of information contained in the forms prepared by the TRP will remain with the taxable person only and the TRP shall not be liable for any errors or incorrect information.

(ii) Facilitation Centre (FC): GST Facilitation Centre shall be responsible for the digitization and/ or uploading of the forms and documents including summary sheet duly signed by the Authorized Signatory and given to it by the taxable person.

After uploading the data on common portal using the ID and Password of FC, a print-out of acknowledgement will be taken and signed by the FC and handed over to the taxable person for his records.
The FC will scan and upload the summary sheet duly signed by the Authorized Signatory

(iii) Further, the Government has introduced facility of Nil returns throuqh SMS.

Question 17.
XYZ Ltd. a taxable person registered under GST is eligible to get refund from the proper authority. Manager Finance of the company seeks your opinion to know whether there is any provision under the Act for obtaining a provisional sanction of refund. Advice the company suitably in the context of provisions contained under the CGST Act, 2017. (Dec 2021, 5 marks)
Answer:
XYZ Ltd. can obtain a provisional sanction for the refund as the proper officer may sanction refund of an amount up to ninety percent of the total amount of refund so claimed as reduced by the amount of Input Tax Credit (ITC) accepted on a provisional basis in case of Zero Rated Supplies.

This provisional refund shall be granted subject to the following conditions:

(i) The person claiming refund has not been prosecuted for any offence under the Act or under any earlier law prior to GST where the amount of tax evaded exceeds ₹ 250 Lakhs during the period of five years immediately preceding the tax period to which the claim for refund relates.
(ii) GST Compliance rating of the applicant is not less than five on a scale of ten.
(iii) Issues for which refund is claimed are not pending under proceedings of any appeal, review or revision and if pending, the same has not been stayed by any court or appropriate authority.

Question 18.
State the rate of tax for collection of tax at source applicable to electronic commerce operator (ECO) under the CGST Act, under the SGST Act and under the IGST Act, 2017. Also specify when and on which of the value the rate of tax for collection at source be applicable. (Dec 2021, 5 marks)
Answer:
The rate of tax collection at source (TCS) is 0.5% under CGST Act, 2017; 0.5% under SGST Act, 2017 and 1% under IGST Act, 2017.

TCS would be on the net value of taxable supplies made, through the electronic commerce where the consideration with respect to such supplies is to be collected by the electronic commerce operator.

The net value of taxable supplies is the aggregate value of taxable supplies of goods or services or both made during any month by all registered taxable persons through the operator as reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.

Question 19.
State few cases where refundable amount shall be paid to the applicant, instead of being credited to Consumer Welfare Fund under CGST Act, 2017. (June 2022, 5 marks)
Answer:
Section 54(8) of the Central Goods and Services Tax Act, 2017, provides that the refundable amount shall be paid to the Applicant, instead of being credited to the Consumer Welfare Fund, if such amount is relatable to-

(a) Refund of tax paid on export of goods and/or services or on inputs or input services used in making such exports
(b) Refund of unutilized ITC in case of zero-rated supplies made without payment of tax or accumulated ITC on account of inverted duty structure
(c) Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued
(d) Refund of tax paid on a transaction treating it to be an intra-Stale supply, but which is subsequently held to be an inter-State supply or vice-versa.
(e) The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person, or
(f) The tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.
Answer:
Composition of total supplies of vinod

Particulars	( ₹ in Lakhs)
Value of Supply of goods chargeable to GST Goods to be supplied to World Heath Organisation [Though this is an exempt SUPPLY BUT INCLUDIBLE for ascertaining aggregate turnover]	38 4
Aggregate Turnover	42

It is to be noted that aggregate turnover would include, Taxable Supplies, Exempt Supplies, Zero Rated Supplies and Inter State Supplies, but not supplies through the Reverse Charge mechanism route.

Since the aggregate turnover during third and fourth quarter of 2022 -23 of Mr. Vinod exceeds ₹ 40 Lakhs, he is advised to apply for registration under GST laws.

Question 20.
M/s Nose Ltd. reduced the amount of ₹ 2,25,000 from the output tax liability in contravention of the provisions of section 42(10) of the CGST Act, 2017 in the month of January 2022 (vide invoice dated 12th January, 2022), which is ineligible credit at invoice level. As a result a show cause notice was issued by the Central Tax Department under section 74 of the CGST Act, 2017 along with interest. M/s Nose Ltd. paid the tax and interest on 5th March, 2022. Find the interest liability if any? Ignore penalty. (Dec 2018, 5 marks)
Answer:
As per Section 42(10) read with Section 50(3) of CGST Act, 2017 amount reduced from the output tax liability in contravention of the provisions of Section 42(7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place and such recipient shall be liable to pay interest on the amount so added at the rate specified in the Section 50(3) of CGST Act, 2017.

• Therefore, applicable interest rate shall be 24% per annum.
• January month return due date is 20th of February, 2022.
• Interest = ₹ 1,923 (₹ 2,25,000 × 24% × 13/365)
• From 21^st February 2022 to 5^th March 2022 = 13 days

Question 21.
Amar Publishing House, registered under CGST Act, 2017 in Delhi is engaged in printing and selling of books as well as trading of stationery items. It has provided following information of a single consignment which is to be supplied to a person in Jaipur (Rajasthan):

1. Value of exempted supplies of ₹ 12,000 and value of taxable supplies of ₹ 32,000 are indicated on tax invoice.
2. Value of goods to be sent to unregistered job worker on delivery challan having value of ₹ 16,000.

Note: All amounts given above are excluding GST.
Calculate the consignment value, for the purpose of generating e-way bill for Interstate supply of goods. Take rate of tax on taxable goods of IGST @ 12%. Legal provision explained in brief should form part of the answer.
(June 2019, 5 marks)
Answer:
Determination of the value of consignment for E-way Bill:
As per Rule 138 of the CGST Rules, 2017, Consignment value of goods shall be the value, determined in accordance with the provisions of Section 15 of the CGST Act, 2017, declared in an invoice, a bill of supply or a delivery challan, as the case may be, issued in respect of the said consignment and also includes the Central tax, State or Union Territory tax, integrated tax and cess charged, if any, in the document and shall exclude the value of exempt supply of goods where the invoice is issued in respect of both exempt and taxable supply of goods.
Hence, according to the above rule, consignment value shall be:

Particulars	Amount (₹)
Taxable Value of Supply	32,000
Add: IGST on taxable value of supply @ 12% on 32,000	3,840
value of goods to be sent to job worker on delivery challan	16,000
Total value of consignment	51,840

Question 22.
Jayant Pvt. Ltd. of Jaipur (Rajasthan) provides the following information of the supplies made for the year 2022-23:

Particulars	Amount (₹)
(i) Sale of high speed diesel on which Sales Tax (VAT) levied by Rajasthan Government	8,00,000
(ii) Supply of goods directly by principal from the place of Jayant Pvt. Ltd. after completion of Job work done by Jayant Pvt. Ltd.	9,00,000
(iii) Taxable outward supply within Rajasthan	6,00,000
(iv) Inward supply of services on which GST to be paid by Jayant Pvt. Ltd. under reverse charges	5,00,000
(v) Outward supply on which GST to be paid by recipient under reverse charges	1,00,000

Calculate the aggregate turnover for the purpose of registration under CGST Act, 2017 and state whether Jayant Pvt. Ltd. is liable for registration or not. Also provide brief reasons for the treatment of various items given above in the context of Provisions of CGST Act, 2017.
Note: All the above amount are exclusive of taxes of any nature. (June 2019, 5 marks)
Answer:
Calculation of Aggregate Turnover

Particulars	Amount (₹)
(i) Sale of high speed diesel on which sales tax (VAT) levied by Rajasthan Government	8,00,000
(ii) Taxable outward supply within Rajasthan	6,00,000
(iii) Outward supply within State on which GST to be paid by recipient under reverse charge (RCM)	1,00,000
Aggregate turnover	15,00,000

1. As per Section 2(6) of the CGST Act, 2017, aggregate turnover includes the aggregate value of all exempt supplies. Thus, sale of high speed diesel is an exempt supply and is, therefore, includible while calculating the aggregate turnover.

2. The aggregate turnover exclude the value of inward supplies on which tax is payable under reverse charge but include outward supply on which GST to be paid by recipient under reverse charge.

3. Supply of goods after completion of job work by registered job worker shall be treated as the supply of goods by the principal in terms of explanation (ii) to Section 22 of the CGST Act, 2017.

As per Section 22 of the CGST Act, 2017, a supplier is liable to be registered, if his aggregate turnover in a financial year exceeds ₹ 20 lakhs. However, if supplier receives any inward supply on which GST to be paid by recipient under reverse charge then he is compulsory required for registration even if its aggregate turnover is below ₹ 40 lakhs. Hence, Jayant Pvt. Ltd. needs to be compulsory registered even though his turnover is less than the limit of ₹ 40 lakhs.

Question 23.
Badrinath Filters Ltd., a registered supplier of industrial air filters, is required to send from Mumbai (Maharashtra), a consignment of parts of air filters to be replaced under warranty at various client locations in Ahmedabad, Gujarat. The value of consignment declared in delivery challan accompanying the goods is ₹ 52,000.

Badrinath Filters Ltd. is of the view that since movement of goods to Gujarat is caused due to reasons other than supply, e-way bill is not mandatorily required to be generated in this case.
You are required to examine whether the aforesaid view is correct. (Dec 2019, 5 marks)
Answer:
E-way bills:
The goods to be moved to another State for replacement under warranty is not a ‘supply’. However, Rule 138(1) of the CGST Act, 2017. inter alia, stipulates that every registered person who causes movement of goods of consignment value exceeding ₹ 50,000 :

1. in relation to a supply; or
2. for reasons other than supply; or
3. due to inward supply from an unregistered person,

Shall, generate an electronic way bill (E-way Bill) before commencement of such movement.
CBIC vide Q 9. of FAQs on E-way Bill has also clarified that even if the movement of goods is caused due to reasons others than supply [including replacement of goods under warranty, e-way bill is required to be issued.

Thus, in the given case, since the consignment value exceeds ₹ 50,000, e-way bill is required to be mandatorily generated.
Therefore, the contention of Badrinath Filters Ltd. that e-way bill is not mandatorily required to be generated as the movement of goods is caused due to reasons other than supply, is not correct.

Question 24.
Anand Kumar, a regular tax payer, filed his return of outward supplies (GSTR-1) for the month of August, 2021 before the due date. Later on, in February, 2022 he discovered certain error in the GSTR-1 return of the month of August, 2021 so filed before the due date and thus intends to correct the GSTR-1 and consults you to seek an opinion.

You are required to advise as to the suitable course of action to be taken according to statutory provisions contained under the CGST Act, 2017 so as to enable him to rectify the error so noticed in the already filed GSTR-1 return of the month of August, 2021. (Dec 2020, 5 marks)
Answer:
As per Section 37(3) of the CGST Act, 2017, any registered person, who has furnished the details for any tax period of the CGST Act, 2017 shall upon discovery of any error or omission therein rectify such error or omission in such manner as may be prescribed in the tax period in which it is noticed.

The tax payer shall also be paying the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period.

Rectification of details furnished in GSTR-1 shall not be allowed after:

1. 30th day of November following the end of the financial year to which such details pertain; or
2. filing of the relevant annual return. Due date of filing of the annual return in this case is 31.12.2022; whichever is earlier.

In the present case, the error has been noticed in the GSTR-1 for August 2021. Such error can be corrected on or before 30th November 2022 or before the filing of annual return for 2021 -22. In case, Mr. Anand Kumar can very well make the required corrections in GSTR-1 of August 2021 through “Amendment Tables” in GSTR-1 to be filed for the month of February 2022.

He should also pay the tax and interest, if any, in case there is short payment, in the return to be furnished for February 2022.

Question 25.
Radhey Gobind & Co. engaged in the wholesale business particularly dealing in the product of which supply was exempt from tax under GST. Subsequently, tax was imposed on the sale of the product by a notification issued from 01-10-2021. Radhey Gobind & Co. continued to sell the product without making any change in the selling price of the product.

Later, in the month of March, 2022 they realised that because of no change in the selling price, they had paid higher quantum of tax and therefore decided to file an application for refund claim by stating that there was no change in the price before and after imposition of tax and hence the burden of tax had not been passed on to the buyer.

Discuss and explain in the context of provisions of the CGST Act, 2017 supported with a decided case law, if any, whether the stand taken for refund claim by Radhey Gobind & Co. shall be acceptable. (Dec 2020, 5 marks)
Answer:
Section 54 read with section 77 and Rule 89(2) under the CGST Act, 2017 1 allows refund of tax under various conditions which mainly cover payment of wrong tax by a registered person. One of the conditions for grant of refund to the applicant is that the burden of tax so claimed as refund should not have been passed on to any other person.

Apex Court in the case of CCE v. Allied Photographic 2004 166 ELT3 has held that even if there is no change in the price before and after the assessment (before and after imposition of tax), it does not lead to the irrebuttable conclusion that incidence of tax has not been passed on to the buyer as such uniformity may be due to various factors.

Thus, even if the price remains the same before and after imposition of tax, the assessee has to establish with tangible evidence that he has not passed on the burden of tax to the buyer in any manner to the satisfaction of the proper officer.

Thus, in the ordinary course, the refund claim made by Radhey Gobind & Co. will be sanctioned but credited to the consumer welfare fund. However, if Radhey Govind & Co. adduces sufficient evidence to prove that such tax has not been recovered from the buyer, the refund claim can be granted thereto.

Question 26.
Trident Beauty Cosmetics Ltd. operating multiple wholesale outlets of cosmetic products in different suburbs in Mumbai, Maharashtra received an order worth ₹ 3,54,000 (inclusive of GST leviable @ 18%) for supply of different cosmetic products from Prasanna Cosmetics Store of Delhi.

Trident Beauty Cosmetics Ltd. while checking the stocks found that order worth ₹ 1,18,000 can be fulfilled from the company’s Dadar (Mumbai) store and remaining goods worth ₹ 2,36,000 can be supplied from its Malad (Mumbai) store. Both the stores were instructed to issue separate invoices for the goods supplied and sent by them to Prasanna Cosmetics Store of Delhi. The goods are required to be transported to Delhi in a single conveyance owned by Radhey Transport Carriers of Dadar (Mumbai).

You are required to advise Trident Beauty Cosmetics Ltd. as per provision under the CGST Act, 2017 with regard to issuance of e-way bill/(s). (Dec 2020, 5 marks)
Answer:
Trident Beauty Cosmetics Ltd. would be required to prepare two separate e- way bills since value of each of the invoice exceeds ₹ 50,000 and each invoice is to be considered as separate consignment for the purpose of generating e-way bill.

Central Board of Indirect Taxes and Customs (CBIC) has clarified that if multiple invoices are being issued by the supplier to one recipient, then for the movement of goods of more than one invoice multiple e-way bills have to be generated.

One e-way bill has to be generated for each invoice, irrespective of the fact whether same or different consignors or consignees are involved. Multiple invoices cannot be clubbed to generate one e-way bill.

However, Rule 138(6) CGST Rules, 2017 provides that after e-way bill has been generated for each invoice/ consignment, where multiple consignments are intended to be transported in one conveyance, the transporter may indicate the serial number of e-way bills generated in respect of each such consignment electronically on the common portal and a consolidated e-way bill in FORM GST EWB-02 may be generated by him on the said common portal prior to the movement of goods.

Thus, after generating all these separate e-way bills, one consolidated e-way bill can be generated/prepared by the transporter for transportation purpose, where the goods are transported in one vehicle.

Therefore, in the present case both the stores issuing the invoice will generate separate e-way bill and thereafter one consolidated e-way bill can also generated by Radhey Transport Carriers of Dadar (Mumbai) as the goods from both the stores be transported to Delhi in one conveyance.

Question 27.
A.K. Services registered under GST in Chennai is engaged in supply and service of various goods and services. For the month of November, 2022. it has provided the following data:

If the goods and services supplied by A.K. Services are taxable under GST @ 12%:

(i) Calculate the TDS deductible by the recipients, who are notified under Section 51 of the CGST Act, 2017, if any, in respect of the aforesaid two independent contracts.
(ii) State whether the deductee can claim credit of TDS deducted under GST. (Aug 2021, 5 marks)
Answer:
(i) Acording to Section 51 of the Central Goods and Services Tax Act, 2017, TDS is to be deducted @ 1 % by the recipient from the payment made or credited to the supplier (Deductee) of taxable goods or services or both, where the total value of such supply under a contract exceeds two lakh and fifty thousand (2,50,000) rupees.
Since in this case of Contract 1 the contract value including goods and services (excluding GST) is ₹ 2,50,000 (1,80,000+70,000) it does not fall under the provisions of TDS. Hence no, tax at source is required to be deducted in this case.

As per the provision in section 51(1) of the Central Goods and Services Tax Act, 2017 no deduction of tax at source shall be made if the location of the supplier and the place of supply is in a State or Union Territory which is different from the State or as the case may be Union Territory of registration of the recipient.

Since in the case Contract 2 the location of the supplier is in Chennai and the place of supply also is in Chennai but the place of location of the recipient is in Karnataka it appropriately falls in the exception envisaged in this provision and therefore, no tax is liable to be deducted.

(ii) According to section 51 (5) of Central Goods and Services Tax Act, 2017 the deductee shall claim credit in his electronic cash ledger, of the tax deducted and reflected in the tax return of the deduct or furnished under section 39 (3) in such manner as may be prescribed.

Question 28.
Discuss the provisions of GST laws in respect of the following circumstances:
(i) R.K. Steel company received an order for supply of 1000 ton steel and supplied the same in installments as a continuous, supply. What will be the due date of invoice in such transaction?
(ii) What will be the due date of invoice if goods sent on approval for sale or return?
(iii) Farmer A is engaged in farming and cultivates agricultural produce from his, own land. He supplies agricultural produce worth Rupees 41 lakh cultivated by him and Rupees 6 lakh belonging to his friend to Traders. Whether he has to get registered under GST Act?
(iv) W Ltd. provides consultancy services without consideration to V Ltd. in which W Ltd. has holding rights. These technical services have been provided for the benefit of the entire group. Analyse the taxability of the service to determine whether it constitutes a supply under GST (Aug 2021, 5 marks)
Answer:
(i) As per Section 31 of the Central Goods and Services Tax Act, 2017 in case of continuous supply of goods where successive statements of accounts or successive payments are involved the invoice shall be issued before or at the time each such statement is issued or as the case may be each such payment is received.
Hence, in this case, R. K. Steel Company shall issue invoice either before or at the time of issuance of account statement or at the time of receipt of each payment.

(ii) Section 31(7) of the Central Goods and Services Tax Act, 2017 provides that where the goods are being sent or taken or approved for sale or return are removed before the supply takes place, then the invoice shall be issued before or at the time of supply or six month from the date of removal whichever is earlier.

(iii) In terms of section 23(i) of the Central Goods and Services Tax Act, 2017, farmer shall not be liable to get registered under GST Act being an agriculturist to the extent of supply of produce out of cultivation of land. In this given case however, as the farmer has also supplied agricultural products processed by his friend his total turnover crosses rupees Forty lakhs (₹ 41 lakh + ₹ 6 lakh), which is beyond the threshold limit for getting registered. Hence, he will be liable to get registered.

(iv) As per section 7(1) (c) read with schedule I of Central Goods and Services Tax Act, 2017 supply of goods or services between related person is treated as supply even if it is without consideration. As per explanation to Section 15 of Central Goods and Services Tax Act, 2017 person shall be deemed to be related persons if one of them directly or indirectly controls the other.
Since, W Ltd. holds rights of V Ltd., they will be treated as related person and the said transaction will qualify as supply even though no consideration s involved.

Question 29.
A person dealing in supply of taxable goods is doing business since 01.01.2023. He crossed the mandatory thresholds for registration of ₹ 40 Lakhs on 22.01.2023. He was required to get registered under GST within one month i.e. by 21st February 2023. He did not get himself registered. If his tax liability is of ₹ 85,900, state the consequences of his not registering under GST laws. (Aug 2021, 4 marks)
Answer:
According to Section 22 of the Central Goods and Services Tax Act, 2017 every person making supply of taxable goods or services beyond the threshold limit of ₹ 40 Lakhs in a financial year is required to get registered under the Act.

Further according to section 25 every person liable to be registered under the Act shall apply for registration within thirty days from the date on which he becomes liable for registration.

According to Section 122(1)(xi) of Central Goods and Services Tax Act, 2017 if a taxable person who is liable to be registered under CGST Act, 2017 but fails to obtain registration he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evade or the tax not deducted or short deducted but not paid to the Government, etc. Hence, in this case the person is liable to a penalty of ₹ 85,900.

Question 30.
A registered person under GST failed to file his returns for a period of the last six consecutive months. For this period his liability under GST works out to ₹ 20,000 (CGST ₹ 10,000, SGST ₹ 10,000). The department blocked his facility to generate e-way bills and the appropriate authority also issued a show cause notice to him as to why his registration should not be cancelled and afforded him an opportunity to present his case.

As the registered person failed to respond to the notice his registration was cancelled. The registered person is of the view that since his registration has been cancelled he is not required to pay anything to the Government. Advise the registered person in this context as per the CGST Act, 2017. (Aug 2021, 4 marks)
Answer:
According to Section 29 of Central Goods and Services Tax Act, 2017 the proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where any registered person has not furnished returns for such continuous tax period as may be prescribed after giving him an opportunity of being heard.

The section further provides that cancellation of registration hereunder shall not affect the liability of the person to pay tax and other dues under this Act or to any obligation under this Act or Rules made thereunder for any period prior to the date of cancellation whether or not such tax and dues are determined before or after the date of cancellation. Hence, in this case the dealer has to pay the tax of ₹ 20,000 along with interest to the Government.

Question 31.
ABC Ltd. of Jaipur, Rajasthan engaged in business was making till 28.02.2023 Intra-state supplies of the taxable goods. Total value of taxable supplies of goods till 28.02.2023 was of ₹ 16,50,000. However, on 01.03.2023, it has effected Inter-state supply of taxable goods amounting in total of ₹ 3,00,000. Manager (Taxation) of ABC Ltd. is of the view that it is not required to get registered under GST law since its aggregate turnover is not likely to exceed ₹ 20,00,000 during the financial year 2022-23.

However to become sure seeks your opinion as a consultant relating to his view as to requirement of registration under GST. Advise suitably to the company ABC Ltd. in the matter of requirement of registration as per provisions contained under the CGST Act, 2017. (Dec 2021, 5 marks)
Answer:
The opinion of the Manager (Taxation) of ABC Ltd. is not correct. As per provisions of section 24 of Central Goods and Services Tax Act, 2017 person making inter-state taxable supply are compulsorily required to obtain registration.

Section 24 of Central Goods and Services Tax Act, 2017 is an overriding section that makes it mandatory to obtain registration by certain prescribed persons even though the conditions prescribed under Section 22 are not fulfilled. Hence, ABC Ltd. despite having the turnover below the thresh hold limit of 20 lakh is mandatorily required to obtain registration.

As per provisions of Section 25 of the Central Goods and Services Tax Act, 2017 every person who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within 30 days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed.

Thus, ABC Ltd. is required to obtain registration up-to 31.03.2023, because of making of Inter State supply of taxable goods on 01.03.2023.

Question 32.
Goyal Fashions, a registered supplier of designer outfits in Delhi, decided to exhibit its products in a Fashion Show being organized at Hotel Part Royal, Delhi on 04.01.2023 Goyal Fashion for the occasion, gets the makeover of its models done by Galaxy Beauty Services Ltd., Ashok Vihar, Delhi for which a consideration of ₹ 5,00,000 (excluding GST) has been charged. Galaxy Beauty Services Ltd., issued a duly signed tax invoice on 10.02.2022 showing the lumpsum amount of ₹ 5,90,000 inclusive of CGST and SGST @ 9% each. Goyal Fashions made the payment the very next day.
Answer the following questions in the context of provisions of the CGST Act, 2017:

(a) Examine and state whether the tax invoice has been issued within the time limit prescribed under the law by Galaxy Beauty Services Ltd.
(b) Tax consultant of Goyal Fashions objected to the invoice raised suggesting that the amount of tax charged in respect of the taxable supply should be shown separately in the invoice raised by Galaxy Beauty Services Ltd.

However, Galaxy Beauty Services Ltd, contended that there is no mandatory requirement of showing tax component separately in the invoice. Examine and State the validity of the objection raised by tax consultant of Goyal Fashions. (Dec 2021, 5 marks)
Answer:
IF CANDIDATES ASSUMED DATE OF ISSUE OF COMPLETION OF SERVICE: 04.01.2023 & DATE OF ISSUE OF INVOICE: 10.02.2022

(a) As per Section 31 of the Central Goods and Services Tax Act, 2017 read with the Central Goods and Services Tax Rules, 2017, in case of taxable supply of services, invoices should be issued before or after the provision of service, but within a period of 30 day (45 days in case of insurer, Banking company or financial institutions including NBFCs) from the date of supply of service.
In the present case, the tax invoice should have been issued in the prescribed time limit of 30 days from the date of supply of service i.e., up-to 03.02.2023 and invoice has been issued on 10.02.2022. This is issued wjthin time limit.

(b) Section 31 of the Central Goods and Services Tax Act, 2017 read with the Central Goods and Services Tax Rules, 2017, inter alia, provides that tax invoice shall contain the following particulars:

1. Total value of supply of goods or services or both
2. Rate of tax (Central tax, State tax, Integrated tax, Union territory Tax or Cess)
3. Amount of tax charged in respect of taxable goods or services (Central tax, State tax, Integrated tax, Union Territory Tax or Cess)

The objection raised by the tax consultant of Goyal Fashions suggesting that the amount of tax charged in respect of the taxable supply should be shown separately in the invoice raised by Galaxy Beauty Services Ltd, is valid in law. In the present case, the tax amount has not been shown separately in the invoice.

Question 33.
Aryan & Sons is an unregistered dealer of taxable supplies in Delhi. On 10^th September, 2022 aggregate turnover of Aryan & Sons exceeded ₹ 20,00,000. The firm applied for registration on 27th September, 2022 and was granted the registration certificate on 1st October, 2022. Under CGST Rules 2017, you are required to advise Aryan & Sons as to what is the effective date of registration in its case. It has also sought your advice regarding period for issuance of revised tax invoices. (June 2022, 5 marks)
Answer:
Section 22(1) of Central Goods and Services Tax Act, 2017, provides that every supplier is liable to be registered under this act in the State or Union Territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds the threshold limit.

Section 25(1) of Central Goods and Services Tax Act, 2017, provides that a supplier whose aggregate turnover in a financial year exceeds the threshold limit in the State or Union Territory is liable to apply for registration within 30 days from the date of becoming liable to registration (i.e. the date of crossing the threshold limit).

Where the application is submitted within the same period, the effective date of registration is the date on which the person becomes liable to registration vide Central Goods and Services Tax, Rule 10(3).

In the given case, since Aryan & Sons have applied for registration on 27^th September, 2022 which is within 30 days from the date of becoming liable to registration (10^th September), its effective date of registration is 10th September, 2022.

Further, every registered person who has been granted registration with effect from a date earlier than the date of issuance tax of registration certificate to him, may issue revised tax invoices in respect of taxable supplies affected during this period within one month from the date of issuance of registration certificate [Section 31(3)(a) read with rule 53(2)].

In view of the same, Aryan & Sons may issue revised tax invoices against the invoices already issued during the period between effective date of registration (10^th September, 2022) till the date of issuance of registration certificate (1^st October, 2022) within one month from the date of issuance of certificate of registration, i.e. on or before 1^st November, 2022.

Question 34.
Nizam Traders, registered in New Delhi, is engaged in supply of taxable goods. Its turnover in the preceding FY 2021-2022 was ₹ 230 lakh and was furnishing its GST return on monthly basis. In the beginning of April month in the current FY 2022-2023, it sought advice from its tax consultant. Vaibhav Consultants, whether it can furnish its GST on quarterly basis from now onwards. Vaibhav Consultants advised Nizam Traders that it cannot furnish its return on quarterly basis as the GST law does not provide for quarterly return any circumstances. Discuss the technical veracity of the advice given by Vaibhav Consultants. (June 2022, 5 marks)
Answer:
No, the advice given by Vaibhav Consultants is not valid in law. With effect from 01.01.2021, a quarterly return has been introduced under GST law where the payment of tax is to be made on monthly basis. The scheme is known as Quarterly Return Monthly Payment (QRMP) Scheme.

The scheme has been introduce as a trade facilitation measure and in order to further case the process of doing business. It is an optional return filing scheme, introduced for small taxpayers having aggregate annual turnover (PAN based) of upto ₹ 5 crore in the current and preceding financial year to furnish their Form GSTR-1 and Form GSTR- 3B on a quarterly basis while paying their tax on a monthly basis through a simple challan. Thus, the tax payers need to file only four GSTR-3B returns in a year. Similarly, they would be required to file only four GSTR-1 returns since Invoice Furnishing Facility (IFF) is provided under this scheme.

Opting of QRMP Scheme is GSTIN wise. Distinct person can avail QRMP Scheme option for one or more GSTINs for a PAN can opt for the QRMP Scheme and remaining GSTINs may not opt for the said scheme. Since, the aggregate turnover of Nizam Traders does not exceed ₹ 5 crores in the preceding financial year, it is eligible for furnishing the return on quarterly basis till the time its turnover in the current financial year does not exceed ₹ 5 crores. In case its aggregate turnover crosses ₹ 5 crore during a quarter in the current financial year, it shall no longer be eligible for furnishing of return on quarterly basis from the first month of the succeeding quarter and needs to opt for furnishing of return on a monthly basis.

Question 35.
Suncity Private Ltd., a manufacturer registered in the state of Rajasthan, sold synthetic cloth to a retail seller in Maharashtra, at a value of ₹ 49,000 (excluding IGST leviable @ 5%). Now, it wants to send the consignment of such cloth to the retail seller in Maharashtra.
You are required to advise Suncity Private Ltd. on the following issues with reference to the provisions relating to the electronic way bill (c-way bill) as prescribed under the GST law:
(i) Whether a-way bill is mandatorily required to be generated in respect of such movement of goods ?
(ii) If yes, who is required to generate the e-way bill ?
(iii) What will be the consequences for non-issuance of e-way bill ? (Dec 2022, 5 marks)

Question 36.
From the following information of independent cases, your expert advice, with appropriate reasoning is sought on the applicability of TDS/TCS provisions of the CGST Act, 2017.
You shall also quantify the amount of TDS/TCS, as the case be, if the same is applicable.
Note: Rate is CGST, SGST and IGST are 9%, 9% and 18% respectively. All the amounts given are exclusive of taxes.

(i) Avis Fashions, a designer cloth dealer registered in the state of Rajasthan, effected supply through ‘FARE DEAL’, an electronic commerce operator (ECO). Net value of taxable Intra-State supplies effected for the month of October, 2022 was ₹ 2,00,000. (Dec 2022, 2 marks)
(ii) Tarun, a registered supplier in Maharashtra, was awarded a work contract by Government of Maharashtra amounting ₹ 4,00,000. Of this, value of exempt supply was ₹ 1,00,000. (Dec 2022, 3 marks)

Question 37.
Raj, a registered supplier, runs a general store in Bhilwara, Rajasthan. Some of the goods sold by him are exempt whereas some are taxable. You are required to advise him on the following issues:
(a) Whether Raj is required to issue a tax invoices in all cases, even if he is selling the goods to the end consumers?
(b) Raj sells some exempted as well as taxable goods valuing ₹ 6,000 to a school student. Is he mandatorily required to issue two separate GST documents?
(c) Raj wishes to know whether it is necessary to show tax amount separately in the tax invoices issued to the customers? (Dec 2022, 5 marks)

Question 38.
Whether the Department through the proper officer, can suo moto proceed to register of a Person under this Act?
Answer:
Yes. In terms of sub-section (8) of Section 25, where a person who is liable to be registered under this Act fails to obtain registration, the proper officer may, without prejudice to any action which may be taken under this Act, or under any other law for the time being in force, proceed to register such person in the manner as is prescribed in the Registration rules.

Question 39.
Whether the proper officer can reject an Application for Registration?
Answer:
Yes. In terms of sub-section 10 of section 25 of the CGST/SGST Act, the proper officer can reject an application for registration after due verification.

Question 40.
Whether the Registration granted to any person is permanent?
Answer:
Yes, the registration Certificate once granted is permanent unless surrendered, cancelled, suspended or revoked.

Question 41.
Whether Amendments to the Registration Certificate is permissible?
Answer:
Yes. In terms of Section 28, the proper officer may, on the basis of such information furnished either by the registrant or as ascertained by him, approve or reject amendments in the registration particulars within a period of 15 common working days from the date of receipt of application for amendment.

It is to be noted that permission of the proper officer for making amendments will be required for only certain core fields of information, whereas for the other fields, the certificate of registration shall stand amended upon submission of application in the GST common portal.

Question 42.
Whether Cancellation of Registration Certificate is permissible?
Answer:
Yes. Any Registration granted under this Act may be cancelled by the Proper Officer, in circumstances mentioned in Section 29 of the CGST/SGST Act. The proper officer may, either on his own motion or on an application filed, in the prescribed manner, by the registered taxable person or by his legal, heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed.

As per the Registration Rules, an order for cancellation is to be issued within 30 days from the date of receipt of reply to SCN (in cases where the cancellation is proposed to be carried out suo moto by the proper officer) or from the date of receipt of application for cancellation (in case where the taxable person/legal heir applies for such cancellation)

Question 43.
Can the proper Officer Cancel the Registration on his own?
Answer:
Yes, in certain circumstances specified under section 29(2) of the CGST/SGST Act, the proper officer can cancel the registration on his own. Such circumstances include contravention of any of the prescribed provisions of the CGST Act or the rules made there under, not filing return by a composition dealer for a financial year beyond 3 months from the due date of furnishing the said return or non-furnishing of returns by a regular taxpayer for a continuous period of six months, and not commencing business within six months from the date of voluntary registration. However, before cancelling the registration, the proper officer has to follow the principles of natural justice, (proviso to Section 29(2)(e)).

Question 44.
Can unutilized Input tax credit be allowed as refund?
Answer:
Unutilized input tax credit can be allowed as refund in accordance with the provisions of sub-section (3) of section 54 in the following situations:

1. Zero rated supplies made without payment of tax;
2. Where credit has accumulated on account of rate of tax on inputs being higher than the rate of taxes on output supplies (other than nil rated or fully exempt supplies)

However, no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty, and also in the case where the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

Question 45.
Whether principle of unjust enrichment will be applicable in refund?
Answer:
The principle of unjust enrichment would be applicable in all cases of refund
except in the following cases:

1. refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies
2. unutilized input tax credit in respect of
   1. zero rated supplies made without payment of tax or,
   2. where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies
3. refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued;
4. refund of tax in pursuance of Section 77 of CGST/SGST Act i.e. tax wrongfully collected and paid to Central Government or State Government
5. if the incidence of tax or interest paid has not been passed on to any other person;
6. such other class of persons who has borne the incidence of tax as the Government may notify.

Question 46.
If a person is operating in different states, with the same PAN number, can he operate with a single Registration?
Answer:
No. Every person will have to get registered separately for each of the State from where he makes taxable supply if he is liable for registration in terms of Sub-section (1) of Section 22 of the CGST Act.

Question 47.
If a person is registered under earlier law, whether he needs to be registered under GST law compulsorily?
Answer:
Yes. As per section 22 (2) of the CGST Act, every person who, on the day immediately preceding the appointed day, is registered or holds a license under an earlier law, shall be liable to be registered under this Act with effect from the appointed day.

Question 48.
What is the time limit for taking registration under GST Law?
Answer:
Every Person who is liable to be registered under Section 22 or Section 24 shall apply within 30 days from the date on which he becomes liable to registration in such manner and subject to such conditions as may be prescribed.

Further, a casual taxable person or a non-resident taxable person shall apply for registration at least 5 days prior to the commencement of business. Furthermore, every person who makes a supply from the territorial waters of India shall obtain registration in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

Question 49.
Whether a person having multiple business verticals in a State or Union territory can obtain different registrations for each of such vertical?
Answer:
Yes. As per proviso to Section 25 (2) of the CGST Act, a person having multiple business verticals in a State or Union territory, may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed.

Question 50.
Is possession of a Permanent Account Number (PAN) mandatory for obtaining a Registration?
Answer:
Yes. Every person should have a Permanent Account Number issued under the Income Tax Act, 1961 in order to be eligible for grant of registration under Section 25 of the CGST Act.

Provided that a person required to deduct tax under section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number issued under the said Act in order to be eligible for grant of registration.
However, as per section 25 (7) the CGST Act, PAN is not mandatory for a non-resident taxable person for obtaining registration.

Question 51.
Whether all persons are mandatorily required to obtain registration?
Answer:
(a) Yes
(b) Not required if he is an agriculturist or person exclusively engaged in supplying exempt goods or services, if specified threshold limit does not exceeds in a financial year.
(c) Not required if he is an agriculturist or person exclusively engaged in supplying exempt goods or services.
(d) No, only if specified threshold exceeds in a financial year then only need to obtain.
Space to write important points for revision

Question 52.
Should every registered person required to maintain books of account?
Answer:
Yes, as per Section 35 of the CGST Act, 2017 every registered person is required to keep and maintain books of account at his principal place of business, as mentioned in the certificate of registration.

Question 53.
What are the basic accounts required to be maintained by a person at the principal place of business?
Answer:
As per Section 35 of the CGST Act, 2017 read with the CGST Rules, 2017, the following accounts need to be maintained on a true and correct basis:
(a) Production or manufacture of goods;
(b) Inward or outward supply of goods or services of both;
(c) Stock of goods;
(d) Input tax credit availed;
(e) Output tax payable and paid;
(f) Such other particulars as may be prescribed.

Question 54.
Where are the books of account liable to be maintained?
Answer:
The books of account are to be maintained at principal place of business, as mentioned in the certificate of registration. Provided that where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business.

Question 55.
Whether accounts can be maintained in the electronic form?
Answer:
Yes, the registered person may keep and maintain such accounts and other particulars in the electronic form and must be digitally signed. Proper’ electronic back-up of records shall be maintained and presented. The same must be produced on demand along with its sample hard copy and passwords, codes, etc.

Question 56.
The books and other records U/S 35 are to be maintained at:
(a) Place where the books and accounts are maintained
(b) Place of address of the Proprietor/ Partner/Director/Principal Officer
(c) Principal place of business mentioned in the Certificate of Registration
(d) Any of the above
Answer:
(c) Principal place of business mentioned in the Certificate of Registration

Question 57.
In case, more than one place of business situated within a state specified in the Registration Certificate, the books and Accounts shall be maintained at
(a) Each place of business pertaining to such place
(b) Place where the books of accounts are maintained for all places situated within a state
(c) At principal place of business covered mentioned in the Registration Certificate for all places of business in each state
(d) Any of the above
Answer:
(a) Each place of business pertaining to such place

Question 58.
What are the various returns prescribed under the GST Act?
Answer:
The various returns prescribed under GST Act read with Chapter VIII Returns of the CGST Rules, 2017 are as follows:

Return	Particulars	Due date
GSTR-1	Furnishing details outward supplies of goods or services or both	10th of succeeding tax period
GSTR-1A (auto-drafted)	Communication to supplier of goods and services for any addition/ deletion/ modification made by the recipient in FORM GSTR-2	Accept or reject before 17th of the succeeding tax period
GSTR-2	Furnishing details of inward supplies	Before 15th of succeeding tax period
GSTR-2A(auto-drafted)	Part A: Communication to receiver of goods and services in respect of goods and services procured by it and uploaded by the supplier. Part B: Communication to the receiver of credit in case of distribution of credit by Input Service Distributor in FORM GSTR-6 Part C: Communication of details of tax deducted at source from the payments to the receiver based on FORM GSTR-7 of the deductor Part D: Communication of details of tax collected at source on payments received by the supplier from the e-commerce operator, based on FORM GSTR-8.
GSTR-3	Monthly return after finalization of outward supplies and inward supplies	20th of succeeding tax period
GSTR-3A	Notice sent to registered taxable persons who fails to furnish return under section 39 or section 44 or section 45 or section 52 of the CGST Act, 2017
GSTR-3B	Return to be filed in lieu of FORM GSTR-3 when the due date for filing FORM GSTR-1 and FORM GSTR-2 has been extended by the Commissioner	Due date shall be notified by the Commissioner
GSTR-4	Return to be furnished by a registered taxable person under composition scheme	18th of the month succeeding the quarter
GSTR-4A	Communication to the person registered under composition scheme in respect of inward supplies procured by it and uploaded by the supplier
GSTR-5	Return to be furnished by non-resident taxable person	20th of the month succeeding the tax period & within 7 days after expiry of registration
GSTR-6	Return to be furnished by Input Service Distributor	13th of succeeding tax period
GSTR-6A	Communication to Input Service Distributor in respect of inward supplies procured by it and uploaded by the supplier
GSTR-7	Return to be furnished by persons liable to deduct tax at source under Section 51 of the CGST Act	10th of succeeding tax period
GSTR-7A	Certificate to be issued to the recipient by the person deducting tax at source	Within 5. days of remitting the amount deducted
GSTR-8	Return to be furnished by persons liable to collect tax at source under Section 52 of the CGST Act	10th of succeeding tax period
GSTR-9	Annual return	31st December of subsequent year
GSTR-9A	Annual return for composition dealers	31st December of subsequent Year
GSTR-9B	Annual Return for electronic commerce operator required to collect tax at source	31st December of subsequent year
GSTR-9C	Furnish a copy of audited annual accounts and a reconciliation statement, duly certified,	31st December of subsequent year
GSTR-10	Final Return	3 months from the date of cancellation /order of cancellation, whichever later
GSTR-11	Return to be filed by persons having Unique Identity Number and claiming refund on inward supplies	To be submitted along with Refund Application

Question 59.
Is the word refund defined in the CGST Act?
Answer:
Yes, the word refund is defined in explanation to Section 54 of the CGST Act, 2017. As per the said definition, refund includes refund of tax and interest paid on:

1. Zero-rated supplies of goods or services or both; or
2. Inputs or input services used in the effecting such zero-rated supplies of goods or services or both; or
3. Supply of goods regarded as deemed exports; or
4. Refund of unutilized input tax credit at the end of any tax period in case the rate of output tax is less than the rate of input tax.

Question 60.
Is there any time limit to claim refund under Section 54?
Answer:
Yes, as per Section 54, refund application is to be filed before the expiry of two years from the relevant date.

Question 61.
Can United Nations Organisation claim refund?
Answer:
Yes. UNOs are entitled to claim refund of IGST/CGST/SGST paid on inward supplies (notified) of goods and/or services.

Question 62.
Who needs to file Return in GST regime?
Answer:
Every person registered under GST will have to file returns in some form or other. A registered person will have to file returns either monthly (normal supplier) or quarterly basis (Supplier opting for composition scheme). An ISD will have to file monthly returns showing details of credit distributed during the particular month. A person required to deduct tax (TDS) and persons required to collect tax (TCS) will also have to file monthly returns showing the amount deducted/collected and other details as may be prescribed. A non-resident taxable person will also have to file returns for the period of activity undertaken.

Question 63.
Is an Annual Return and a Final Return one and the same?
Answer:
No. Annual Return has to be filed by every registered person paying tax as a normal taxpayer. Final Return has to be filed only by those registered persons who have applied for cancellation of registration. The Final return has to be filed within three months of the date of cancellation or the date of cancellation order.

Question 64.
What is the consequence of not filing the return within the prescribed date?
Answer:
A registered person who files return beyond the prescribed date will have to pay late fees of rupees one hundred for every day of delay subject to a maximum of rupees five thousand. For failure to furnish Annual returns by due date, late fee of ₹ One hundred for every day during which such failure continues subject to a maximum of an amount calculated at a quarter percent [0.25%] of his turnover in a state, will be levied.

Question 65.
Who is the person responsible to make assessment of taxes payable under the Act?
Answer:
Every person registered under the Act shall himself assess the tax payable by him for a tax period and after such assessment he shall file the return required under section 39.

Question 66.
What is meant by commencement of audit?
Answer:
The term ‘commencement of audit’ is important because audit has to be completed within a given time frame in reference to this date of commencement. Commencement of audit means the later of the following:
(a) the date on which the records/accounts called for by the audit authorities are made available to them, or
(b) the actual institution of audit at the place of business of the taxpayer.

Question 67.
When can a taxable person pay tax on a provisional basis?
Answer:
As a taxpayer has to pay tax on self-assessment basis, a request for paying tax on provisional basis has to come from the taxpayer which will then have to be permitted by the proper officer. In other words, no tax officer can suo-moto order payment of tax on provisional basis.

This is governed by section 60 of CGST/SGST Act. Tax can be paid on a provisional basis only after the proper officer has permitted it through an order passed by him. For this purpose, the taxable person has to make a written request to the proper officer, giving reasons for payment of tax on a provisional basis. Such a request can be made by the taxable person only in such cases where he is unable to determine:

(a) the value of goods or services to be supplied by him, or
(b) determine the tax rate applicable to the goods or services to be supplied by him.

In such cases the taxable person has-to execute a bond in the prescribed form, and with such surety or security as the proper officer may deem fit.

Question 68.
Under what circumstances can a tax officer initiate Summary Assessment?
Answer:
As per section 64 of CGST/SGST Act, Summary Assessments can be initiated to protect the interest of revenue when:
(a) the proper officer has evidence that a taxable person has incurred a liability to pay tax under the Act, and
(b) the proper officer believes that delay in passing an assessment order will adversely affect the interest of revenue.
Such order can be passed after seeking permission from the Additional Commissioner / Joint Commissioner.

Question 69.
Who can conduct audit of taxpayers?
Answer:
There are two types of audit prescribed in the GST Act(s) as explained below:

(a) Audit by Department: The Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered person. The frequency and manner of audit will be prescribed in due course. (Section 65 of the CGST/SGST Act)

(b) Special Audit: If at any stage of scrutiny, inquiry, investigations or any other proceedings, if department is of the opinion that the value has not been correctly declared or credit availed is not with in the normal limits, department may order special audit by chartered accountant or cost accountant, nominated by department. (Section 66 of the CGST/SGST Act)

Question 70.
What are the obligations of the taxable person when he receives the notice of audit?
Answer:
The taxable person is required to:
(a) facilitate the verification of accounts/records available or requisitioned by the authorities,
(b) provide such information as the authorities may require for the conduct of the audit, and
(c) render assistance for timely completion of the audit.

Question 71.
Under what circumstances can a special audit be instituted?
Answer:
A special audit can be instituted in limited circumstances where during scrutiny, investigation, etc. it comes to the notice that a case is complex or the revenue stake is high. This power is given in section 66 of CGST ISGST Act.

Question 72.
What is the time limit to submit the audit report?
Answer:
The auditor will have to submit the report within 90 days or within the further extended period of 90 days.

Procedural Compliance under GST Notes

Enhanced threshold for supplier of goods [Notification No. 10/2019-CT dated 7.3.2019]
Effective, 1.4.2019, the Central Government has increased threshold for taking registration for person, who is engaged in exclusive supply of goods and whose aggregate turnover in the financial year does not exceed forty lakh rupees, except, –

(a) persons required to take compulsory registration under section 24 of the said Act;
(b) persons engaged in making the following supplies:

• Ice cream and other edible ice, whether or not containing cocoa falling under tariff 21050000
• Pan masala falling under tariff 21069020
• All goods, i.e. Tobacco and manufactured tobacco substitutes falling under Chapter 24

(c) persons engaged in making intra-State supplies in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand; and
(d) persons who opt to take registration voluntarily by exercising option under the provisions of sub – Section (3) of Section 25, or such registered persons who intend to continue with their registration under the said Act.

Supplier
According to Section 2(105) of the CGST Act, “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.

Location of the supplier of services
Section 2(71) of the CGST Act defines location of the supplier of services, which means:

• where a supply is made from a place of. business for which the registration has been obtained, the location of such place of business;
• where ‘a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
• where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and
• in absence of such places, the location of the usual place of residence of the supplier;

Agent
In terms of Section 2(5) of the CGST Act, “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

Special Category States
Article 279A (4) (g) of the Constitution of India specifies the name of 11 States which have been put under the ‘special category States’. The name of these States are: Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

Common Portal
According to Section 2(26) “common portal” means the common goods and services tax electronic portal referred to in section 146.

Compulsory Registration
The following categories of persons are required to be registered compulsorily irrespective of the threshold limit:

• persons making any inter-State taxable supply, except persons making inter-state supply of certain handicraft goods, and services;
• casual taxable persons except persons making supply of certain handicraft goods;
• persons who are required to pay tax under reverse charge;
• persons who are required to pay tax under sub-section (5) of Section 9;
• non-resident taxable persons making taxable supply;
• persons who are required to deduct tax under Section 51;
• persons who make taxable supply of goods or services on behalf of other registered taxable persons whether as an agent or otherwise;
• Input service distributor (whether or not separately registered under the Act);
• persons who supply goods, other than supplies specified under Section 9(5), through such e-commerce operator who is required to collect tax at source under Section 52;
• every electronic commerce operator;
• every person supplying online information and data base retrieval services from a place outside India to a person in India, other than a registered person.

Persons not liable for registration
Section 23(1) of the CGST Act states that the following persons shall not be liable to registration, namely: –

any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act (In short IGST Act)

an agriculturist, to the extent of supply of produce out of cultivation of land.
The Government may, on the recommendations of the Council, by notification, specify the category of persons who may be exempted from obtaining registration under this Act.

Registration to be cancelled in certain cases
Rule 21 of the CGST Rules states that the registration granted to a person is liable to be cancelled, if the said person,-

• does not conduct any business from the declared place of business; or
• issues invoice or bill without supply of goods or services in violation of the provisions of this Act, or the rules made thereunder; or
• violates the provisions of Section 171 of the Act or the rules made thereunder. .

Disadvantage for not getting Registration
Where a person is not registered under the GST regime, he can neither collect GST from his customers nor can claim any input tax credit of GST paid by him.

“Refund”
“Refund” includes,
(a) any balance amount in the electronic cash ledger so claimed in the returns,
(b) any unutilized input tax credit in respect of

(i) zero rated supplies made without payment of tax or,
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), (c) tax paid by specialized agency of United Nations or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries on any inward supply.

Chapter 5 Drafting and Conveyancing Relating to Various Deeds and Documents-II – CS Professional Drafting, Pleadings and Appearances Notes is designed strictly as per the latest syllabus and exam pattern.

Drafting and Conveyancing Relating to Various Deeds and Documents-II – Drafting, Pleadings and Appearances Study Material

Question 1.
Write notes on the following : (June 2012,)
(i) Irrevocable power of attorney
(ii) Letters of authority (4 marks each)
Answer:
(i) irrevocable power of Attorney: A power of attorney executed, in which the donee himself has an interest, is irrevocable.
(a) Irrevocable powers of attorney are executed in favour of the financial institution by a company who offer financial assistance to the latter.
(b) Through such irrevocable powers of attorney, the powers are given to the financial institutions for executing a security document for securing the financial assistance in the event of a company failing to execute such a document by certain date.
Note: Such power of attorney will need registration.

(ii) Power of Attorney and Letter of Authority:
Power of Attorney : Section 2 (21) of the Indian Stamp Act, 1899 defines power of attorney as follows :

“Power of Attorney” includes any instrument (not chargeable with fee under the law relating to Court fees for the time being in force) empowering a specified person to act for and in the name of the person executing it”.

In terms of Section 1A of the Powers of Attorney Act, 1882 as amended by the Powers of Attorney (Amendment) Act, 1982, a power of attorney includes an instrument empowering a specified person to act for and in the name of the person executing it. It is always kept by the attorney.

Letter of Authority : Letter of authority is nothing but a power of attorney. They are executed on plain paper and not on stamp paper. Letters of authority are usually issued for collecting some documents or papers, dividend, interest etc. on behalf of another. By and large, the law relating to the powers of attorney will apply to letters of authority.

Question 2.
Write notes on the following:
Principles governing the construction of a power of attorney (Dec 2012, 4 marks)
Answer:
Principles governing the construction of a power of attorney
The principles governing the construction of a power of attorney are:

1. the operative part of the deed is controlled by the recitals;
2. where an authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the performance of the particular acts;
3. a power of attorney is construed so as to include all incidental powers necessary for its effective execution.

Question 3.
Write notes on the following.
Irrevocable power of attorney (Dec 2013, 4 marks)

Question 4.
Write note on the following:
Revocable and Irrevocable Power of Attorney (Dec 2018, 4 marks)
Answer:
A power of attorney executed in favour of a person can always, at the discretion of the donor thereof, be revoked.

The done of a power of attorney is an agent of the donor.

If a donee himself has an interest in the matters covered by the power of attorney, which forms the subject matter thereof, the power of attorney in the absence of express contract cannot be terminated to the prejudice of such interest.

In other words, agency coupled with interest cannot be terminated without the consent of the other party (Section 202 of the Indian Contract Act, 1872.)

Hence, a power of attorney executed, in which the donee himself has an interest, is irrevocable. Such irrevocable powers of attorney are executed in favour of the financial institutions by a company who offer financial assistance to the latter.

Through such irrevocable powers of attorney, powers are given to the financial institutions for executing a security document for securing the financial assistance in the event of a company failing to execute such a document by a certain date.

A power of attorney is revocable if the principle reserves the right to revoke the power at any time.

Once the principle revokes the power, the agent can no longer act on the principle’s behalf.

But a power of attorney can be made irrevocable if the document includes a provision that particularly states that the principle gives up the right of revocation or otherwise indicates that the power is irrevocable.

As a practical matter, an irrevocable power of attorney is rarely used and is typically limited to a specific purpose.

Question 5.
Power of Attorney and Letter of Authority (June 2018, 4 marks)
Answer:
Power of Attorney
According to Section 2(21) of the Indian Stamp Act, 1899, “Power of Attorney” includes any instrument (not chargeable with fee under the law relating to Court Fees for the time being in force) empowering a specified person to act for and in the name of the person executing it”. It is governed by the provisions of the Power of Attorney Act, 1882. The law pertaining to powers of attorney are based on the principles of agency as contained in the Contract Act, 1872. A power of attorney can either be general or specific.

Letter of Authority
A letter of authority is nothing but a power of attorney. They are executed on plain paper and not on stamp paper. Usually, these are issued for collection of some documents, papers dividend, interest etc, by one person on behalf of another. By and large, the law relating to power of attorney will also apply to the letters of authority.

Question 6.
Distinguish between the Power of Attorney and Letter of Authority. (Dec 2021)

Question 7.
In the light of judicial pronouncements, discuss the following: (June 2015)
(a) The Court is entitled to put itself into the testator’s arm chair. (4 marks)
(b) A family arrangement can be enforced in a Court of law. (4 marks)
Answer:
(a) Relevant considerations: In construing the language of a Will, the courts are entitled and bound to bear in mind other matters than merely the words used. They must consider the surrounding circumstances, the position of the testator, his family relationship, the probability that he would use words in a particular sense and many other things which are often summed up in somewhat picturesque figure. The Court is entitled to put itself into the testator’s arm chair. [Venkatanarasimha v. Parthasarthy, 41IA 51, 70(PC); GnambalAmmal v. T. Rajulyer, AIR 1951 SC 103,106].

(b) No doubt, a family arrangement, which is for the benefit of the family generally, can be enforced in a Court of law.

However, before the Court would do so, it must be shown that there was an occasion for effecting a family arrangement and that it was acted upon. [Lakshmi Perumallu v. Krishnavenarnma. AIR 1965 SC 825: 1965(1) SCR 261.]

Question 8.
Comment on the following:
A letter of authority is nothing but a power of attorney. (Dec 2015, 4 marks)

Question 9.
In the light of judicial pronouncements, discuss the following: (June 2016)
(a) The family settlement must be a bona fide one. (4 marks)
(b) It is to ascertain the intentions of the testator who constructed a will. (4 marks)
Answer:
(a) Essentials of Family Settlement:
The principles which apply to the case of ordinary compromise between strangers, do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to what their rights actually are, or of the points on which their rights actually depend.

In Kale v. Dy. Director of Consolidation, AIR 1976 SC 807 the Supreme Court has laid down the following propositions to put the binding effect and the essentials of a family settlement in a concertized form:

1. The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.
2. The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.
3. The family arrangement may be even oral in which case no registration is necessary.
4. It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing.
5. The members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement.
6. Even in bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable, the family arrangement is final and binding on the parties to the settlement.

(b) Like any other document, a will is subject to interpretation. The Supreme Court in Gnambal Ammal v. T. Raju Iyer held that the cardinal maxim to be observed in construing a will is to endeavour to ascertain the intentions of the testator. This intention has to be primarily gathered from the document which is to be read as a whole without indulging in any conjecture or speculation as to what the testator would have done, if he had been better informed or better advised.

Question 10.
Comment on the following statements:
Registration and payment of stamp duty on a deed of hire-purchase is compulsory. (Dec 2016, 5 marks)
Answer:
There is no Article governing hire purchase agreement in Schedule l to the Indian Stamp Act. Such an agreement would, therefore, fall under the general Article 5 regarding agreements in general. A deed of hire-purchase is liable to stamp duty as an agreement under Article 5 of the Indian Stamp Act, 1899.

A hire purchase agreement or a hire agreement does not require registration under the Registration Act, 1908 as it relates to movable property.

Question 11.
Comment on the following :
A Power of Attorney must be strictly construed. (June 2018, 5 marks)
Answer:
A Power of Attorney must be strictly construed
As a general rule, a power of attorney should be construed strictly and general words must be interpreted in the light of the special powers, although they include incidental powers necessary for carrying out the authority. The general words used in the subsequent clauses of a power of attorney must be read with the special or specific powers given in the earlier clauses and cannot be construed so as to enlarge the restricted powers mentioned in the powers of attorney.

Regard must be had to the recitals, if any, as showing the scope and object of the power, as such recitals will control any general terms in the operative part of the instrument. Any power which has not been expressly delegated should not be implied. Where an authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the performance of the particular acts.

Question 12.
Comment on the following Statement:
Essentials of a Promissory Note.    (Dec 2018, 5 marks)
Answer:
To be a promissory note, an instrument must possess be following essentials be given below:

1. It must be in writing. An oral promise to pay will not do.
2. It must contain an express promise or clear undertaking to pay. X promise to pay cannot be inferred. A mere acknowledgement of debt is not sufficient. If X writes to Y.
3. The promise or undertaking to pay must be unconditional. X promise to pay “when able”, or “as soon as possible”, or “after your marriage to Y, is conditional. But a promise to pay after a specific time or on the happening of an event which must happen, is not conditional., for example, “I promise to pay ? 5,000 ten days after the death of z”, is unconditional.
4. The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.
5. The maker must be a definite person, i.e., the note must show clearly who is the person engaging himself to pay.
6. The payee must be definite. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order.
7. The sum payable must be definite and the amount must not be capable of contingent additions or subtractions.
8. Payment must be in legal money of the country. Hence, a promise to pay ₹ 5,000 and deliver 20 quintals of rice is not a promissory note.
9. It must be properly stamped in accordance with the provisions of the Indian Stamp Act, 1899. Each stamp must be duly cancelled by maker’s signature or initials.
10. It must contain the name of place, number and the date on which it is made.

Question 13.
“Registration of a Power of Attorney is not Compulsory”. Comment. (June 2019, 5 marks)
Answer:
Yes, registration of a power of attorney is not compulsory. Section 4 of the ) Powers-of-Attorney Act, 1882 provides that it may be deposited in the High Court or District Court within the local limits of whose jurisdiction the instrument lies with an affidavit verifying its execution, and a copy may be presented at the office and stamped as the certified copy and it will then be sufficient evidence of the contents of the deed.

In certain cases, registration of power of attorney may become compulsory under Section 17 of the Indian Registration Act, 1908. Thus, a power which authorises the donee to recover rents of immovable property belonging to the donor for the donee’s own benefit is an assignment and requires registration under clause (b) of Sub-Section (1) of Section 17 of the Registration Act. Similarly, a power of attorney which creates a charge on the immovable property referred’to therein in favour of the donee of the power requires registration [Indra Bibi v. Jain Sirdar, (1908) I.L.R. 35 Cal. 845, 848].

In other cases, a mere general power of attorney, even though it deals with immovable property, need not be registered (Kochuvareed v. Mariappa, A. I.R. 1954 T.C. 10, 17) since it does not come under any of the documents specified in the Indian Registration Act as requiring registration.

Question 14.
Discuss the following :
Is it necessary to get the Power of Attorney attested? (June 2019, 4 marks)
Answer:
A power of attorney need not be attested. However, it would be advisable to execute the power of attorney before and have it authenticated by a Notary Public or any Court Judge/Magistrate. Indian Consul or Vice-Consul or representatives of the Central Government. If a power of attorney is so authenticated courts shall presume the authentic execution of the power of attorney (Section 85 of the Indian Evidence Act, 1872).

Under Section 85 of the Indian Evidence Act, 1872, the Court shall presume that every document purporting to be a power of attorney, and to have been executed before and authenticated by a Notary Public or any Court, Judge, Magistrate, Indian Consul or Vice-Consul or representative of the Central Government, was so executed and authenticated.

If a power of attorney gives authority to present documents for registration under Section.32 of the Registration Act, 1908 it must be executed before and authenticated by the Registrar or Sub-Registrar within whose District or Sub-District the principal resides or where the Registration Act is not in force, before any Magistrate or if it is executed outside India, before a Notary Public, or any Court, Judge, Magistrate, Indian Consul or Vice-Consul or representative of the Central Government (Section 33 of the Registration Act, 1908).

But a power of attorney empowering an agent to execute a deed conveying the property in an immovable property and get the deed registered thereby perfecting the transaction of conveyance, need not be executed before the Officer appointed to authenticate and register documents in as much as when the agent executes the document in the name of the principal, he is the executant thereof and as such can himself present the document for registration.

Question 15.
Explain the following :
Two types of Hire Purchase Agreements. (Dec 2019, 4 marks)
Answer:
Following are the two types of Hire Purchase Agreements:-
1. When the owner is unwilling to approach the purchaser of goods to recover the balance of the price, and the financier who pays the balance undertakes the recovery. In this form, goods are purchased by the financierthe dealer, and the financier obtains a hire-purchase agreement from the customer under which the latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price.

2. In the other form of transactions, goods are purchased by the customer, who in consideration of executing a hire-purchase agreement and allied documents remains in possession of the goods, subject to liability to pay the amount paid by the financier on his behalf to the owner or dealer, and the financier obtains a hire-purchase agreement which gives him a license to seize the goods in the event of failure by the customer to abide by the conditions of the hire-purchase agreement.

Question 16.
Registration of power of Attorney is not compulsory. Explain with reference to decided cases. . (Dec 2020, 4 marks)

Question 17.
What is Promissory Note and parties thereto? What are essentials of a Promissory Note? Draft a specimen promissory note. (Aug 2021, 6 marks)
Answer:
Promissory note
Promissory note is one of the negotiable instruments recognized under the Negotiable Instruments Act, 1881. A “promissory note” is defined under Section 4 of the Negotiable Instruments Act, 1881 as “an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument”.

Parties to the Promissory note

1. Maker
2. Payee
3. Holder

Essentials of a Promissory Note
To be a promissory note, an instrument must possess the following essentials:
(a) It must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay.
(c) The promise or undertaking to pay must be unconditional. A promise to pay “when able”, or “as soon as possible”, or “after your marriage to D”, is conditional.
(d) The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.
(e) The maker must be a certain person, i.e., the note must show clearly who is the person engaging himself to pay.

Promissory Note Payable on Demand
On Demand we, A.B., aged about ………………… years, son of Shri ……………………. Resident of ……………………. AND C.D., aged about …………… Years, son of Shri ……………….. Resident of ………………….. jointly and severally promise to pay to E.F., aged about ………………. years, son of Shri ……………… resident of ………………….. or order the sum of Rupees …………………

(₹ ……………..) only, with interest at the rate of ……………….. % per annum until repayment for value received. DATED AND DELIVERED at …………………………. this the …………………… day of ………………….. 2020.
Sd. A.B.
Sd. C.D.

Question 18.
“Family arrangements are governed by a special equitable principles peculiar to themselves”. Comment in light of Kale v. Dy. ‘Director of Consolidation, AIR 1976 SC 807and.elucidate the essentials for a family settlement? When a family settlement can be enforced? (Aug 2021, 6 marks)
Answer:
The principles, which apply to the case of ordinary compromise between strangers, do not equally apply to the case of compromises in the nature of family arrangements. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to what their rights actually are, or of the points on which their rights actually depend.

In Kale v. Dy. Director of Consolidation, AIR 1976 SC 807 the Supreme Court has laid down the following propositions to put the binding effect and the essentials of a family settlement in a concretised form:

(1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.
(2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.
(3) The family arrangement may be even oral in which case no registration is necessary.

(4) It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the Court for making necessary mutation. In such a case, the memorandum itself does not create or extinguish any rights in immovable properties and, therefore, does not fall within the mischief of Section 17 (2) (sic) (Section 17 (1) (b)) of the Registration Act and is, therefore, not compulsorily registrable.

(5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties of the settlement has no title but, under the arrangement, the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same.

(6) Even in bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable, the family arrangement is final and binding on the parties to the settlement.

The fifth proposition quoted above clearly contemplates that even if a party to the settlement had no title but, under the arrangement, the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same. [CIT v. R. Ponnammal, (1987) 164 ITR 706 (Mad)].

Family Arrangement when enforceable?
No doubt, a family arrangement, which is for the benefit of the family generally, can be enforced in a court of law. But before the court would do so, it must be shown that there was an occasion for effecting a family arrangement and that it was acted upon. [Lakshmi Perumallu v. Krishnavenarnma, AIR 1965 SC 825 :1965 (1) SCR 261.]

Question 19.
Draft a specimen irrevocable power of attorney to be executed by a borrower company in favour of a lender company. Assume facts. If required. (June 2022, 6 marks)

Question 20.
ABC Corporation (Pvt.) Ltd. incorporated under the Companies Act, 2013, purchased a five-room double- storey flat in XYZ locality of Chennai for providing company accommodation to its Company Secretary on the first floor and company guest house on the ground floor. For facilitating its registration, the Chairman-cum CEO (CCEO), executed the following special Power of Attorney: (Dec 2014)

“By this Power of Attorney, IXXX, the Chairman of the ABC Corporation Ltd. do hereby appoint and authorise CD, an MBA, LLB and ACS – to be my agent and attorney for the purpose of executing registration of our company flat address: (XXXY, XYZ locality of Chennai) purchased by us for ₹ 80 lakh only from KLN Builders (Pvt.) Ltd., on this …………………….. Day of September, 2014.

To: All concerned authorities.

Sd/-XXX
CCEO”

Upon presentment, the Sub-Registrar, Chennai refused its bearer, CD, to allow him to complete the registration procedure, holding the Power of Attorney to be void.

Answer the following:
(i) Is the Sub-Registrar’s refusal legally tenable?
(ii) If not, in what form or manner should the Power of Attorney be framed?
(iii) How is it to be executed?
(iv) Will it make any difference if the CCEO is a married woman aged 45 years? (4 marks each)
Answer:
(i) The due execution of documents is important to create legal binding agreements. This is particularly so for the execution of a deed, which has strict requirements to ensure that it is valid and enforceable. Further, when a document is to be registered with Sub-Registrar the execution must strictly comply with certain requirements otherwise the document will not be accepted.

A power of attorney executed for the purpose of a specific act is called a “special power of attorney”

As per Section 22(2) of the Companies Act, 2013, “company may, by writing under its common seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India”.

Thus, a power of attorney by a Company must be:

• Under common seal of the company
• Executed in the specific manner where Company will be the principal

Thus, the refusal by Sub-Registrar is legally tenable as the special power of attorney is not in the prescribed manner.

(ii) Special power-of-attorney to be filed with the Sub-Registrar, to authorise the Company Secretary to execute registration of flat.

BY THIS POWER OF ATTORNEY IXXX, the Chairman of the ABC Corporation (Pvt.) Ltd. of etc., do hereby appoint CD of, etc., my attorney for me and on my behalf to appear for and represent me before the Sub-Registrar of ………………………. of all times as may be necessary and to present before him for registration the ………………… deed dated the ……………………. day of …………………. made between, etc., to admit the execution of the said deed by me (if necessary to admit the receipt of consideration), to do any act, deed or thing as may be necessary to complete the registration of the said deed in the manner required by law and when it has been returned to him after being duly registered, to give proper receipt and discharge for the same.

And I, the said XXX, the Chairman of the ABC Corporation (Pvt.) Ltd., do hereby agree and declare that all acts, deeds and things done, executed or performed by the said CD shall be valid and binding on me to all intents and purposes as if done by me personally which I undertake to ratify and confirm whenever required.

Signed, sealed and delivered
Witnesses

XXX, the Chairman of the ABC Corporation Ltd.

(iii) A power of attorney can be executed by any person, who can enter into a contract i.e. a person of sound mind who has attained majority. A power of attorney can be executed only in favour of a major. While functioning as an attorney the donee is acting as an agent of the donor i.e. the executor of the power of attorney, who is the principal. Thus, in such cases there is relationship of agent and principal and such relationship can be entered into by majors and not by minors.

Section 2 of the Powers-of-Attorney Act, 1882 in its operative part provides that the donee of a power of attorney may execute or do any assurance, instrument or thing in his own name and signature and an instrument or thing so executed or done shall be as effectual in law as if it had been executed or done “by the done of the power in the name and with the signature and seal of the donor thereof”. Simply stated, the section provides that the signature of the agent will be deemed to be the signature of the principal.

Company being an artificial person can act through agents i.e. its officers. Powers are delegated by companies to the agents through Board resolutions or through powers of attorney. Delegation of powers through a power of attorney is resorted to in view of the fact that it will be very easy to prove the execution thereof. However, in the cases of a resolution it would be necessary to produce the Minutes Books etc. to prove the passing of the resolution of delegation of the powers. Further, Section 22(2) of the Companies Act, 2013 provides the manner of execution of the power of attorney.

(iv) CCEO being a married woman aged 45 will not make any difference as the power of attorney is executed in the capacity of Chairman-cum- CEO of the Company ABC Corporation Ltd. (Pvt.) Ltd. and not in the capacity of individual. Further, even if the same would have been executed in individual capacity there would have been no effect as Section 5 of the Powers-of-Attorney Act, 1882, relating to married women’s power to execute a power of attorney provides that a married woman of full age shall, by virtue of this Act, have power, as if she were unmarried, by a non-testamentary instrument, to appoint an attorney on her behalf, for the purpose of executing any non-testamentary instrument or doing any other act which she might herself execute or do; and the provisions of this Act relating to instruments creating powers-of-attorney, shall apply thereto.

Question 21.
‘B’ has filed a title suit against ‘A’ in the Court of City Civil Judge (S. D.) as a long-cause suit. Pending its hearing, ‘B’ executed a power of attorney in favour of ‘D’ and got it registered. Later on, without consulting ‘D’, ‘B’ signed a compromise deed with ‘A’. ‘D’ challenged the compromise as it was entered into without informing him or obtaining his consent; and so it prejudiced his rights. Would ‘D’ succeed? Cite case law. (June 2015, 6 marks)
Answer:
In the present case ‘B’ is principal and ‘D’ is attorney D being an attorney cannot claim and independent capacity in the proceedings. When the principal B signed compromise petition, in the law it amounts to implied revocation of power of attorney in favour of D vide illustration to Section 207 of the Indian Contract Act, 1872. The principal B is not bound to consult his attorney D before singing a compromise petition.

The above case is similar to the case of Deb Ratan Biswas & Other v. Anand Moyi Devi & Other, AIR 2011 SC page 1653 and the Hon’ble Supreme Court held that it is well settled that even after execution of a power of attorney the principal can act independently and does not have to take the consent of attorney. The attorney is after all only agent of the principal. Even after executing a power of attorney the principal can act on his own.

Question 22.
Excellent Corporation Ltd. incorporated under the Companies Act, 2013 purchased an independent house comprising two floors in Gurgaon in the state of Haryana for a sum of ₹ 3.5 crore for providing company accommodation to Dinesh, Company Secretary on the first floor and it was decided that the company shall have its guest house at ground floor. (Dec 2015)

For facilitating its registration, Mrs. Kiran, the Chairman-cum-Managing Director executed the following special power of attorney:

“By this power of attorney, I, Kiran, Chairman, Excellent Corporation Ltd., do hereby appoint and authorise Dinesh to be my agent and authority for the purposes of executing registration of the property purchased by the company from Antarctic Builders Ltd. on this 15^th day of September, 2015.

For and on behalf of Excellent Corporation Ltd.
Sd/- Kiran
Chairman

On presentation of this document, the Registrar refused to complete the registration procedure stating that the power of attorney is void.

In light of the above answer the following:
(i) Is the action of the Registrar legally tenable? State reasons. (2 marks)
(ii) Draft a power of attorney as you would have been the Company Secretary. (4 marks)
(iii) Property registration charges are 8% for a man and 6% for a woman.
Will you advise that the power of attorney be executed in favour of Mrs. Kiran to derive this benefit? (2 marks)
Answer:
(i) The due execution of documents is important to create legal binding documents. This is particularly so for the execution of a deed, which has strict requirements to ensure that it is valid and enforceable. Further, when a document is to be registered with the Registrar, the execution must strictly comply with certain requirements otherwise the document will not be accepted.

In the present case a specific Power of Attorney is to be executed to attain the purpose of a specific Act.

Further as per the provision of Section 22(2) of the Companies Act, 2013 a company may, by writing under its dommon seal, authorise any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.

It may be noted that in case a company does not have a common seal, the authorisation under this sub-section shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

A deed signed by such an attorney on behalf of the company and under his seal shall bind the company.

Thus, the refusal by Registrar is legally tenable as the specific Power of Attorney is not in the prescribed manner.

(ii) SPECIMEN FORMS OF SPECIAL POWER-OF-ATTORNEY Power-of-Attorney to Present Document for Registration
BY THIS POWER OF ATTORNEY I, Kiran, the Chairman-cum- Managing Director of Excellent Corporation Ltd., do hereby appoint Dinesh as agent of Excellent Corporation Ltd. my attorney for me and on my behalf to appear for and represent me before the Sub-Registrar of ………………….. of all times as may be necessary and to present before him for registration the …………………… deed dated the ………………… day of …………………… made between, etc., to admit the execution of the said deed by me(if necessary to admit the receipt of consideration), to do any act, deed or thing as may be necessary to complete the registration of the said deed in the manner required by law and when it has been returned to him after being duly registered, to give proper receipt and discharge for the same.

And I, Kiran, do hereby agree and declare that all acts, deeds and things done, executed or performed by Dinesh shall be valid and binding on me to all intents and purposes as if done by me personally which I undertake to ratify and confirm whenever required.

Signed, sealed and delivered
Witnesses

Kiran
Chairman of Excellent Corporation Limited,

(iii) Chairman being a female will not make any difference as the property is to be registered in the name of the Company. If the property would have to be registered in the personal capacity of Mrs. Kiran the benefit could have been in the terms of savings in Stamp Duty.

As far as issue of Power of Attorney is concerned there is no distinction between man and woman.

Question 23.
Anil took a loan of ₹ 10 lakh from JF Financial Corporation (a registered financial company) for purchasing a one bed room flat on an agreed rate of interest of 16% per annum. Along with agreement papers, a promissory note (P/N) was signed by Anil which read, “Anil has taken loan of ₹ 10 lakh from JF Financial Corporation for purchasing a flat and whenever JF Financial Corporation demands its return, Anil shall pay back in ten instalments to them or to bearer of this P/N”. (Dec 2016)

After one year, Anil defaulted in return of loan on demand by JF Financial Corporation. Consequently, a summary suit was instituted by JF Financial Corporation against Anil in the Court of Civil Judge. After scrutiny, the court dismissed the suit holding that the P/N was void.

What drafting precautions ought to have been taken by JF Financial Corporation when Anil was executing the P/N payable on demand? Cite the relevant case law, if any. (8 marks)
Answer:
JF Financial Corporation has to consider the following points while drafting Promissory Note:
(a) It must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay. A promise to pay cannot be inferred. A mere acknowledgement of debt is not sufficient.
(c) The promise or undertaking to pay must be unconditional.
(d) The maker must sign the promissory note in token of an undertaking to pay to the payee or his order.
(e) The maker must be a certain person, i.e., the note must show clearly who is the person engaging himself to pay.

(f) The payee must be certain. The promissory note must contain a promise to pay to some person or persons ascertained by name or designation or to their order.

(g) The sum payable must be certain and the amount must not be capable of contingent additions or subtractions.

(h) Payment must be in legal money of the country.

(i) It must be properly stamped in accordance with the provisions of the Indian Stamp Act. Each stamp must be duly cancelled by maker’s signature or initials.

(j) It must contain the name of place, number and the date on which it is made. However, their omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated on the date of delivery.

Question 24.
Francis, aged 38 years, son of Anthony, Max house, Kunoor, Mysore, now residing at house No. 418, Bapu Bazar, New Delhi, is the Chief Administrative Officer of Standard Medical Laboratories, New Delhi. For the management of his properties at Mysore, he wants to empower Mr. Robert, aged 40 years, son of Josef, a business man, residing at Mary house, Kunoor, Mysore. Draft a General Power of Attorney (GPA). (Dec 2017, 8 marks)
Answer:
GENERAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS THAT I, Francis S/o. / W/o. aged 38 about years, residing at House No. 418 Bapu Bazar, New Delhi do hereby nominate, appoint constitute and appoint Sri./Smt. Mr. Robert S/o. /W/o. aged about 40 years residing at Mary House Kunoor, Mysore, as my true and lawful power of attorney holder to do the following acts, deeds and things on my behalf and in my name in respect of the schedule property. Whereas, the sole and absolute owner in and possession of the schedule property, which is self acquired property.

Whereas, I am being unable to maintain manage and look after the affairs of the said property, I hereby appoint the said attorney holder to the following acts, deeds and perform things on my behalf and in my name with entire powers thereon.

1. To appear before the authorities of BDA Corporation, Revenue Office / Village Panchayath Office, or any other office pertaining to state or central Government or any other office and to represent in all respect.
2. To make payment of taxes, rates, cesses, assessments, to get plan sanction to any competent authority levied by them from time to time on my behalf.
3. To appoint advocate/s, pleader/s, prosecutor/s, or any other competent authority for all purpose.
4. To file cases either civil or criminal in any competent court/s and to complete the proceedings.
5. To apply and to obtain relevant document in respect of the schedule property on my behalf, and to put up any constructions in the schedule property.
6. To sign all documents, papers, agreements, affidavits forms vakalaths, receipts, declarations, etc., and to derive all kind of benefits and profits in respect of the schedule property on my behalf.
7. I have not given any power to this attorney holder to alienate property. I hereby agree to ratify and confirm all and what so ever that my said attorney shall lawfully do or cause to be done be virtue of this document.

SCHEDULE
All the piece and parcel of immovable property bearing No. ___________
Measuring ______________
Bounded by:-
On the East:
On the West:
On the South:
On the North :

IN WITNESS WHEREOF I the executant above named has signed to this general power of attorney on this _________ clay __________ month ___________ year.
WITNESS:

“EXECUTANT

Question 25.
A Power of Attorney (POA) is executed in West Bengal and stamped amount of ₹ 100/- as per stamp duty of the State, now the POA is to be sent to Bihar, where stamp duty is ₹ 150/-. Comment on the validity of POA. (Aug 2021, 4 marks)
Answer:
The exact amount of stamp duty on a Power of Attorney (POA) depends upon the State in which the POA is executed. If a POA executed in one state has to be sent to another state where the stamp, duty is higher, for use, then POA should be stamped with the difference in the duty before it is so used.

Hence, in this case, the differential stamp duty of Rs.50/- (i.e.,150-100) is to be paid before its use.

Section 35 of the Indian Stamp Act, 1899 provides that an unstamped or inadequately stamped document is inadmissible in evidence.

Drafting and Conveyancing Relating to Various Deeds and Documents-II Notes

Promissory Note
Promissory note is one of the negotiable instruments recognized under the Negotiable Instruments Act, 1881. A “promissory note” is defined by Section 4 of the Negotiable Instruments Act, 1881 as “an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument”.

Essentials of a Promissory Note
(a) It must be in writing. An oral promise to pay will not do.
(b) It must contain an express promise or clear undertaking to pay.
(c) The promise or undertaking to pay must be unconditional.
(d) The maker must sign the promissory note in token of an undertaking
to pay to the payee or his order. *
(e) The maker must be a certain person.
(f) The payee must be certain.
(g) The sum payable must be certain and the amount must not be capable of contingent additions, or subtractions. If A promises to pay ₹ 100 and all other sums which shall become due to him, the instrument is not a promissory note.
(h) Payment must be in legal money of the country.

Deeds of Power of Attorney
A power of attorney executed for the purpose of a specific act is called a “special power of attorney”. It is also called a “particular power of attorney”. A specific act is meant to imply either a specific act or acts related to each other as to form one judicial transaction, such as all the acts necessary to perfect a mortgage or a sale of a particular property. A power of attorney executed for the purpose of generally representing another person, or for performing more than one act, is called a ‘general power of attorney’.

Essentials of Family Settlement

1. The family settlement must be a bona fide one so as to resolve family disputes and rival qlaims by a fair and equitable division or allotment of properties between the various members of the family.
2. The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.
3. The family arrangement may be even oral in which case no registration is necessary.
4. It is well-settled that registration would be necessary only if the terms of the family arrangement are reduced into writing.
5. The members who may be parties to the family arrangement must have some antecedent title, claim or interest or even a possible claim in the property which is acknowledged by the parties to the settlement.
6. Even in bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable, the family arrangement is final and binding on the parties to the settlement.

Hire Purchase Agreements
Hire-Purchase agreement to be in writing and signed by parties thereto:

1. Every hire-purchase agreement shall be:
   (a) in writing, and
   (b) signed by all the parties thereto.
2. A hire-purchase agreement shall be void if in respect thereof any of the requirements specified in (1) above has not been complied with.
3. Where the hire-purchase is associated with a contract of guarantee, the hire-purchase agreement shall be signed by the surety also, and if the hire-purchase agreement is not so signed, the hire-purchase agreement shall be voidable at the option of the owner.

Important Contents of hire-purchase agreements
1. Every hire-purchase agreement shall state:
(a) the hire-purchase price of the goods to which the agreement relates;
(b) the cash price of the goods, that is to say, the price at which the goods may be purchased by hirer for cash;
(c) the date on which the agreement shall be deemed to have commenced;
(d) the number of instalments by which the hire-purchase price is to be paid, the amount of each of those instalments, and the date, or the mode of determining the date, upon which it is payable and the person to whom and the place where it is payable; and
(e) the goods to which the agreement relates, in a manner sufficient to identify them.

2. Where- any part of the hire-purchase price is, or is to be, paid otherwise than in cash or by cheque, the hire purchase agreement shall contain a description of that part of the hire-purchase price.

3. Where any of the requirements specified in (1) and (2) above has not been complied with, the hirer may institute a suit for getting the hire-purchase agreement rescinded; and the court may, if it is satisfied that the failure to comply with any such requirement has prejudiced the hirer, rescind the agreement on such terms as it thinks just, or pass such other order as it thinks fit in the circumstances of the case.

Chapter 6 Corporate Policies and Disclosures – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Corporate Policies and Disclosures – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Write short note on the following:
Continual disclosure (June 2013, 3 marks)
Answer:
Continual Disclosures (Regulation 30)
1. Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in the prescribed format.

2. The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.
The disclosures required under sub-regulation (1) and (2) shall be made within seven working days from the end of each financial year to:
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.

Question 2.
Write short note on the following:
Continual disclosure. (June 2014, 3 marks)

Question 3.
Write a short note on Dividend distribution policy. (Dec 2020, 5 marks)
Answer:
Dividend Distribution Policy
Dividend Distribution Policy Regulation 43A

(1) The top 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports

(2) The dividend distribution policy shall include the following parameters:
(a) the circumstances under which the shareholders of the listed entities may or may hot expect dividend;
(b) the financial parameters that shall be considered while declaring dividend;
(c) internal and external factors that shall be considered for declaration of dividend;
(d) policy as to how the retained earnings shall be utilized; and
(e) parameters that shall be adopted with regard to various classes of shares:
Provided that if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.

(3) The listed entities other than those specified at sub-regulation (1) of this regulation may disclose their dividend distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.

Question 4.
Regulation 30(3) of SEB1 (LODR), 2015 regarding disclosure of events upon application of materiality guidelines. (Dec 2020, 3 marks)
Answer:
As per Regulation 30 (3) The listed entity shall make disclosure of events specified in Para B of Part A of Schedule III, based on application of the guidelines for materiality, as specified in sub-regulation (4).
Further, as per Regulation 30 (4) (i) The listed entity shall consider the following criteria for determination of materiality of events/ information:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly: or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
(c) In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event/information is considered material.
Also as per Regulation 30 (4) (ii) The listed entity shall frame a policy for determination of materiality, based on criteria specified in this sub-regulation, duly approved by its board of directors, which shall be disclosed on its website.

Question 5.
Write a short note on the content of Management Discussion and Analysis. (Dec 2021, 3 marks)
Answer:
As per SEBI (LODR) Regulations, 2015, Management Discussion and Analysis Report should form part of the Annual Report of the Company to the shareholders. It should include discussion on the following matters within the limits set by the company’s competitive position:
(a) Industry structure and developments
(b) Strength and weakness
(c) Opportunities and Threats
(d) Segment-wise or product-wise performance
(e) Outlook
(f) Risks and concerns
(g) Internal control systems and their adequacy
(h) Discussion on financial performance with respect to operational performance
(i) Material developments in Human Resources, Industrial Relations front, including number of people employed.
(j) Environmental Protection and Conservation, Technological conservation, Renewable energy developments, Foreign Exchange conservation
(k) Corporate social responsibility
Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction.

Question 6.
Discuss provisions relating to prior intimation of Board Meeting to Stock Exchange as per SEBI (LODR) Regulations, 2015. (Dec 2017, 5 marks)
Answer:
Prior Intimations (Regulation 29)
The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors in the following manner:
1. The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors in which any of the following proposals is due to be considered:
(a) financial results viz. quarterly, half yearly, or annual, as the case may be;
(b) proposal for buyback of securities;
(c) proposal for voluntary delisting by the listed entity from the stock exchange(s);
(d) fund raising by way of further public offer, rights issue, American Depository Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds, qualified institutions placement, debt issue, preferential issue or any other method and for determination of issue price.
Provided that intimation shall also be given in case of any annual general meeting or extraordinary general meeting or postal ballot that is proposed to be held, for obtaining shareholder approval for further fund raising indicating type of issuance.
(e) declaration/ recommendation of dividend, issue of convertible securities including convertible debentures or of debentures carrying a right to subscribe to equity shares or the passing over of dividend.
(f) the proposal for declaration of bonus securities.

2. At least two working days in advance, excluding the date of the intimation and date of the meeting.
Provided that intimation regarding item specified in clause (a) of sub-regulation (1), to be discussed at the meeting of board of directors shall be given at least five days in advance (excluding the date of the intimation and date of the meeting), and such intimation shall include the date of such meeting of board of directors.

3. At least eleven working days before any of the following proposal is placed before the board of directors
(a) any alteration in the form or nature of any of its securities that are listed on the stock exchange or in the rights or privileges of the holders thereof.
(b) any alteration in the date on which, the interest on debentures or bonds, or the redemption amount of redeemable shares or of debentures or bonds, shall be payable.

Question 7.
To protect the interest of the Stakeholders, SEBI has taken various initiatives and Code of Fair Disclosure is one of the important step under Regulation 8 of SEBI (Prohibition of Insider Trading) Regulations, 2015. Prepare a note on Code of Fair Disclosure. (Dec 2019, 5 marks)
Answer:
Note on Code of Fair Disclosure
As per Code of Fair Disclosure under Regulation 8 of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015:
1. The board of directors of every company, whose securities are listed on a stock exchange, shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to the regulation on Prohibition of Insider Trading, without diluting the provisions in any manner.

This provision intends to require every company whose securities are listed on stock exchanges to formulate a stated framework and policy for fair disclosure of events and occurrences that could impact price discovery in the market for its securities. Principles such as, equality of access to information, publication of policies such as those on dividend, inorganic growth pursuits, calls and meetings with analysts, publication of transcripts of such calls and meetings, and the like are set out in the schedule to the Regulations on Prohibition of Insider Trading.

2. Every such code of practices and procedures for fair disclosure of unpublished price sensitive information and every amendment thereto shall be promptly intimated to the stock exchanges where the securities are listed. This provision is aimed at requiring transparent disclosure of the policy formulated in sub-regulation (1) of Regulation 8 of (Prohibition of Insider Trading) Regulations, 2015

SCHEDULE A [Sub-regulation (1) of regulation 8]
Principles of Fair Disclosure for purposes of Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information

• Prompt public disclosure of unpublished price sensitive information that would impact price discovery no sooner than credible and concrete information comes into being in order to make such information generally available.
• Uniform and universal dissemination of unpublished price sensitive information to avoid selective disclosure.
• Designation of a senior officer as a chief investor relations officer to deal with dissemination of information and disclosure of unpublished price sensitive information.
• Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available.
• Appropriate and fair response to queries on news reports and requests for verification of market rumours by regulatory authorities.
• Ensuring that information shared with analysts and research personnel is not unpublished price sensitive information.
• Developing best practices to make transcripts or records of proceedings of meetings with analysts and other investor relations conferences on the official website to ensure official confirmation and documentation of , disclosures made.
• Handling of all unpublished price sensitive information on a need-to-know basis.

Question 8.
What are the material disclosures of which information should be disclosed to Stock Exchange within 24 hours of conclusion of the Board Meeting as per SEBI (LODR) Regulations, 2015? (Dec 2019, 3 marks)
Answer:
Regulation 30(6) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 clarifies that the listed entity shall first disclose to stock exchange(s) of all events, as specified in Part A of Schedule III, of information as soon as reasonably possible and not later than twenty four hours from the occurrence of event or information.

• Commencement or any postponement in the date of commencement of commercial production or commercial operations of any unit/division.
• Change in the general character or nature of business brought about by arrangements for strategic, technical, manufacturing, or marketing tie-up, adoption of new lines of business or closure of operations of any unit/division (entirety or piecemeal).
• Capacity addition or product launch.
• Awarding, bagging/ receiving, amendment or termination of awarded/ bagged orders/contracts not in the normal course of business.
• Agreements (viz. loan agreement(s) (as a borrower) or any other agreement(s) which are binding and not in normal course of business) and revision(s) or amendment(s) or termination(s) thereof.
• Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc.
• Effect(s) arising out of change in the regulatory framework applicable to the listed entity.
• Litigation(s) / dispute(s) / regulatory action(s) with impact.
• Fraud/defaults etc. by directors (other than key managerial personnel) or employees of listed entity.
• Options to purchase securities including any ESOP/ESPS Scheme.
• Giving of guarantees or indemnity or becoming a surety for any third party.
• Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals.

Question 9.
What are the Materiality Guidelines ? Prepare a note on Disclosures of events upon application of the Materiality Guidelines. (Aug 2021, 5 marks)
Answer:
As per Regulation 30 of the Listing Regulations, every listed entity shall make disclosure of any event or information which, in the opinion of the board of directors of the listed company, is material.

Materiality Guidelines:
As per Regulation 30(4), the listed entity shall frame a policy for determination of materiality of events/ information, approved by the board of directors and which shall be disclosed on its website.
The criteria for determination of materiality of events/informations is:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date; or
(c) In case Where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.

Disclosures of events upon application of the Materiality Guidelines:
Regulation 30(3) of the SEBI (LODR) Regulations, 2015 specifies that the listed entity shall make disclosure of events specified in Para B of Part ‘A’ of Schedule III,
Based on application of the guidelines for materiality. These are as follows:

• Commencement or any postponement in the date of commencement of commercial production or commercial operations of any unit/division.
• Change in the general character or nature of business brought about by arrangements for strategic, technical, manufacturing, or marketing tie-up, adoption of new lines of business or closure of operations of any unit/division (entirety or piecemeal).
• Capacity addition or product launch.
• Awarding, bagging/ receiving, amendment or termination of awarded/bagged orders/contracts not in the normal course of business.
• Agreements (viz. loan agreement(s) (as a borrower) or any other agreement(s) which are binding and not in normal course of business) ai id revision(s) or amendment(s) or termination(s) thereof.
• Disruption of operations of any one or more units or division of the listed
  entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc.
• Effect(s) arising out of change in the regulatory framework applicable to the listed entity
• Litigation(s) / dispute(s) / regulatory action(s) with impact.
• Fraud/defaults etc. by directors (other than key managerial personnel) or employees of listed entity.
• Options to purchase securities including any ESOP/ESPS Scheme.
• Giving of guarantees or indemnity or becoming a surety for any third party.
• Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals.

Question 10.
During the course of the statutory audit of Y Ltd., a listed company, it was observed for the first time that there are shares in the demat suspense account. State the disclosure requirements in this regard in Y Ltd.’s annual report. (Dec 2021, 5 marks)
Answer:
Para F of Schedule V of SEBI (LODR) Regulations, 2015 provides that the listed entity shall disclose the following details in its annual report, as long as there are shares in the demat suspense account or unclaimed suspense account, as applicable:

1. aggregate number of shareholders and the outstanding shares in the suspense account lying at the beginning of the year;
2. number of shareholders who approached listed entity for transfer of shares from suspense account during the year;
3. number of shareholders to whom shares were transferred from suspense account during the year;
4. aggregate number of shareholders and the outstanding shares in the suspense account lying at the end of the year;
5. that the voting rights on these shares shall remain frozen till the rightful owner of such shares claims the shares.
   Hence, Y Ltd. having shares in suspense account, has to disclose the above information in its annual report.

Question 11.
2022 – June [3] (c) Explain the content of “Management Discussion and Analysis” section of the Annual Report. (June 2022, 3 marks)

Question 12.
Write short note on CSR Policy.
Answer:
Corporate Social Responsibility Policy:
Section 135(4) of the Companies Act 2013, the Board of every company required to constitute CSR Committee shall after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, and ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
The CSR Policy of the company shall, inter-alia, include the following namely:-

• A list of CSR projects or programs which a company plans to undertake specifying modalities of execution of such project or programs and implementation schedules for the same
• Monitoring process of such projects or programs
• A clause specifying that the-surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of the company.

Activities which may be included by companies in their Corporate Social Responsibility Policies are activities relating to:
1. eradicating hunger, poverty and malnutrition, promoting health care including preventive health care” and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.

3. promoting ‘gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

4. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

5. protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;

6. measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;

7. training to promote rural sports, nationally recognised, sports, paralympic sports and Olympic sports

8. contribution to the prime minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the central govt, for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;

9. (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).

10. rural development projects

11. slum area development.

12. disaster management, including relief, rehabilitation and reconstruction activities.

Question 13.
Write short notes on
(a) Risk Management Policy
(b) Vigil Mechanism Policy
(c) Nomination and Remuneration policy
Answer:
(a) Risk Management Policy:
Section 134 (3) (n) of the Companies Act 2013, provides that a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company should be included in the report by its Board of Directors.

(b) Vigil Mechanism Policy:
Section 177 (10) of the Companies Act 2013 provides that the vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases and the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.]

(c) Nomination and Remuneration policy:
Section 178 (3) and (4) of the Companies Act 2013 provides that the Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees. The Nomination and Remuneration Committee shall, while formulating the policy shall ensure that
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
The policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.

Question 14.
Write short notes on
(a) Risk Policy
(b) Policy for preservation of documents
(c) Archival Policy
(d) Policy for Determining ‘Material’ Subsidiary
(e) Policy on Materiality of Related Party
(f) Policy for determination of materiality of events
(g) Whistle Blower Policy
(h) Policy relating to the remuneration of the directors, key managerial • personnel and other employees
(i) Policy on board diversity
(j) Dividend Distribution Policy
Answer:
(a) Risk policy:
The listed entity shall have a risk policy which shall be reviewed and guided by the board of directors. [Regulation 4(2)(f)(ii)(1)]

(b) Policy for preservation of documents:
The listed entity shall have a policy for preservation of documents, approved by its board of directors, classifying them in at least two categories as follows-
(a) documents whose preservation shall be permanent in nature;
(b) documents with preservation period of not less than eight years after completion of the relevant transactions. The documents may be preserved in electronic mode. [Regulation 9]

(c) Archival Policy:
The listed entities would identify all the documents which need to be preserved under various regulations relating to securities laws and then develop a suitable archival policy. According to Section 2 (zf) of Lising Regulations “securities laws” covers the following-

• The Listing regulations
• The Securities Contracts (Regulation) Act, 1956,
• The Depositories Act, 1996,

The provisions of the Companies Act, 1956 and Companies Act, 2013, and the rules, regulations, circulars or guidelines made there under.

(d) Policy for Determining ‘Material’ Subsidiary:
“Material subsidiary” shall mean a subsidiary, whose income or not worth exceeds 10 [ten] percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. The listed entity shall formulate a policy for determining ‘material’ subsidiary. [Regulation 16(1 )(c)]

(e) Policy on Materiality of Related Party:
The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions 108[including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly. However, a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.

Not with standing the above, with effect from duly 01,2019 a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed five percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

(f) Policy for determination of materiality of events:
The listed entity shall frame a policy for determination of materiality, duly approved by its board of directors, which shall be disclosed on its website. The policy shall be based on the following criteria for determination of materiality of events/ information:

• The omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
• The omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
• In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.

(g) Whistle Blower Policy:
The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns under which they can have direct access to the chairperson of the audit committee in appropriate or exceptional cases and formulate and disclose whistle blower policy. [Regulation 22 and 46 (2) (e)]

(h) Policy relating to the remuneration of the directors, key managerial personnel and other employees
The listed entity shall formulate a policy on the remuneration of the directors, key managerial personnel and other employees. [Part- D, Schedule II (1)]

(i) Policy on board diversity
The listed entity shall formulate a policy on diversity of board of directors is mentioned as a role of nomination and remuneration committee. [Part- D, Schedule II (3)].

(J) Dividend Distribution Policy
Dividend Distribution Policy Regulation 43A
(1) The top 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports.

(2) The dividend distribution policy shall include the following parameters:
(a) the circumstances under which the shareholders of the listed entities may or may not expect dividend;
(b) the financial parameters that shall be considered while declaring dividend;
(c) internal and external factors that shall be considered for declaration of dividend;
(d) policy as to how the retained earnings shall be utilized; and
(e) parameters that shall be adopted with regard to various classes of shares:
Provided that if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.

(3) The listed entities other than those specified at sub-regulation (1) of this regulation may disclose their dividend distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.

Question 15.
Write short notes on
(a) Insider Trading Policy
(b) Policy for prevention of sexual hara$sment at workplace
Answer:
(a) Insider Trading Policy: A listed company has to also formulate Insider Trading Policy as per the requirements of SEBI (Prohibition of Insider Trading) Regulations, 2015.

(b) Policy for prevention of sexual harassment at workplace: All companies are required to formulate policy for prevention of sexual harassment at workplace under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The policy should contain the procedures and guidelines to govern cases against sexual harassment in the company.

Question 16.
Write a short note on Voluntary Policies.
Answer:
Voluntary Policies: In addition to above, the companies may also formulate following policies:

• Code of business conduct & Ethics
• Ethics policy
• Information security policy
• Health and safety policy
• Gender diversity policy
• Environmental policy
• Policy on investor relations
• Quality policy
• Social accountability policy
• Communication policy
• Investment and cash policy
• Policy for ascertaining the ‘Fit and Proper’ status of directors
• Affirmative action policy
• Code of corporate disclosures

Question 17.
Write short notes on
(a) Continual disclosures (Regulation 30) as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
(b) Disclosure of encumbered shares (Regulation 31) as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
(c) Filing of draft offer document and offer document (Regulation 25) as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
(d) Annual Report Disclosures [Regulation (34)] as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Answer:
(a) Continual disclosures (Regulation 30):
1. Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in the prescribed format.

2. The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.
The disclosures required under sub-regulation (1) and (2) shall be made within seven working days from the end of each financial year to, –
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.

(b) Disclosure of encumbered shares (Regulation 31):
1. The promoter of every target company shall disclose details of shares in such target company encumbered by him or by persons acting in concert with him in the prescribed format.
2. The promoter of every target company shall disclose details of any invocation of such encumbrance or release of such encumbrance of shares in prescribed format.
3. The disclosures required under sub-regulation (1) and sub-regulation (2) shall be made within seven working days from the creation or invocation or release of encumbrance, as the case may be to,—
(a) every stock exchange where the shares of the target company are listed; and .
(b) the target company at its registered office.

(c) 1. Prior to making an initial public offer, the issuer shall file three copies of the draft offer document with the concerned regional office of the SEBI under the jurisdiction of which the registered office of the issuer company is located, in accordance with Schedule IV, along with fees as specified in Schedule III, through the lead manager(s).

2. The lead manager(s) shall submit the following to the SEBI along with the draft offer document:
(a) a certificate, confirming that an agreement has been entered into between the issuer and the lead manager(s);
(b) a due diligence certificate as per Form A of Schedule V;

(c) in case of an issue of convertible debt instruments, a due diligence certificate from the debenture trustee as per Form B of Schedule V;
3. The issuer shall also file the draft offer document with the stock exchange(s) where the specified securities are proposed to be listed, and submit to the stock exchange(s), the Permanent Account Number, bank account number and passport number of its promoters where they are individuals, and Permanent Account Number, bank account number, company registration number or equivalent and the address of the Registrar of Companies with which the promoter is registered, where the promoter is a body corporate.

(d) Annual Report Disclosures [Regulation (34)]:
The listed entity shall submit the annual report to the stock exchange within twenty one working days of it being approved and adopted in the annual general meeting as per the provisions of the Companies Act, 2013 which shall contain the following:
(a) audited financial statements i.e. balance sheets, profit and loss accounts etc., and Statement on Impact of Audit Qualifications as stipulated in regulation 33(3)(d), if applicable;
(b) consolidated financial statements audited by its statutory auditors;
(c) cash flow statement presented only under the indirect method as prescribed in Accounting Standard-3 or Indian Accounting Standard 7, as applicable, specified in Section 133 of the Companies Act, 2013 read with relevant rules framed thereunder or as specified by the Institute of Chartered Accountants of India, whichever is applicable;
(d) directors report;
(e) management discussion and analysis report – either as a part of directors report or addition thereto;
(f) for the top one thousand listed entities based on market capitalization, a business responsibility report describing the initiatives taken by the listed entity from an environmental, social and governance perspective, in the format as specified by the Board from time to time:

Provided that the requirement of submitting a business responsibility report shall be discontinued after the financial year 2021-22 and thereafter, with effect from the financial year 2022-23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report in the format as specified by the Board from time to time:

Provided further that even during the financial year 2021-22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report:

Provided further that the remaining listed entities including the entities which have listed their specified securities on the SME Exchange, may voluntarily submit such reports.
Explanation: For the purpose of this clause, market capitalization shall be calculated as on the 31st day of March of every financial year.

Question 18.
Write short notes on the Materiality Guidelines?
Answer:
As per Regulation (4), the listed entity shall frame a policy for determination
of materiality of events/ information, approved by the board of directors and
which shall be disclosed on its website on the basis of following criteria-
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date; or
(c) an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.

Question 19.
Write a short note on Related Party Disclosure
Answer:
Related Party Disclosure:
1. The listed entity shall make disclosures in compliance with the Accounting Standard on “Related Party Disclosures”.
2. The disclosure requirements shall be as follows:

S. No.	In the accounts of	Disclosures of amounts at the year end and the maximum amount of loans/ advances/investments outstanding during the year.
1.	Holding Company	Loans and advances in the nature of loans to subsidiaries by name and amount. Loans and advances in the nature of loans to associates by name and amount. Loans and advances in the nature of loans to firms/companies in which directors are interested by name and amount.
2.	Subsidiary	Same disclosures as applicable to the parent company in the accounts of subsidiary company
3.	Holding Company	Investments by the loanee in the shares of parent company and subsidiary company, when the company has made a loan or advance in the nature of loan.

For the purpose of above disclosures directors’ interest shall have the same meaning as given in Section 184 of Companies Act, 2013.
3. The above disclosures shall be applicable to all listed entities except for listed banks.

Question 20.
Write short notes on
(a) Initial Disclosure (Regulation 7 (1)) as per SEBI (Prohibition of Insider Trading) Regulations, 2015.
(b) Continual Disclosures: Regulation 7(2) as per SEBI (Prohibition of Insider Trading) Regulations, 2015.
(c) Code of Fair Disclosure (Regulation 8) as per SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015.
Answer:
(a) Initial Disclosures [Regulation 7(1)]:
(a) Every person on appointment as a key managerial personnel or a director of the company or upon becoming a promoter shall disclose pis holding of securities of the company as on the date of appointment or becoming a promoter, to the company within seven days of such appointment or becoming a promoter.

(b) Continual Disclosures [Regulation 7(2)]
1. Every promoter, member of the promoter group, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified;

2. Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of receipt of the disclosure or from becoming aware of such information.
Explanation: It is clarified for the avoidance of doubts that the disclosure of the incremental transactions after any disclosure under this sub-regulation, shall be made when the transactions effected after the prior disclosure cross the threshold specified in clause (a) of sub-regulation (2).

3. The above disclosures shall be made in such form and such manner as may be specified by the Board from time to time.

(c) Code of Fair Disclosure (Regulation 8)
1. The board of directors of every company, whose securities are listed on a stock exchange, shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to these regulations, without diluting the provisions of these regulations in any manner.

This provision intends to require every company whose securities are listed on stock exchanges to formulate a stated framework and policy for fair disclosure of events and occurrences that could impact price discovery in the market for its securities. Principles such as, equality of access to information, publication of policies such as those on dividend, inorganic growth pursuits, calls and meetings with analysts, publication of transcripts of such calls and meetings, and the like are set out in the schedule.

2. Every such code of practices and procedures for fair disclosure of unpublished price sensitive information and every amendment thereto shall be promptly intimated to the stock exchanges where the securities are listed.
This provision is aimed at requiring transparent disclosure of the policy formulated in sub-regulation (1).

Corporate Policies and Disclosures Notes

The key policies required for companies under the Companies Act, 2013 include:

• Corporate Social Responsibility Policy
• Risk Management Policy
• Vigil Mechanism Policy
• Nomination and Remuneration policy

Policies under the SEBI (LODR), Regulations, 2015

• Risk Policy
• Policy for Preservation of Documents
• Archival Policy
• Policy for Determining ‘Material’ Subsidiary
• Policy on Materiality of Related Party Transactions
• Policy for determination of materiality of events
• Whistle Blower Policy
• Policy Relating to the Remuneration of Directors, KMPs & Other Employees
• Policy on Diversity of Board
• Dividend Distribution Policy

Policies under other Laws and Voluntary Policies

• Insider Trading Policy
• Policy for prevention of sexual harassment at workplace
• Voluntary Policies

CSR
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable – to itself, its stakeholders, and the public.

Chapter 7 Accounting and Audit Related Issues, RPTs and Vigil Mechanism – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Discuss the need for Internal Audit as a tool for Corporate Governance in the present day organizations. (Dec 2020, 5 marks)
Answer:
The demand for auditing both external and internal is sourced in the need to have some means of independent verification to reduce record-keeping errors, asset misappropriation, and fraud within business and non-business organizations. The concept of internal auditing evolved as an extension to external audit in testing the reliability of accounting records that contribute to published financial statements. International financial scandals and recent events including global financial crises have emphasised need for internal auditing within corporate governance structures of organisations. As organisations and the world they operate in are becoming more and more complex, internal audit is considered good practice & advisable as part of underlying internal control & risk management framework of an organisation.

Internal Audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity including entity’s strategic risk management and internal control system.

An effective internal audit function can play a significant role within the corporate governance framework of a company. Over the last decade internal audit has developed and grown in importance. Eff icient internal audit functions provide objective assurance/assessments to the board (and to the audit committee) about the adequacy and effectiveness of the processes by which risks are identified and prioritised; managed, controlled, and mitigated. Space to-write important points for revision

Question 2.
When will a transaction with a related party be material? (Aug 2021, 3 marks)
Answer:
According to Regulation 23(1) and (1A) of SEBI (LODR) Regulations- A transaction with a related parry shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. With effect from July 01, 2019, a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed 5% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. Space to write important points for revision

Question 3.
As per Ind AS 24, what are the parameters of considering a person or an entity as related party? (June 2022, 3 marks)

Question 4.
“National Financial Reporting Authority (NFRA) has the powers to oversee the quality of service of Auditor as well as to suggest measures for improvement.” Discuss. (June 2022, 3 marks)

Question 5.
2019 – Dec [1] (a) P Pvt. Ltd. was incorporated under the Companies Act, 1956 on 3rd October, 2011. The Authorised Share Capital of the Company is ₹ 75 crores. The present paid-up Share Capital of the Company is ₹ 60 crore. The turnover of the company for financial year 2017-18 was ₹ 150 crores and because of good overseas marketability of the company’s product, the turnover of the company for the year ended 31st March, 2019 increased to ₹ 210 crores.
The Secretarial Auditor of the company advised that the company should have internal audit in place, but the Managing Director of the company argued that since it is a private company, so it is not required.
Based on the facts in the above case, answer the following questions:
(i) Whether internal audit is compulsory for the Private Limited? (Dec 2019, 1 mark)
(ii) In the above case if the company had been an Unlisted Public Limited and Turnover for year ended 31st March, 2019 would be ₹ 190 crore, what would have been your answer? (Dec 2019, 2 marks)
(iii) Can Company Secretary be appointed as Internal Auditor in an Unlisted Public Company where he is already appointed as Key Managerial Personnel? (Dec 2019, 2 marks)
Answer:
(i) As per section 138 of the Companies Act, 2013 read with rule 13(1)(c) of The Companies (Accounts) Rules, 2014 every private company having-
(a) turnover of two hundred crore rupees or more during the orecedina financial vear; or
(b) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year shall be required to appoint an internal auditor.
As the turnover of the P Pvt. Ltd is more than ₹ 200 crore, for the year ended 3181 March, 2019 it is mandatory to appoint an internal auditor.

(ii) As per Section 138 of the Companies Act, 2013 read with rule 13(1)(b) of The Companies (Accounts) Rules, 2014 every unlisted public company having-
(a) paid up share capital of fifty crore rupees or more during the preceding financial year; or
(b) turnover of two hundred crore rupees or more during the preceding financial year; or
(c) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
(d) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year shall be required to appoint an internal auditor.
In the mentioned case, as the paid up capital is more than ₹ fifty crores hence the company needs to appoint the internal auditor.

(iii) Section 138 of the Companies Act, 2013 states that an internal auditor, shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board. Further explanation to Rule 13 of The Companies (Accounts) Rules, 2014 states that the internal auditor may or may not be an employee of the company.
In view of the above the Company Secretary who is appointed as Key Managerial Personnel in the company can be appointed as an internal auditor of the company.

Question 6.
2019 – Dec [1] (b) M Pvt. Ltd. was registered in the year 2001 as a Private Limited Company and continuing with the same status. It is having a paid-up share capital of ₹ 65 crore as on 31st March, 2019. The present company’s auditor, X, Chartered Accountant, (a Proprietor Firm) who was appointed as auditor of the company in the year 2014.
The term of the said auditor is going to expire and company wants to re-appoint the same person, since he is having well acquaintance with the company’s officials and its working.
Based on the above facts, answer the following questions:
(i) Whether X can be reappointed as Statutory Auditor of the Company? (Dec 2019, 1 mark)
(ii) In the above case if, instead of the Individual Person as an auditor, the company would have appointed any Firm of Chartered Accountants, and now the tenure of the said firm is expiring, whether this firm is eligible for reappointment? (Dec 2019, 2 marks)
(iii) In the given case, if the paid-up capital of the company is ₹ 5 crore and having cash credit limit and term loan facility from a bank to the tune of ₹ 55 crore, what would have been your answer? (Dec 2019, 2 marks)
Answer:
(i) Section 139(2) of the Companies Act, 2013 read with Rule 5(b) of the Companies (Audit and Auditors) Rules, 2014 provides that: all private limited companies having paid up share capital of rupees fifty crore or more shall not appoint or re-appoint
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Also, an individual auditor who has completed his term of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term.
In view of the above as the paid up share capital of the company is more than ₹ 50 Crore, Mr. X cannot be appointed as Statutory Auditor for the second term.

(ii) Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that:
all private limited companies having paid up share capital of rupees fifty crore or more shall not appoint or re-appoint
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
An audit firm which has completed its term shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.
In view of the above the firm of Chartered Accountants will not be eligible for the reappointment for five years on the completion of the term.

(iii) Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that no listed company or the following classes of companies excluding one person companies and small companies:
(a) all unlisted public companies having paid up share capital of rupees ten crores or more or
(b) all private limited companies having paid up share capital of rupees fifty crores or more or
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more shall not appoint or re-appoint—
(a) an individual as auditor for more than one term of five consecutive years and
(b) an audit firm as auditor for more than two terms of five consecutive years
Since in the present case the company is having paid up share capital of ₹ 5 crore i.e. within the threshold limit of ₹ 50 crors but the company have borrowing facility from a bank of ₹ 55 crores (i.e. exceeding the threshold limits of ₹ 50 crores), hence the company cannot re-appoint X as auditor.

Question 7.
Under the Energy Department, Govt, of Tamil Nadu, three Companies as Government Company were incorporated as below:
A Ltd. for Generation of Electricity
B Ltd. for Transmission of Electricity
C Ltd. for Distribution of Electricity.
Further, three subsidiaries namely X Ltd., Y Ltd. and Z Ltd. were incorporated as wholly owned subsidiary companies of C Ltd. C Ltd. purchases the Power (Electricity) from A Ltd. and sale all Power to subsidiary Companies. Subsidiary Company through B Ltd. distributes the Power in the State.
Apart from that, C Ltd. also purchases cables from manufacturer and sells it to Subsidiary Companies with margin of 5% on sale price. In the power supply, C Ltd. also charge 0.05 paisa per unit as service charge from Subsidiary Companies.
During the Audit, Auditors raised the question that there are lot of related party transactions and directors and members are same in all the Companies. Further, Chairman is also common. Neither the Board nor the Members of the Company approved any transaction which comes under the definition of Related Party Transaction. The Company Secretary replied that the transactions are pre-approved by Energy Department, Govt, of Tamil Nadu but Auditor is dissatisfied with this reply.
In such situation, check the validity of the transactions between related parties. (Dec 2019, 5 marks)
Answer:
According to Section 2(76) of Companies Act 2013, “related party”, with reference to a company includes any body corporate which is –
(a) a holding, subsidiary or an associate company of such company; or
(b) a subsidiary of a holding company to which it is also a subsidiary; or
(c) an investing company or the venture of the company.
Transactions referred to in the question are covered under Section 188 (1) of the Companies Act, 2013 which deals with the related party transactions.

All related party transactions require the approval of the Audit Committee as per section 177 of the Companies Act, 2013 except to a transaction, other than a transaction referred to in section 188 of the Companies Act, 2013, between a holding company and its wholly owned subsidiary company, as stated under fourth proviso to section 177(4) of the Companies Act, 2013. Up to certain limits, the approval of the Board is required and above the limits, approval of the members must be taken.

As per proviso two of section 188(1) of the Companies Act, 2013 member of the company shall not vote where he is related party. However as per proviso three of the section 188(1) of the Companies Act, 2013 , if 90% or more members are related party, members can vote. As per proviso four of the section 188(1) of the Companies Act, 2013, the approval of the Board is not required where the transactions are on arms length basis in ordinary course of business. Further, as per proviso five of the section 188(1) of the Companies Act, 2013, the approval of members is not required in case of transaction between holding and wholly owned subsidiary.

Further, as per the exemption notification dated 5th June, 2015 issued by Ministry of Corporate Affairs, the first and second proviso to sub- section(1) to section 188 of the Companies Act, 2013 shall not apply to
(a) a Government Company where the contracts/arrangements to be entered into by it with any other Government Company;
(b) a Government company (other than a listed company), in respect of contracts/arrangements other than those mentioned in (a) above, if it has obtained approval of the administrative ministry of the concerned Central/State Government.

In this case, C Ltd, being a Government company has entered into the following transactions:
(i) Purchase of power from A Ltd.( Government Company)
(ii) Sale of power to subsidiary companies (all Government companies, as they are subsidiaries of a Government company)
(iii) X Ltd, Y Ltd. and Z Ltd (wholly owned subsidiaries, being Government companies) distribute power through B Ltd. (Government company)
(iv) Purchase of cables from a manufacturer and sale to its Subsidiary companies (Government companies)
(v) Levy of service charges at 0.05 paise per unit on its Subsidiary companies (Government companies)
Therefore, in the present case, assuming that the transactions are at arm’s length and in the ordinary course of business, neither the approval of the Board nor the members of the company is required and the related party transactions would be valid.

Question 8.
M/s. LMN & Co. Chartered Accountants have been appointed as the statutory auditors of AB Ltd. for the financial year 2019-20. During the course of their audit, certain transactions were observed to be irregular and on further scrutiny, the auditors uncovered a series of fraudulent transactions involving the Sales Manager and the Finance Manager. The amount involved was ₹ 50 lakhs. Under the circumstances, explain the reporting responsibilities of M/s. LMN & Co. (Dec 2021, 5 marks)
Answer:
As per section 143 (12) of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2015, if an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of ₹ 1 crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as prescribed.
Where the fraud is of an amount lesser than ₹ 1 crore, the auditor shall report the matter to Audit Committee constituted under section 177 of the Companies Act, 2013 or to the Board immediately, but not later than two days of the knowledge of the fraud, specifying the following:

• Nature of fraud with description;
• Approximate amount involved; and
• Parties involved.

The following details of each of the fraud reported to the Audit Committee or the Board during the year shall be disclosed in the Board’s Report:

• Nature of fraud with description;
• Approximate amount involved; ’
• Parties involved, if remedial action not taken; and
• Remedial actions taken.

In the instant case, as the amount of fraud is less than ₹ 1 crore, M/s. LMN & Co. shall report the matter to the Audit Committee or the Board as stated above along with the disclosure in the Board’s Report in the manner as may be prescribed.

Question 9.
XYZ & Co. is an auditor of VPN Limited which is a listed company and the balance sheet of VPN Limited is being signed by X who is also a partner in other Audit firm PQR & Co. The original tenure of XYZ & Co. has expired on 31st March, 2021. Can PQR & Co. be appointed as an auditor of the company for Financial Year 2021-22? Explain with relevant provisions of the Companies Act, 2013. (June 2022, 5 marks)

Question 10.
Write short notes on the disclosure requirements pertaining to Accounting Standards.
Answer:

Section 129(5) of the Companies Act 2013 provides

Regulation34(3) read with Schedule V of SEBI LODR Regulations, 2015 provides

Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.

Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, togeuier with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.

Question 11.
Write short notes on
(a) Auditor’s Remuneration and Non-Audit Services.
(b) Reporting of Fraud by Auditors.
Answer:
(a) Auditor’s Remuneration and Non-Audit Services:
Though Companies Act, 2013 does not specify any restrictions on auditor’s remuneration it should be reasonable, adequate but not excess, keeping the scope of the audit and auditors capabilities in mind. Excess Remuneration is an incentive to retain the client and reduces their objectivity. Non – audit services may affect the independence of the auditor hence the following are prohibited under Section 144.
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed.

(b) Reporting of Fraud by Auditors:
Section 143 (12) of the Companies Act 2013 read with Companies (Audit and Auditors) rules, 2015 provides that If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.

In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:-

• Nature of Fraud with description;
• Approximate amount involved; and
• Parties involved.

The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:-
Nature of Fraud with description;
Approximate Amount involved;
Parties involved, if remedial action not taken; and Remedial actions taken.

Question 12.
Write a short note on rotation of auditors.
Answer:
The provisions for rotation of auditors can be summarised as under

In case of an individual as auditor:
(a) No individual shall be appointed or re-appointed as auditor for more than 1 term of 5 consecutive years.
(b) An individual auditor, who has completed his term of 5 consecutive years, shall not be eligible for re-appointment as auditor in the same company for 5 years from the date of completion.

In case of a firm as an auditor:
(a) No audit firm shall be appointed or re-appointed as auditor for more than 2 terms of 5 consecutive years.
(b) An audit firm which has completed its 2 terms of 5 consecutive years, shall not be eligible for re-appointment as auditor in the. same company for 5 years from the completion of such terms.
(c) If any firm/LLP which has one or more partners who are also partners in the outgoing audit firm/LLP cannot be appointed as auditors during the 5 year period. In other words, if two or more audit firms have common partner(s), and one of these firms has completed its 2 terms of 5 consecutive years, none of such audit firms shall be eligible for re-appointment as auditor in the same company for 5 years.

The aforementioned provisions can be explained by the following illustration in a better manner.
If ABC & Co. is auditor of M/S XYZ Ltd. and the balance sheet of M/S XYZ Ltd. is being signed by Mr. A who is also a partner in other firm PQR & Co. If the original tenure of appointment of ABC & Co. is expiring on 20th August, 2020. The firm PQR & Co. can’t take the appointment of auditor of M/S XYZ Ltd. for the period of five years starting from 21 st August, 2020 and up to 20th August, 2025.

In the above example, PQR & Co. can take the advantage of being appointed as auditor on a date starting after the expiry of financial year 2020-2021. In simple words, PQR & Co. is being eligible for appointment of auditor of M/S XYZ Ltd. after the start of new financial year from the expiry of original tenure of ABC & Co., as the proviso mentions only of one preceding financial year.

Question 13.
Write a short note on appointment of internal auditors.
Answer:
Section 138 of the Companies Act, 2013 provides for the mandatory appointment of an internal auditor who shall either be a Chartered Accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities for classes of company as specified below:

• every listed company,
• every unlisted public company having
• paid up share capital of fifty crore rupees or more during the preceding financial year; or
• turnover of two hundred crore rupees or more during the preceding financial year; or
• outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
• outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and every private company having
• turnover of two hundred crore rupees or more during the preceding financial year; or
• outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.

The internal auditor may or may not be an employee of the company. The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

Question 14.
Write short notes on
(a) Functions and duties of the NFRA
(b) Powers of NFRA
Answer:
(a) Functions and duties of the NFRA:
NFRA shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors. The Authority shall:-
(a) maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;
(b) recommend accounting standards and auditing standards for approval by the Central Government;
(c) monitor and enforce compliance with accounting standards and auditing standards;
(d) oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
(e) promote awareness in relation to the compliance of accounting standards and auditing standards;
(f) co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
(g) perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

(b) Powers of NFRA:
Apart from making recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards, the NFRA will have the investigative and disciplinary powers. NFRA can:

1. investigate either suo moto or on the reference made to it by Central Govt, into the matters of professional or other misconduct, committed by any member or firm of Chartered Accountants, registered under the Chartered Accountants Act, 1949.
2. impose penalties of not less than 1 lakh which may extend to five times of the fees received, jn case of individuals professionals and of not less than 10 lakhs which may extend to ten times of the fees received, in case of professional firms; IF the misconduct is proved.
3. debarring the member or the firm from engaging himself or itself from practice as the member of the Institute of Chartered Accountant of India for a minimum period of six months which may extend to a period of 10 years.
4. NFRA has been vested with the same powers as are vested in civil courts under the Code of Civil Procedure, 1908 while trying a suit, relating to:
   • discovery and production of books of account and other documents, as may be specified by the National Financial Reporting Authority;
   • summoning, enforcing the attendance of persons and examination them on oath;
   • issuing commissions for the examination of witnesses or documents;
   • inspection of any books, registers and other documents of any person to whom NFRA has summoned, enforced the attendance and examined on oath;

It is also being provided in section 132 of the Act that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the NFRA has initiated an investigation under this section. However, any person aggrieved by any order of the NFRA may appeal before the Appellate Authority constituted for this purpose. The NFRA have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants. And no other institute or body shall commence or continue any proceedings in such matters of delinquency or misconduct where the National Financial Reporting Authority has initiated an investigation.

Question 15.
Write a notes on “Types of Whistleblowers”.
Answer:
Types of Whistleblowers

1. Internal: When the whistleblower reports the wrong doings to the officials at higher position in the organization. The usual subjects of internal whistle blowing are disloyalty, improper conduct, indiscipline, insubordination, disobedience etc.
2. External: Where the wrongdoings are reported to the people outside the organization like media, public interest groups or enforcement agencies it is called external whistle blowing.
3. Alumini: When the whistle blowing is done by the former employee of the organization it is called alumini whistle blowing.
4. Open: When the identity of the whistleblower is revealed, it is called Open Whistle Blowing.
5. Personal: Where the organizational wrongdoings are to harm one person only, disclosing such wrong doings it is called personal whistle blowing.
6. Impersonal: When the wrong doing is to harm others, it is called impersonal whistle blowing.
7. Government: When a disclosure is made about wrong doings or unethical practices adopted by the officials of the Government.
8. Corporate: When a disclosure is made about the wrongdoings in a business corporation, it is called corporate whistle blowing.

Question 16.
Write a short note on “Whistle Blowing under Sarbanes-Oxley Act, 2002 (SOX)”
Answer:
Whistle Blowing under Sarbanes-Oxley Act, 2002 (SOX):
Section 302 of Sarbanes Oxley Act of 2002, an Act enacted by U.S. congress to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes contains following provisions for whistle-blowers:

• Make it illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers
• Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers.
• Require board audit committees to establish procedures for hearing whistleblower complaints.
• Allow the secretary of labour to order a company to rehire a terminated employee with no court hearing.
• Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings

Question 17.
Write a short note on “Vigil mechanism under SEBI Listing Obligations and Disclosure Requirements, 2015″.
Answer:
Vigil mechanism under SEBI Listing Obligations and Disclosure Requirements, 2015

1. The listed entity shall formulate a vigil mechanism / whistle blower policy I for directors and employees to report genuine concerns.
2. The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism Notes

Indian Accounting Standards (Ind AS) as specified in the Annexure to Companies (Indian Accounting Standards) Rules, 2015:
Indian Accounting Standards (Ind AS) are the accounting standards prescribed under Section 133 of the Companies Act, 2013 which are specified in the Annexure to Companies (Indian Accounting Standards) Rules, 2015. These accounting standards are converged with corresponding International Financial Reporting Standards.

Accounting Standards as specified in Annexure to the Companies (Accounting Standards) Rules, 2006:
The Central Government in consultation with NACAS, has notified Companies (Accounting Standards) Rules, 2006 in exercise of the powers conferred by clause (a) of sub-section (1) of section 642 and sub-section (3C) of section 211 and sub-section (1) of section 210A of the Companies Act, 1956. Under these rules, 28 Accounting Standards as recommended by the Institute of Chartered Accountants of India are prescribed. These Accounting Standards are as per the Generally Accepted Accounting Principles of India and not converged with International Financial Reporting Standards.

Auditors’ effectiveness is enhance through:

• Encouraging Professional Objectivity
• Maintaining Independence
• Rotation of Auditors
• Appropriate Remuneration
• Restriction on Non-Audit Services

The National Financial Reporting Authority is an independent regulator established under Section 132 of the Act to oversee the auditing profession, improve the quality of audit and ensure independence of audit firms.

Whistle blowers are individuals who expose corruption and fraud in organizations by filing a law suit or a complaint with Government authorities that prompts a criminal investigation in to the organizatiohs alleged behavior.

“Whistle-blowing” originates from the practice of British policemen who blew their whistles whenever they observed commission of a crime. The term ‘whistle-blowing’ is a relatively recent entry into the vocabulary of public and corporate affairs although the phenomenon itself is not new.

Internal Audit is an independent appraisal activity within an organization for the review of systems, procedures, practices, compliance with policies for accounting, financial and other operations as a basis for service to management. It is a tool of control

• To measure and evaluate the effectiveness of the working of an organization
• To ensure that all the laws, rules and regulations governing the operations of the organization are adhered to
• To identify risks and also suggests remedial measures, thereby acting as a catalyst for change and action.

Chapter 3 Input Tax Credit & Computation of GST Liability – CS Professional Advance Tax Law Notes is designed strictly as per the latest syllabus and exam pattern.

Input Tax Credit & Computation of GST Liability – CS Professional Advance Tax Law Study Material

Question 1.
State with reasons, whether the following statements are true or false under GST law:
(iii) While doing repair of furniture of a company. GST was paid on wood, board, mica, paint etc.; the amounts so paid are eligible for input tax credit.
(v) Expenditure incurred on construction of factory building is ₹ 18,40,000 including GST of ₹ 2,80,000. The GST amount is not eligible for Input tax credit (Dec 2019, 1 mark each)
Answer:
(iii) True. As per Section 16 of the CGST Act, the tax charged in respect of goods which are used or Intended to be used in the course or furtherance of his business shall be eligible for Input tax credit, Thus. materials purchased for repairs of existing furniture is eligible for ITC.
(v) True. As per clause (C) and (d) of Section 17(5) of the CGST Act, tax charged on works contract service or goods or services used for construction of immovable property on its own account shall not be eligible for Input tax credit

Question 2.
State with reasons whether the following statement is true or false under GST Law:
(i) CGST Balance of one state can be adjusted to set oft CGST Liability of another state. (Aug 2021, 1 mark)

Question 3.
Explain the following terms used under the Central Goods and Services Tax Act, 2017:
(ii) Input Service Distributor (Dec 2017, 2 marks)
Answer:
“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under Section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of Central tax, State tax, Integrated tax or Union tèrrltory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office [Section 2(61)]

Question 4.
Explain the mechanism under the CGST Act, 2017 for claiming Input Tax Credit while making payment of Taxes. (Dec 2017, 5 marks)
Answer:
Eligibility and Conditions for taking Input Tax Credit
1. Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

2. Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to hm unless,-
(a) he is in possession of a tax invoioe or debit note issued by a supplier registered under this Act, Or such other tax paying documents as may be prescribed;
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;

(b) he has received the goods or services or both.
Explanation: For the purposes of this clause, It shall be deemed that the registered person has received the goods or, as the case may be, services
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;]

(c) subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of Input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:
However, where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment. Further, where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Also, the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

3. Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shaft not be allowed.

4. A registered person shall not be entitled to take Input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

However, the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.

Question 5.
Explain the consequences according to provisions of GST law, if a recipient of goods or services or both does not make payment for the supply within 180 days. (Dec 2018, 2 marks)
Answer:
Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the Input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon.

Question 6.
Explain the concept of “Zero rated and Exempt transaction” for the purpose of availment of input tax credit In GST law. (Dec 2018, 3 marks)
Answer:
Exempt supply” means supply of goods or services which attracts Nil rate of tax or which are wholly exempt from tax and includes non-taxable supply.
“Zero rated supply” means export of goods or services or supplies made to Special Economic Zone (SEZ) developer or SEZ unit.

As per Section 17(2) of CGST Act, 2017 where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the
amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies ‘including zero-rated supplies.

Question 7.
Goyal Manufactures, a registered person, instructs its one of the suppliers to send the input directly to Sumit Enterprises, who is a job worker, outside its factory premises for carrying out certain operations on the goods. The goods were sent by the supplier on 15th July, 2020 and were received by the job worker on 17th July, 2020. Whether Goyal Manufacturers are eligible to take Input Tax Credit (ITC) on the input goods directly received
by the job worker from the supplier. Discuss, what action under the GST law is required to be taken by Goyal Manufacturers. (June 2019, 4 marks)
Answer:
As per Section 19(2) of the CGST Act, 2017, the principal is entitled to take input tax credit of inputs sent for job work even if the said goods are directly sent to a job worker.

Section 19(3) of the CGST Act. 2017 further stipulates that where the inputs are sent directly to ajob worker but are not received back by the principal within a period of 1 year of the date of receipt of inputs by the job worker, it shall be deemed that such input had been supplied by the principal to the job worker on the day when the said inputs were received by the job worker.

In view of aforementioned provisions, Goyal Manufacturers are eligible to take the input tax credit on the input goods directly received by the job worker from the suppliers.
However, if the inputs are not returned by Sumit Enterprises within 1 year from 17.07.2020 (date of receipt of input goods by job worker), it shall be deemed that such input had been supplied by Goyal Manufactures to Sumit Enterprises on 17.07.2020 and Goyal Manufactures shall be liable to pay the tax along applicable interest.

Question 8.
Briefly explain about apportionment of credit and blocked credits under section 17 of the CGST Act. (Dec 2019, 5 marks)
Answer:
Apportionment of credit and blocked credits:
Section 17 of the CGST Act deals with apportionment of credit and blocked credits.
Where the goods or services or both are used by the registered person partly for the purpose of business and partly for other purposes the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Where the goods or services or both are used by the registered person partly for taxable supplies including zero rated supplies and partly for exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero rated supplies.

The value of exempt supply shall be such amount as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and subject to clause (b) of paragraph 5 of Schedule II, sale of building.

A banking company or financial institution engaged in supplying services by way of accepting the deposits, extending loans or advances shall have the option to either comply with the provisions of section 17(2) viz. proportionate input tax credit or avail of every month 50% of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse.

Provided that once the option is exercised by a banking company or financial institution, it shall not be withdrawn during the remaining part of the financial year. This restriction of 50% also shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.

Question 9.
Nargis Agro Traders located at Jaipur and engaged in the business as retail traders provides the following details of its purchases and sales made during the month of July, 2022:

The rate of tax under GST on the items are 5%, 12%, 12% and 18% respectively. You are required to calculate the amount of GST payable and the date by which the due tax is to be paid by the trader for the month of July, 22 after availing the Input Credit. (Dec 2017, 5 marks)
Answer:
Note: Since GST Acts require that GST is to be charged separately, hence, all prices are taken as ‘value’ before taxes. Due credit may be given if a candidate has assumed that prices are inclusive of GST.

1. Calculation of Tax Payable by Nargis Agro Traders on the sales during July, 2022.

Item	Value in ₹	Rate	Tax in ₹
Sugar Candies	1,20,000	5%	6,000
Chocolates Bars	1,00,000	12%	12,000
Wafers Packets	60,000	12%	7,200
Biscuits	50,000	18%	9,000
			34,200

2. Calculation of Tax paid on Purchase as Input Tax

Item	Value in ₹	Rate	Tax in ₹
Sugar Candies	1,00,000	5%	5,000
Chocolates Bars	80,000	12%	9,600
Wafers Packets	75,000	12%	9,000
Biscuits	50,000	18%	9,000
Total Input Tax Credit			32,600

Amount of Tax Payable
Tax to be paid:

• 34,200 – 32,600 = ₹ 1,600/- as CGST of ₹ 800/- and SGST of ₹ 800/-
• by 20/08/2017.

Question 10.
XYZ Ltd. having its head office at Mumbai, is registered as Input Service Distributor (ISD). It has three units in different cities situated in “Mumbai’. ‘Jabalpur’ and ‘Delhi’ which are operational in the current year. XYZ Ltd. furnishes the following information for the month of July 2022:

• CGST paid on services used only for Mumbai Unit: ₹ 3,00,000
• IGST, CGST & SGST paid on services used for all units: ₹ 12,00,000
• Total turnover of the units for the previous financial year is as follows:

Unit : Turnover (₹)
Total Turnover of three units : ₹ 10,00,00,000
Turnover of Mumbai unit : ₹ 5,00,00,000
Turnover of Jabalpur unit : ₹ 3,00,00,000
Determine the credit to be distributed by XYZ Ltd. to each of its three units. (June 2018, 5 marks)
Answer:
Input Tax Credit to be distributed by XYZ Ltd. a registered ISD on different Units for July, 2022

Note : The input-tax credit has been distributed on all the units on the pro-rata basis of the turnover of each of the Units in the ratio of 5 : 3 : 2.

Question 11.
From the following details pertaining to Ashwathama, a registered dealer engaged in purchase and sale of goods, ascertain the GST liability (SGST/CGST/IGST) for the month of November, 2022:

Particulars : Amount (₹)
Sale price charged to customers within State
(excluding GST) : 12,50,000
Commission charged to buyers : 12,000
Packing and forwarding expenses incidental to sale : 18,000
Weighment charges, shown separately in invoices : 9,500
Prompt payment discount, indicated In invoice 1%, if payment made within 1 month. All buyers of goods have availed the discount.

The rates of taxes for the goods supplied are as under
Particulars : Amount (₹)
CGST : 9%
SGST : 9%
IGST : 18% (June 2018, 5 marks)
Answer:
Determination of GST Liability of Ashwathama for the month of November, 2022

Notes:

1. As per Section 15 of the CGST Act, 2017, all incidental expenses like commission, packing and forwarding, weighment charges will form part of the taxable supply.
2. Prompt payment discount is deductible, since it is known at the time of supply.

Question 12.
Jayakumar TextiLes Ltd., purchased a machinery on 12^th August, 2021 for ₹ 12 lakhs (excluding GST). The company put the machinery to use after the purchase and avaed input tax credit for the
eligible amount.

The machinery was sold as second hand machinery on 14^th May, 2021 for ₹ 9 lakhs. During purchase as well as sale of the machinery, the GST rate applicable was 18%. Assuming that there war no change in legal position after November, 2021, discuss the steps which Jayakumar Textiles Ltd., is required to take at the time of sale of the second hand machine. Briefly state the statutory provisions involved. (June 2018, 5 marks)

Question 13.
Parthiv Chemicals Pvt. Ltd. is a manufacturing company registered under GST in the State of Maharashtra. It manufactures two taxable products Sun” and Moon, and one exempt product “Jupiter”. On 1^st October, 2021. product Moon got exempted through an exemption notification and the exemption available on product Jupiter” got withdrawn on the same date (1^st October, 2021) under the same notification.

The above registered supplier has furnished the following details (amounts are excluding GST) chargeable at 18% GST;

Particulars	Price (₹)
(a) Machinery “L” purchased on 22-10-2021 for being used in manufacturing product “Sun” and “Jupiter”	1,20,000
(b) Machinery ‘M’ purchased on 1st October, 2018 used till 30-09-2021 exclusively in manufacturing product “Jupiter”. However, from 1-10-2021, such machinery will also be used for manufacturing product “Moon” besides “Jupiter”	5,00,000
(c) Raw material used for manufacturing “Sun” purchased on 9-10-2021	2,20,000
(d) Raw material used for manufacturing “Moon” purchased on 10-10-2021	4,00,000
(e) Raw material used for manufacturing “Jupiter” purchased on 16-10-2021	1,00,000

All purchases are from outside the State from registered suppliers.
Compute the amount of input tax credit (ITC) to be credited to Electronic Credit Ledger for the Month of October, 2021. (June 2019, 5 marks)
Answer:
Computation of Amouñt of Input tax credit (ITC) credited to Electronic Credit Ledger for the month of October’ 2021:

Particulars	Amount of ITC to be credited (₹)
(a) Machinery “L” [Note 1]	21,600
(b) Machinery “M” [Note 2]	36,000
(c) Raw Material used for manufacturing “Sun” [Note 3]	39,600
(d) Raw Material used for manufacturing “Moon” [Note 3]	Nil
(e) Raw Material used for manufacturing “Jupiter” [Note 3]	18,000
Total ITC credited to Electronic Credit Ledger	1,15,200

Notes:
1. ITC in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero rated supplies shall be credited to the electronic credit ledger [Rule 43(1)(b) of the CGST Rules, 2017].

2. Where any capital goods earlier used exclusively for effecting exempt supplies is subsequently also used for effecting taxable supplies, the value of capital goods being machinery shall be arrived at by reducing the ITC at the rate of 5% for every quarter or part thereof and the amount so arrived at shall be credited to the electronic credit ledger (Proviso to Rule 43(1)(c) of the CGST Rules, 2017].
Thus, ITC on M” shall be computed as under:
= ₹ 90,000 – 54,000 (90,000 × 5% × 12 quarters)
= ₹ 36,000

3. ITC in respect of inputs used for effecting taxable supplies will be credited in electronic credit ledger. ITC in respect of inputs used for effecting exempt supplies will not be credited in electronic credit ledger [Rule 42 of CGST Rules, 2017].

Question 14.
Determine the amount of Input Tax Credit (ITC) admissible to JKL Ltd.. in the month of September, 2021 In respect of various Inward supplies during the month from the following information.
Assume that all the conditions necessary for availing the Input tax credit have been fulfilled by JKL Ltd:

Items	GST Paid (₹)
• Health Insurance of permanent factory employees, as per policy of company	60,000
• Raw materials for which invoice received and GST paid for full amount but only 90% of material received during the month and remaining 10% will be received in next month (October, 2021)	1,13,000
• Work contractor’s service used for installation of plant and machinery	1,18,000
• Goods purchased against valid invoice from PQR Ltd., Although GST has been deposited by PQR Ltd. but JKL Ltd. has made payment to PQR Ltd. for such purchases in the month of November, 2021.	50,000
• Purchase of car used by director for the business meetings only	25,000

(June 2019, 5 marks)
Answer:
Calculation of Input Tax Credit (ITC) available to JKL Ltd. for the month of September, 2021

Particulars of items with Amount of GST	Amount (₹)
Health Insurance of factory employees of ₹ 60,000 Note: As per Section 17(5)(b)(iii) ITC is not available until and unless it is as per compulsory Government policy. Here it is only as per Company policy, therefore. ITC is not available.	Nil
Raw materials for which invoice received and GST paid for full amount but only 90% of material received during the month and remaining 10% will be received in next month ₹ 1,13,000 Note: As per proviso to Section 16(2), it will be available when last lot will be received, hence entire ITC be available in October, 2021	Nil
Work contractor’s service used for installation of plant and machinery of ₹ 1,18,000 Note: As per Section 17(5)(c) ITC will not be available for works contract services when supplied for construction of an immovable property other than plant and machinery. Since it is for plant and machinery, the ITC is available.	1,18,000
Goods purchased against valid invoice from PQR Ltd.	₹ 50,000
Note: ITC shall be admissible in Month of September, 2021 even if payment is made by JKL Ltd. in the Month of November, 2021 as payment is made within 180 days’ period. Purchase of car used by director for the business meetings only of ₹ 25,000 Note: As per Section 17(5)(a) input tax credit shall not be available in respect of Motor Vehicle (Car) for director even for business use only.	Nil
Total input tax credit available	1,68,000

Question 15.
Saraswathi Polymers Pvt. Ltd., has two units, one in Coimbatore, Tamil Nadu and another in Thrissur, Kerala. In the Coimbatore unit, it manufactures customised products only. Each lot consists of 100 units and is valued at ₹ 5 lakhs. These products require further processing before delivery to the customers. The further processing is done by the Kerala Unit, which enjoys a unique market position as there being no competitor providing similar services in Kerala.

The Kerala Unit, besides processing the products of the Tamil Nadu Unit, undertakes processing work of outsiders also and collects charges from them. Other manufacturers in Kerala, who deliver products to this unit for further processing, value at ₹ 3.5 lakhs per 100 units.

You are required to determine the value of 100 units supplied by the Tamil Nadu Unit of the registered supplier to its Kerala unit as per provisions of the CGST Act, 2017. (June 2019, 4 marks)
Answer:
As per Section 25(4) of the CGST Act, 2017, a person who has obtained or is required to obtain more than one registration, whether in one State or Union Territory or more than one State or Union Territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act. Therefore, units of Saraswathi Polymers Pvt. Ltd. in Kerala and in Coimbatore are two distinct person.

As per Rule 28 of CGST Rules 2017, the value of the supply of goods between distinct persons as specified in sub-sections (4) and (5) of Section 25 of the CGST Act, 2017 or where the supplier and recipient are related, other than where the supply is made through an agent, shall,—
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under Cause (a) or (b), then the cost of supply plus 10% mark up or be determined by other reasonable means, in that sequence.

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:

In the given case, open market value of the 100 units being supplied to Kerala unit is not available since the supplier manufactures customized products. Therefore the value of 100 units supplied by Tamil Nadu unit of Saraswathi polymers Pvt. Ltd. to Kerala unit will be the value of the goods of similar kind and quality supplied to Kerala unit by other customers which is being ₹ 3.5 lakhs per 100 units.

Since goods are not supplied as such by the Kerala unit, goods cannot be valued @ 90% of the price charged for the supply of like goods by the Tamil Nadu unit to its unrelated customers in terms of first proviso to Rule 28 of CGST Rules, 2017, Hence, value be taken at ₹ 3.5 lakhs for the 100 units supplied by Tamil Nadu Unit to its Kerala Unit for the purpose of processing.

Question 16.
Parikh is a practising Company Secretary at Mumbai. His gross fee receipts for the financial year 2021-22 was ₹ 28 lakhs. He estimated his gross receipts at ₹ 32 lakhs for the financial year 2022-23. He wants to avail composition scheme for the financial year 2023-24. Briefly narrate whether he can avail composition scheme for the financial year 2023-24 with attendant conditions. Will he be eligible to avail input tax credit? Can he issue tax invoice? (Dec 2019, 5 marks)
Answer:
Applicability of Composition Scheme:
Tfie new composition scheme, introduced vide Notification No.2/2020 dated 7.03.2020, provides for concessional rate of tax particularly to the suppliers of services. It is applicable to suppliers of services who have to pay tax at a rate of 6% (3% CGST and 3% SGST / 6% IGST). The basic condition for its applicability is that the annual turnover of the person in preceding financial year must not have exceeded ₹ 50 lakhs. In the present case, since Mr. Parikh has estimated turnover of ₹ 32 lakhs in the year 2022-23 which is below the minimum threshold of ₹ 50 lakhs, he can avail the new composition scheme for supply of service in the F.Y. 2023-24.

The registered person opting for new composition scheme is not eligible to avail input tax credit nor shall he be eligible to charge output tax from its recipients of supply.
The registered person shall issue bill of supply instead of tax invoice.

Question 17.
Bharat Ltd., a registered supplier under the regular scheme, is engaged in manufacture of electronic items. The following details for the month of March, 2022 are available:

Item : GST Paid (₹)
Machines acquired for manufacture (capital goods) : 10,00,000
Electronic items utilized in manufacture : 25,00,000
Trucks used for transporting materials : 1,00,000
Food and beverages consumed within the factory : 25,000
Advise the ITC eligibility for the company. (Dec 2019, 5 marks)
Answer:
Computation of ITC available:

	Amount(₹)
(i) Machineries acquired for manufacture of electronic items is eligible for ITC. However, depreciation has to be claimed on the net value excluding the GST. It is assumed that the GST amount has not been considered for the purpose of depreciation under section 32 of the Income-tax Act. 1961.	10,00,000
(ii) Electronic items utilized In manufacture. The ITC would be fully available as these are used in the course of business/ furtherance of business. [Section 16 CGST Act]	25,00,000
(iii) Trucks used foc transporting materials. ITC on motor vehicles for transportation of goods has not been blocked under Section 17(5) of the CGST Act. Hence, it is eligible for input tax credit.	1,00,000
(iv) Under Section 17(5) of the CGST Act, ITC on food and beverages is a blocked credit unless they are consumed to make outward taxable supplies in the same category or as part of mixed supply or composite supply or it is obligatory on the part of the employer to provide such service to its employees under any law. However, in the present case, food and beverage have been consumed within the factory. Hence, not eligible.	Nil
(v) Total ITC available	36,00,000

Question 18.
Determine the amount of Input Tax Credit (ITC) admissible under the provisions of CGST Act, 2017 to PQR Ltd. in respect of the following transactions which have taken place in the month of January, 2023. Take note that
(i) all the conditions necessary for availing the ITC have been complied with and fulfilled; and
(ii) the registered person PQR Ltd. is not eligible for any threshold exemption.
Support your answer by giving brief reasons.

Particulars : Amount of GST (₹)
(i) Goods used in constructing an additional floor of office building at Jaipur. : 24,750
(ii) Packing materials used in the factory : 6,500
(iii) Goods destroyed in flood waters due to natural calamities : 4,750
(iv) Paper purchased for computers printing and for photocopying machine used in Administrative Office : 1,250
(v) Inputs used for tests or for quality control check : 15,600 (Dec 2020, 5 marks)
Answer:
Computation of Input Tax Credit for the month of January, 2023

Working Notes:

1. As per Section 17(5)(d) of CGST Act, 2017, Input Tax Credit shall not be available in respect of goods or services Or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course of furtherance of business. Hence, input tax credit shall not be available in respect of goods used in construction of an additional floor of office building.

2. Section 17(5)(h) of CGST Act, 2017, Input Tax Credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Hence, no ITC shall be available in respect of goods destroyed due to natural calamities.

Question 19.
Romeo Small Finance Bank Ltd is engaged In providing financial related services and of various types of loan facilities to its constituents, furnishes the following information relating to various services provided and the gross amount received during the month of December, 2022.

Particulars of service Amount : (₹ In lacs)
(1) Commission received for debt collection service : 10
(2) Discount earned on bills discounted : 3
(3) Penal interest recovered from the customers for the delay in payment of loan. EMIs/Dues : 2
(4) Commissioner received for service rendered to Government for the collection of taxes : 5
(5) Interest earned on reverse repo transaction : 10
(6) Service to merchants accepting credit/debit card payments using point of sale (POS) machine of Bank. (In 30% cases, the amount per transaction was up to ₹ 1,800 while in the other cases the amount was exceeding ₹ 2,000) : 20

Compute the value of taxable supply and of the amount of GST payable for the month of December, 2021 of Romeo Small Finance Bank Ltd. Gross amount does not indude the amount of GST. Take the Rate of GST as 18%.
(Dec 2020, 5 marks)
Answer:
Romeo Small Finance Bank Ltd. Computation of Value of Taxable Supply and of GST payable for the month of December, 2022

Particulars	Amount (₹)
Commission received on debt collection	10,00,000
Discount earned on Bills Discounted [Exempt Entry 27 of Notification No. 12/2017-CT (Rate)]	Exempt
Penal interest charged for delay in repayment [Includible in value as per Section 15(2)(d) of the CGST Act]	2,00,000
Commission received for services rendered to Government for collection of taxes. [Since an activity carried out for consideration and there is no exemption in force, liable to GST]	5,00,000
Interest earned on Reverse Repo transaction [Reverse Repo are ‘securities’-Not covered in goods as well as in services. Additionally, interest earned on securities is exempt vide Entry 27 of Notification No. 12/2017-CT (Rate), hence not taxable]	Exempt
Service to merchants accepting credit/debit card payments using Point of Sale machine(POS) of Bank [in 30% cases, the amount per transaction was up to ₹ 1800 hence exempt vide Entry 34 of Notification No. 12/2017-CT(R); while in other cases, the amount was exceeding ₹ 2000 hence liable to GST] (70% of 20,00,000)	14,00,000
Value of Taxable Supply	31,00,000
Total GST payable @18% on ₹ 31,00,000	5,58,000

Question 20.
2020 – Dec [2] (a) PQR Travels Ltd. engaged in providing diversified services of transportation of passengers by various modes provides the details of the various services so provided to the passengers and of the amount collected there against for the month of March, 2022. Service of Transportation of Passengers:
(1) by National Waterways : ₹ 40,00,000
(2) by Air conditioned State carriages : ₹ 30,00,000
(3) by contract carriages for tourism purposes : ₹ 25,00,000
(4) from Mumbai to Chennai port in a vessel and such service is not for tourism purpose : ₹ 12,00,000
(5) in Metered Cab : ₹ 32,50,000
(6) in Radio Taxis : ₹ 25,00,000
(7) in Air conditioned contract carriages : ₹ 25,00,000
Compute the value of the taxable supply of the services and of the amount of GST liability payable thereon by PQR Travels Ltd for March, 2023 by taking the applicable rate of GST at 5%. (Dec 2020, 5 marks)
Answer:
Computation of Taxable Value of Supply and of GST liability PQR Travels Ltd. for March, 2023

Particulars	Amount (₹)
1. Transportation of passengers by National Waterways [Exempt vide Entry 17 of Notification No. 12/2017-CT (Rate)]	Nil
2. Transportation of passengers by Air conditioned State carriages	30,00,000
3. Transportation of passengers by contract carriage for tourism	25,00,000
4. Transportation of passengers from Mumbai to Chennai port in a vessel [being in a public transport vessel sailing in India not for tourism – is exempt vide Entry-17 of Notification No. 12/2017-CT (Rate)]	Nil
5. Transportation of passengers in Metered Cab [Exempt vide entry 17 Notification No. 12/2017-CT (Rate)]	Nil
6. Transportation of passengers in Radio Taxis	25,00,000
7. Transportation of passengers in air-conditioned contract carriages	25,00,000

Question 21.
Destiny Advertising Agency, Ahemdabad supplying services to different customers for making booking of advertisements in different media, provides the following details and of the amounts charged there against for the month of January, 2023.
Particulars : Amount (₹ Lakh)
(1) Aerial advertising : 15
(2) Sale of time slot for advertisement to be broadcast on television : 12
(3) Advertisement via banner at public places : 7
(4) Sale of time slot for advertisement on FM Radio/98 Radio Mirchi : 13
(5) Advertisements in Dainik Bhaskar newspaper : 9
(6) Advertisement on cover and back pages of books : 1
Compute the taxable value of the services and of the amount of GST payable. Take the rate of GST in print’ media of 5% and in other cases of 18%. All amounts given are exclusive of GST. Ignore the threshold limit. (Dec 2020, 5 marks)
Answer:
Destiny Advertising Agency, Ahemdabad Computation of Taxable Value of Supply and of GST payable of January, 2023

Particulars	Amount (₹)
1. Aerial advertising	15,00,000
2. Sale of time slot for advertisement in TV Serial	12,00,000
3. Advertisement via banners at public places	7,00,000
4. Sale of time slot for advertisement on FM radio and 98 Radio Mirchi	13,00,000
5. Advertisement in Dainik Bhaskar news paper(Print media hence GST applicable @5%)	9,00,000
6. Advertisement on cover and back pages of books (Books are covered in Print media – hence GST applicable @ 5%)	1,00,000
Total Value of Taxable Supply	57,00,000
Value of supply Taxable @ 5% (9,00,000+1,00,000)	10,00,000
Value of supply Taxable @ 18% (15,00,000+12,00,000+7,00,000+13,00,000)	47,00,000
GST Payable (10,00,000 × 5 %) + (47,00,000 × 18%) = 50,000 + 8,46,000	8,96,900

Question 22.
M/s Basuridhara Properties is a registered person under GST. Its main business is renting of various Immovable properties owned by them. The following collections are made in the course of its business during the month of March, 2023:
(i) Building let to a theatre : ₹ 50,000
(ii) Premises let to a charitable trust : ₹ 45,000
(iii) Land let for use by Asian Circus : ₹ 90,000
(iv) Houses let to individuals for residential purposes : ₹ 30,000
(v) Vacant land let used for agriculture purposes : ₹ 40,000
(vi) Land given on lease to Titu Ltd. for construction of a commercial complex : ₹ 60,000
(vii) Building let to a coaching centre : ₹ 45,000
(viii) Building let to a hotel : ₹ 50,000
You are required to calculate the GST payable by M/s Basundhara Properties (GST rate applicable is 18%). (Aug 2021, 5 marks)
Answer:
Computation of GST Payable for the month of March, 2023 :

Particulars	Amount (₹)
i. Building let to a theater	50,000
ii. Premises let to a Charitable Trust	45,000
iii. Land let for use by Asian Circus	90,000
iv. Houses let to individuals for residential purpose	Nil
v. Vacant land let used for Agriculture Purposes	Nil
vi. Land given on lease to Titu Ltd. for construction of a commercial complex	60,000
vii. Building let to a coaching centre	45,000
viii. Building let to a Hotel	50,000
Total Taxable Supply	3,40,000
GST payable on 3,40,000 @ 18%	61,200

Note:
I. As per Entry No. 12 of Notification no. 12/2017 Central Tax (Rate) dated June 28, 2017 Services by way of renting of immovable properties for use as residence are exempt.

II. As per Entry No. 54 of Notification no. 1212017 Central Tax (Rate) Services by way of renting or leasing of agro machinery or vacant and with or without a structure incidental to its use relating to cultivation of plants and rearing of all the form of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce are exempt.

III. GST is on reverse charge for Long term lease of land (30 years or more) by any person against consideration in the form of an upfront amount (called as premium, salami, cost, price, development charges, or by any other name) and/or periodic rent for construction of a project by a promoter. [Notification 05/2019 Central Tax (Rate)
it is assuried that in Point (vi), it is not long term lease and hence torward charge is applicable.

Question 23.
Jinia is a Garments manufacturer registered under GST. It received a Government order for making Garments for Defence Personnel (exempted from GST under a special notification by the Government of India) for which it procured fabric separately. To execute the work Jifia also procured buttons, threads, collars and lining materials which are also used for the production of other goods in the factory.

ITC (Input Tax Credit) available in respect of thread. buttons and collars for the month of January, 2022 was ₹ 25,000, ₹ 45,000 and ₹ 50,000 respectively and the taxable and exempted supplies during the month were ₹ 10 lakh and ₹ 2 lakh respectively. Calculate the eligible ITC that can be availed by Jinia for the month of January 2023 in respect of thread, buttons and collars. (Aug 2021, 5 marks)
Answer:
As per Section 17 of the Central Goods and Services Tax Act, 2017 read with Rule 42 of CGST Rules law if goods or services or both are used by the registered person partly for effecting taxable supplies including Zero rated supplies under this Act or under the IGST Act and partly for effecting exempt supplies under the said Act, the amount of credit shall be restricted to so much of the input tax as is attributable to taxable supplies including Zero rated supplies.

In the given case Thread, Buttons and Collars are used for both taxable as well as exempt supplies.
As per the manner of apportionment prescribed in CGST Act

In the given case
Common ITC credit (₹ 25,000 + 45,000 + 50,000) = ₹1,20,000
Exempt Turnover = ₹ 2,00,000
Total Turnover (₹ 10,00,000 + 2,00,000) = ₹ 12,00,000
Therefore,
Credit attributable to Exempt supplies \(=\frac{1,20,000 \times 2,00,000}{12,00,000}\) = ₹ 20,000
Hence, Jinia would have to reverse ITC of Rupees 20,000 in its GSTR – 3B in the month of January 2022 and only ₹ 1,00,000 (₹ 1,20,000 – ₹ 20000) can be availed by June as ITC in respect of Thread, Buttons and Collars.

Question 24.
Calculate the value of taxable supply and GST liability of GG Freight and Goods carries engaged in the business of transport of goods by road for the month of March, 2023 from the given particulars.
Give reasons for taxability or exemption of each item. Suitable assumptions may be made wherever required. GG freight and goods carriers avails ITC.
Take the rate of GST chargeable at 12% . Total freight charges received for the month of March, 2023 of ₹ 20,00,000 and following charges included in 20 lakhs.

Particulars : Amount (₹)
(i) Freight charges received from Government Departments registered only for the purpose of tax deduction at
source : 4,00,000
(ii) Freight charges received from unregistered persons for transportation of their household goods : 1,00,000
(iii) Freight collected for transporting goods in small vehicles for persons who paid less than ₹ 1,500 per trip : 3,00,000 (Dec 2021, 4 marks)
Answer:
Computation of Value of taxable supply and GST for March, 2023
CG Freight and Good Carriers

Particulars	Amount (₹)
Total freight received	20,00,000
Less: Freight Charges received from Government department registered only for the purpose of tax deduction at source.[Exempt vide Entry 21B of Notification No.12 2017 CT (Rate)]	4,00,000
Less: Freight charges received from unregistered persons for transportation of their household goods (Exempt vide Entry 21 A of Notification No. 12/201 7-CT (Rate)]	1,00,000
Less: Freight collected for transporting goods in small vehicles for persons who paid less than  1500 per trip (Exempt, since the freight on all consignments transported into a goods carnage doesnt exceed  1 500)[Exempt vide Entry 21 of Notification No. 1212017-CT(Rate)	3,00,000
Total value of taxable supply	12,00,000
GST payable @ 12% on ₹ 12,00,00	1,44,000

Question 25.
Kajri Pvt. Ltd., a registered supplier, is engaged in the manufacture of taxable goods. The company provides the following information pertaining to purchase made/services availed by it during the month of August, 2022:

Particulars	GST (₹)
(i) Raw spices purchased for personal use of directors	3,50,000
(ii) Electric machinery purchased for being used in the manufacturing process	2,25,000
(iii) Club membership fees for employees working in the factory	1,55,000
(iv) Motor vehicle used for transportation of employee (seating capacity 12 persons)	2,70,000
(v) Payment made to contractor for construction of staff quarter	80,000

Determine the amount of Input Tax Credit (ITC) available with Kajri Pvt. Ltd. for the month of August, 2022 in the context of provision of CGST Act, 2017 by giving the necessary explanation for treatment of various items. Subject to the information given above, all the other conditions necessary for availing ITC have been fulfilled. (June 2022, 5 marks)
Answer:
Computation of Input Tax Credit (ITC) available with Kajrl Pvt. Ltd. for the month of August, 2022:

Particulars	Amount (₹)
(i) Raw spices purchase for personal use of directors [ITC is not available on goods used for personal consumption as credit blocked under Section 17(5) of Central Goods and Services Tax Act, 2017.]	Nil
(ii) Electric machinery purchased for being used in the manufacturing process	2,25,000
(iii) Club Membership fees for employees working in the factory [Covered under Blocked credit in terms of Section 17(5) of Central Goods and Services Tax Act, 2017]	Nil
(iv) Motor vehicle used for transportation of employee[ITC on motor vehicles for transportation of persons with seating capacity ≤ 13 persons (including the driver) is blocked except when the same are used for (i) making further taxable supply of such motor vehicles (ii) making taxable supply of transportation of passengers (iii) making taxable supply of imparting training on driving such motor vehicles.In the given case, motor vehicle used for transportation of the employee is covered under blocked credit in term of Section 17(5) of Central Goods and Services Tax Act, 2017]	Nil
(v) Payment made to contractor for construction of staff quarter. [ITC is not available on goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.]	Nil
Total available ITC	2,25,000

Question 26.
Piyush Manufactures, a registered person, instructs its supplier to send the capital goods directly, to Vijay Enterprises, who is a job-worker, outside its factory premises for carrying out certain operations on the goods. The goods were sent by the supplier on 10th April and were received by the job-worker on 15th April.

Vijay Enterprises carried out the job-work, but did not return the capital goods to their principal – Piyush Manufactures. Discuss whether Piyush Manufactures are eligible to retain the input tax credit availed by them on the capital goods. What action under the GST Act is required to be taken by Piyush Manufactures ?

What would be your answer if in place of capital goods, jigs and fixtures are supplied to the job worker and the same has not been returned to the principal? (June 2022, 4 marks)
Answer:
As per section 19(5) of the Central Goods and Services Tax Act, 2017: Notwithstanding anything contained in 16(2)(b), the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business.

Further, section 19(6) of the Central Goods and Services Tax Act, 2017 stipulates that where the capital goods sent directly to a job worker are not received back by the principal within a period of 3 years of the date of receipt of capital goods by the job worker, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were received by the job worker.

In view of aforementioned provisions, Piyush Manufactures are eligible to retain the input tax credit availed by them on the capital goods.

However, if the capital goods are not returned by Vijay Enterprises within 3 years from 15^th April and Piyush Manufactures shall be liable to pay the tax along with applicable interest.
There is no time limit for return of moulds and dies, jigs and fixtures or tools sent out to a job worker for job work [section 19(7) of Central Goods and Services Tax Act, 2017].

However, if Vijay Enterprises does not return the jigs and fixtures to Piyush Manufactures, it shall not be considered as a supply of jigs and fixtures to Vijay Enterprises by Piyush Manufactures. In this case also, Vijay Manufactures will be eligible to retain the input tax credit availed by them.

Question 27.
Sukesh Private Ltd., registered in Uttar Pradesh, is engaged in supplying of services, its turnover was ₹ 30 lakh in the financial year 2021 -22. It has provided the following information of outward supply for the month of May, 2023 :

Particulars	Amount (₹)
(i) Fee for the coaching provided to students for competitive exams. The coaching centre is run by Sukesh Private Ltd. in Uttar Pradesh	6,00,000
(ii) Receipts for services provided in relation to conduct of examination in Saransh University, Delhi (Providing education recognized by Indian Laws)	20,000
(iii) Amount received from Kama Public School a higher secondary school at Noida (Uttar Pradesh) for transportation of students from their residence and back.	50,000
(iv) Amount received for providing the security and housekeeping services in VT Public School-a pre-school at Delhi	30,000

Note: Rate of CGST, SGST ar.d IGST and 9%, 9% and 18% respectively. All the amounts given above are exclusive of taxes.
Compute the total GST Liability of Sukesh Private Ltd. for the month of May, 2023. (Dec 2022, 5 marks)

Question 28.
Aditi Company Ltd. is engaged in the manufacturing of heavy machinery. It procured the following items during the month of April, 2023:

Items	GST Paid (₹)
(i) Electrical transformers to be used in the manufacturing process	5,00,000
(ii) Trucks used for the transport of raw material	1,20,000
(iii) Goods purchased from R traders (Invoice of R Traders is received in the month of April, 2023 and debited in the books of account in the April, 2023, but goods were received in the month of May, 2023	1,50,000
(iv) Confectionery items for consumption of employees working’ in the factory	20,000

Determine the amount of Input Tax Credit (ITC) available with Aditi Company Ltd., in the month of April, 2023 by giving necessary explanations for treatment of various items. Assume that:

1. All the conditions necessary for availing the ITC have been fulfilled.
2. Aditi Company Ltd. is not eligible for any threshold exemption. (Dec 2022, 5 marks)

Question 29.
Ghumte Raho Ltd. a tour operator, availed input tax credit (ITC) in respect of certain transactions where no such supplier was existent or from a person not doing any business from the registered place of business.
Jurisdictional Deputy Commissioner of GST wants to restrict the utilization of the credit by Ghumte Raho Ltd. You have been approached by Ghumte Raho Ltd. to give your advice on the following questions raised by it:
(i) Is it possible for the Department to restrict the utilization of credit which is already availed?
(ii) If yes, under what circumstances this can be done by the Department? (Dec 2022, 4 marks)

Question 30.
What is Input Service Distributor (ISD)?
Answer:
ISD means an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax (CGST), State tax (SGST)/ Union territory tax (UTGST) or integrated tax (IGST) paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the ISD.

Question 31.
What is Input Tax credit?
Answer:
Input tax credit means the credit of central tax, state/ union territory tax and integrated tax available to a registered person on the inward supply of goods or services or both, made to him excluding the tax paid on supplies liable to composite tax. It further includes the integrated tax applicable on import of goods or services and the tax payable under reverse charge mechanism.

Question 32.
Whether Input tax credit availed on refractory bricks, moulds and dies, jigs and fixtures is to be reversed in case of supply of such goods?
Answer:
Yes. In terms of proviso to Section 18(6) of CGST Act, in case of supply of such goods as scrap, the registered person is required to pay the tax on the transaction value of such goods. Thus, in this case, unlike section 18(6), no comparison is required to be made between ITC taken on the capital goods/plant and machinery reduced by the specified percentage points and the tax on the transaction value of such goods.

Question 33.
Can the ISD distribute the credit as a consolidated amount to a recipient?
Answer:
No, in terms of Rule 39(1) (b) of the CGST Rules, 2017, the ISD is required to distribute the eligible and in-eligible credit separately to a recipient. Further, the integrated tax, central tax and state tax should also be distributed separately.

Question 34.
Can a company have multiple ISD?
Answer:
Yes, different offices like marketing division, security division etc. may apply for separate ISD.

Question 35.
Can GST paid on reverse charge basis be considered as input tax?
Answer:
Yes. The definition of input tax includes the tax payable under the reverse charge.

Question 36.
What are the conditions necessary for obtaining ITC?
Answer:
Following four conditions are to be satisfied by the registered taxable person for obtaining ITC:
(a) he is in possession of tax invoice or debit note or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both;
(c) the supplier has actually paid the tax charged in respect of the supply to the government; and
(d) he has furnished the return under section 39.

Question 37.
What is the time limit for taking ITC and reasons thereof?
Answer:
A registered person cannot take ITC in respect of any invoice or debit note for supply of goods or services after the due date for furnishing the return under section 39 for the month of September following the end of financial year to which such invoice/invoice relating to debit note pertains or furnishing of the relevant annual return, whichever is earlier. So, the upper time limit for taking ITC is 20th October of the next FY or the date of filing of annual return whichever is earlier.

The underlying reasoning for this restriction is that no change in return is permitted after September of next FY. If annual return is filed before the month of September, then no change can be made after filing of annual return.

Question 38.
What is the time limit within which the recipient of supply is liable to pay the value of supply with taxes to the supplier of services/goods to avail in the input tax credit?
Answer:
In terms of second proviso to Section 16(2) of the CGST Act, the time limit prescribed is one hundred and eighty days (180 days) from the date of issue of invoice by the supplier of services/goods. If the recipient fails to pay the value of supply (with tax) within 180 days, such input tax credit would be payable by the recipient along with applicable interest.
The above time limit is not applicable to supplies that are liable to tax under reverse charge mechanism.

Question 39.
A person becomes liable to pay tax on 1st August, 2021 and has obtained registration on 15^th August, 2020. Such person is eligible for input tax credit on inputs held in stock as on:
(a) 1^st August, 2021
(b) 31^st July, 2021
(c) 15^th August, 2021
(d) He cannot take credit for the past period
Answer:
(b) 31^st July, 2021.

Question 40.
Which of the following is included for computation of taxable supplies for the purpose of availing credit?
(a) Zero-rated supplies
(b) Exempt supplies
(c) Both
Answer:
(a) Zero rated supplies.

Question 41.
Mr. A, a registered person was paying tax under composition scheme up to 30^th July, 2021. However, w.e.f 31^st July, 2021, Mr. A becomes liable to pay tax under regular scheme. Is he eligible for ITC?
Answer:
Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods (reduced by such percentage points as may be prescribed) as on 30^th July, 2021.

Question 42.
Mr. B applies for voluntary registration on 5^th June, 2020 and obtained registration on 22^nd June, 2021. Mr. B is eligible for input tax credit on inputs in stock as on ………
Answer:
Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21^st June, 2021. Mr. B cannot take input tax credit in respect of capital goods.

Question 43.
Whether the registered person can avail the benefits of input tax credit and depreciation on the tax component of capital goods and plant and machinery?
Answer:
No, Section 16(3) provides that input tax credit will not be allowed on the tax component of cost of capital goods/ plant and machinery, if the depreciation on the said tax component is claimed under the provision of Income Tax Act, 1961 by the taxable person. Therefore, the registered person has an option to either claim depreciation (under the Income Tax Act, 1961) or claim credit under the GST law, on the said tax component.
For example:
Cost of Asset = ₹ 1,000/
Tax = ₹ 100/
Total = ₹ 1,100/
If depreciation is charged on ₹ 1,000/-, then credit will be available under the GST law and if depreciation is charged on ₹ 1,100/- then credit will not be available.

Question 44.
What are the requirements for registration as ISD?
Answer:
An ISD is required to obtain a separate registration even though it may be separately registered. The threshold limit of registration is not applicable to ISD. The registration of ISD under the existing regime (i.e. under Service Tax) would hot be migrated in GST regime. All the existing ISDs will be required to obtain fresh registration under new regime in case they want to operate as an ISD.

Question 45.
What does the turnover used for ISD cover?
Answer:
The turnover for the purpose of ISD does not include any duty or tax levied under entry 84 of List I and entry 51 and 54 of List II of the Seventh Schedule to the Constitution.

Question 46.
Is the ISD required to file return?
Answer:
Yes, ISD is required to file monthly return by 13th of the following month.

Question 47.
The ISD may distribute the CGST and IGST credit to recipient outside the State as
(a) IGST
(b) CGST
(c) SGST
Answer:
(a) IGST.

Question 48.
The ISD may distribute the CGST credit within the State as _____
(a) IGST
(b) CGST
(c) SGST
Answer:
(a) IGST

Question 49.
The lSD may distribute the CGST credit within the State as____
(a) IGST
(b) CGST
(C) SGST
(d) Any of the above.
Answer:
(b) CGST.

Question 50.
The credit of tax paid on input service used by more than one supplier is _______
(a) Distributed among the suppliers who used such input service on pro rata basis of turnover in such State.
(b) Distributed equally among all the suppliers.
(c) Distributed only to one supplier.
(d) Cannot be distributed.
Answer:
(a) Distributed among the suppliers who used such input service on pro rata basis of turnover in such State.

Question 51.
Is a job worker required to take registration?
Answer:
Yes, as job work is a service, the job worker would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold.

Input Tax Credit & Computation of GST Liability Notes

Input Tax”
Section 2(62) “input tax” in relation to a registered person, means the Central tax, State tax, Integrated tax or Union Territory tax charged on any supply of goods or services or both made to him and includes –

• the integrated goods and services tax charged on import of goods;
• the tax payable under the provisions of sub-sections (3) and (4) of Section 9;
• the tax payable under the provisions of sub-sections (3) and (4) of Section 5 of the Integrated Goods and Services Tax Act;
• the tax payable under the provisions of sub-sections (3) and (4) of Section 9 of the respective State Goods and Services Tax Act; or
• the tax payable under the provisions of sub-sections (3) and (4) of Section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy.

“Input Tax Credit”
Section 2(63) “input tax credit” means the credit of input tax;

Input Tax Credit (ITC) is considered as a cornerstone of GST. In the previous tax regime, there was non- availability of credit at various points in supply chain, leading to a cascading effect of tax i.e., tax on tax and therefore increasing the cost of goods and services. This flaw has been removed under GST and a seamless flow of credit throughout the value chain is therefore available consequently doing away with the cascading effect of taxes.

To avail the benefit of ITC, it is required that the person availing such benefit is registered under GST. An unregistered person is not eligible to take the benefit of ITC. Section 155, of the CGST Act, 2017 states that where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.

Eligibility for taking ITC [Section 16(1)]

Only a registered person will be allowed to take input tax credit. If a person is liable to register but did not register himself under the GST law, input tax credit will not be allowed to such person.

ITC will be available on goods and/ or services which are used or intended to be used in the course or furtherance of business. Thus, tax paid on goods and/ or services which are used or intended to be used for non-business purposes cannot be availed as credit. ITC will be credited to the Electronic Credit Ledger.

“Job Work”
Section 2(68): “Job Work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.

“Input Service Distributor”
“Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

Various Forms used under ITC

1. Form GST ITC – 01 [See rule – 40(1)]
Declaration for claim of input tax credit under sub-section (1) of Section 18.

2. Form GST ITC-02 [See rule-41(1)]
Declaration for transfer of ITC in case of sale, merger, demerger, amalgamation, lease or transfer of a business under sub-section (3) of Section 18.

3. Form GST ITC -03 [See rule – 44(4)]
Declaration for intimation of ITC reversal/payment of tax on inputs held in stock, inputs contained in semi-finished and finished goods held in stock and capital goods under sub-section (4) of Section 18.

4. Form GST ITC-04 [See rule-45(3)]
Details of goods/capital goods sent to job worker and received back

Chapter 8 Corporate Governance and Shareholders Rights – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Corporate Governance and Shareholders Rights – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Write short note on the following:
Related party transactions. (Dec 2013, 3 marks)
Answer:
Related Party Transactions [Section 2(76)]
“Related Party”, with reference to a company, means-
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or his relative is a member or director;
(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any body corporate which is
(a) a holding, subsidiary or an associate company of such company;
(b) a subsidiary of a holding company to which it is also a subsidiary; or.
(c) an investing company or the venturer of the company;
Explanation: For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.]
(ix) such other person as may be prescribed.
Note: For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act, a director other than an independent director or key managerial personnel of the holding company or his relative with reference to a company, shall be deemed to be a related party.

Question 2.
Write short note on the following:
Institutional investors [Old Syllabus] (June 2014, 3 marks)
Answer:
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others. In India, there are broadly the following types of institutional investors:

• Development oriented financial institutions such as IFCI, IDBI and state financial corporations.
• Insurance Companies- LIC, GIC and other subsidiaries.
• Banks.
• All mutual funds and including UTI.
• Pension Funds.

Question 3.
Write short note on the following:
Insider trading. (Dec 2014, 3 marks)
Answer:
Insider Trading
Rafael La Porta et al (1999) points out the insiders may steal the fund or siphon off investor’s funds in the following ways,
(a) Insider may simply steal the earnings
(b) Sell the output or assets of the firm they control which the outside investors have financed, to another entity at below market price. Such transfer pricing is equivalent to stealing,
(c) Employing under qualified family members on excessive pay in managerial positions,
(d) Selling the securities to other firm i.e. the insider control at a lower price.

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, say, “Insider” is any person, who is or was connected with the company and who is reasonably expected to have access to unpublished price sensitive information about the stock of that particular company or who has access to such unpublished price sensitive information.

Information that could be price sensitive includes:

• Periodical financial results of a company, .’
• Intended declaration of dividend,
• Issue or, buyback of securities,
• any major expansion plans or execution of new projects, amalgamation, merger, takeovers, disposal of the whole or substantial part of the undertaking and any other significant changes in policies, plans or operations of the company.

Question 4.
Discuss briefly the following:
Sarbanes-Oxley Act, 2002 (June 2012, 3 marks)
Answer:
Sarbanes – Oxley Act, 2002
The SOX Act was signed into law by the US President on 30th July, 2002. The Sarbanes Oxley Act is also known as the “Public Company Accounting Reform and Investor Protection Act of 2002” This legislation brought with it fundamental changes in virtually every area of corporate governance and particularly in auditor independence, conflict of interest, corporate responsibility, enhanced financial disclosures and several penalties both fines and imprisonment for wilful default by managers and auditors.

Question 5.
Highlight the role of institutional investors in promoting good Corporate Governance. (June 2013, 5 marks)
Answer:
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others. In India, there are broadly the following types of institutional investors:
Development oriented financial institutions such as IFCI, IDBI and state financial corporations Insurance Companies- LIC, GIC and other subsidiaries Banks all mutual funds including UTI Pension Funds.

The Combined Code (2008) had also stated the following principles of good governance for the Institutional Shareholders.
(a) Dialogue with companies:
Institutional shareholders should enter into a dialogue with companies based on the mutual understanding of objectives.
(b) Evaluation of governance disclosures:
When evaluating companies’ governance arrangements, particularly those relating to board structure and composition, institutional Investors should give due weight to all relevant factors drawn to their attention.
(c) Shareholder voting:
Institutional shareholders have a responsibility to make considered use of their votes.

Question 6.
The Board of directors of your company intends to formulate corporate communication policy. As a Company Secretary, you are required to prepare a qualitative note highlighting the areas on which communication policy may specifically focus. (June 2013, marks)
Answer:
To
The Board of Directors
ABCD Limited
Corporate Communication Policy defines the role and responsibilities of the employees in the communication structure of the company.
Corporate Communication Policy may specifically focus on:
(a) Information to Employees-internal Communications:
All the relevant information should be communicated to the employees through internal channels.
(b) Media Relations:
This involves building and maintaining a positive relationship with the media.
(c) External Event:
Could involve vendor/supplier/distributor meets, channel partner meetings, event related to product launches, important initiatives etc.
(d) Investor Communication:
Investor relation cell can held responsible for coordinating communications with investors.
(e) Brand Management:
Major responsibility of corporate communication is image or brand building.
(f) Legal Communication:
Regulators are the external players having considered role in communication by the company. At various points communication are to be made to the stock exchange, government and judicial authorities. Secretarial and legal department may be held responsible for timely and accurate communication. .

Question 7.
“Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, ethical business conduct and making a distinction between personal and corporate funds in the management of a company.”
Discuss the scope of corporate governance in the backdrop of this statement. (Dec 2013, 10 marks)
Answer:
“Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment* to values, about ethical business conduct and about a distinction between personal and corporate funds in the management of a company.” This statement holds good in the context of what could be good governance all about and has been extracted from the Narayana Murthy Committee Report on Corporate Governance (SEBI 2003). The statement explains what corporate governance is, how it can be ensured and what investors can expect from it. We can make the following assertions from this statement:

• Shareholders are the true owner of the corporation.
• Management should accept their rights as much.
• Management (board) role is that of the trustees of shareholders.
• Good governance demand – commitment to values, ethical business conduct.
• While managing the affairs management ought to distinguish between personal funds and corporate funds.

The need for good governance emanates from the fact that corporations pool capital from a large investor base. This could be from domestic as well as global markets. In this context, investment is ultimately an act of faith in the ability of a corporation’s management. When investors or a shareholder invests money in a corporation, they expect the board and the management to act as trustee and ensure the safety of the capital (keeping the capital irtact) and also earn a rate of return which is higher than the cost of capital (i.e. earning profits). As such, shareholders expect the company management to act in their best interests at all times and adopt good corporate governance practices. The legal position of the company board is that their relationship with the company is fiduciary. They should act in the manner which is not inclined to personal interest of any one at the cost of the company. The company’s interest should be furthered and welfare of all shareholders and stakeholders should be kept in mind. This could be achieved by reporting to good governance practices in management, transparency in business dealings, adequate disclosure to all stakeholders, ethical conduct of business, following best accounting and above all contribution to social development in the society where in such company operates.

Question 8.
“UK Corporate Governance Code, 2010 is the re-fragmentation of the earlier one with several structural changes.” Discuss the Board composition in compliance with the new code in the light of this statement. (Dec 2013, 4 marks)
Answer:
The UK Corporate Governance Code 2010 is the re-fragmentation of the earlier UK combined code on Corporate Governance with several structural changes including new provisions relating to board evaluation and annual elections. It is subject to the existing ‘comply or explain’ approach. Following is the relevant development in the code in Board Composition.

The board should include an appropriate combination of executive and non-executive directors (and in particular, independent non-executive directors) such that no individual or small group of individuals can dom’nate the board’s decision taking.

Question 9.
Discuss briefly the following:
(Shareholder activism (Dec 2013, 3 marks)
Answer:
Shareholder Activism: The shareholder activism means:
(a) Establishing dialogue with the management on issues that concern.
(b) Influencing the corporate culture.
(c) Using the corporate democracy provided by law.
(d) Increasing general awareness on social and human rights issues concerning the organization.

Question 10.
Briefly comment on the following:
Corporate governance framework should protect and facilitate the exercise of shareholders’ rights. (June 2014, 3 marks)
Answer:
The corporate governance framework should protect and facilitate the
exercise of shareholders’ rights.
A. Basic shareholder rights should include the right to:

• secure methods of ownership registration;
• convey or transfer shares;
• obtain relevant and material information on the corporation on a timely and regular basis;
• participate and vote in general shareholder meetings;
• elect and remove members of the board; and
• share in the profits of the corporation.

B. Shareholders should have the right to participate in and to be sufficiently informed on, decisions concerning fundamental corporate changes such as:

• amendments to the statutes, or articles of incorporation or similar governing documents of the company;
• the authorisation of additional shares; and
• extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company.

C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings:
1. Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting.

2. Shareholders should have the opportunity to ask questions to the board, including questions relating to the annual external audit, to place items on the agenda of general meetings and to propose resolutions, subject to reasonable limitations.

3. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of board members, should be facilitated. Shareholders should be able to make their views known on the remuneration policy for board members and key executives. The equity component of compensation schemes for board members and employees should be subject to shareholder approval.

4. Shareholders should be able to vote in person or in absentia, and equal effect should be given to votes whether cast in person or in absentia.

D. Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.

E. Markets for corporate control should be allowed to function in an efficient and transparent manner.
(i) The rules and procedures governing the acquisition of corporate control in the capital markets and extraordinary transactions such as mergers and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class.
(ii) Anti-take-over devices should not be used to shield management and the board from accountability.

F. The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.
(i) Institutional investors acting in a fiduciary capacity should disclose their overall corporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights.
(ii) Institutional investors acting in a fiduciary capacity should disclose how they manage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.

G. Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

Question 11.
Briefly explain the following terms and their relevance to good corporate governance practices:
Related party transactions [Old Syllabus] (June 2014, 2 marks)
Answer:
Related Party Transactions: Related party transactions are the transactions done with related parties, i.e. parties in which directors etc. are interested. If done, such transactions should be done at arm’s length pricing and with full transparency. Audit committee is required to scrutinise related party transactions. Related party transactions may be abusive and should be controlled either by way of board approach or by means of adequate disclosure. Accounting Standard (AS-18) should also be followed.

Question 12.
Briefly explain the following terms and their relevance to good corporate governance practices:
Shareholder activism. [Old Syllabus] (June 2014, 2 marks)

Question 13.
What is meant by investor protection? Discuss the investor protection measures taken by Securities and Exchange Board of India (SEBI). [Old Syllabus] (June 2014, 6 marks)
Answer:
Investor Protection in India: Securities and Exchange Board of India (SEBI) is tne capital market regulator and nodal agency in India who regulates the security market. One of the objectives of the SEBI is to provide a degree of protection to the investors and to safeguard their rights, steady flow of savings into market and to promote the development of and regulate the securities market.
Investors should be safeguarded not only against frauds and cheating but also against the losses arising out of unfair practices. Such practices may include:

• Deliberate misstatement in offer statements to investors.
• Price manipulations.
• Insider trading.

SEBI has issued many guidelines and regulations to regulate the capital market and to protect the investors.
SEBI has set up a separate cell to address the grievances of investors. To support further, the Government of India has also enacted Right To Information (RTI) Act 2005 to provide right to information to citizen to secure access to information under the control of public authority in order to promote transparency and accountability.

Question 14.
Briefly comment on the following:
(i) Protection of ‘shareholders’ rights is sacrosanct for good Corporate Governance.
(ii) Investors’ relations can be referred to as ‘financial public relations’ or ‘financial communications’. (Dec 2014, 2 marks each)
Answer:
(i) Protection of shareholder rights is sacrosanct for good corporate governance. It is one of the pillars of corporate governance. For the efficient functioning of the capital market, the fundamental requirement is that the investor rights are well protected. The Preamble to Securities and Exchange Board of India Act, 1992 reads as under: “An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected there with or incidental thereto.”

The central element in corporate governance is the challenges arising out of separation of ownership and control. The shareholders are the true owners of a corporate and the governance function controls the operations of the corporate. There is a strong likelihood that there is a mismatch between the expectations of the shareholders and the actions of the management. Therefore there is a need to lay down clearly the rights of the shareholders and that of the management.
In the Indian context, the SEBI Act, 1992, the various SEBI Regulations and Guidelines and the Companies Act, 2013 enables the empowerment of shareholder rights.

In the international context, the OECD Principles on Corporate Governance which serves as an international benchmark for policy makers, investors, corporations and other stakeholders worldwide also has made extensive recommendations as to the shareholder rights.

(ii) Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

‘Typically, investor relation is a department or person reporting to the Chief Financial Officer. In some companies, investor relation is managed by the public relations or corporate communications departments, and can also be referred to as “financial public relations” or “financial communications”.

Question 15.
“Related party transactions have always been viewed with concern.” In this context, briefly narrate the changes made under the Companies Act, 2013. [Old Syllabus] (Dec 2014, 6 marks)
Answer:

Question 16.
Discuss and elaborate the following: .
(i) Corporate communication. [Old Syllabus] (Dec 2014, 3 marks)
(ii) Redressal mechanism for investor grievances. [Old Syllabus] (Dec 2014, 3 marks)
Answer:
(i) Corporate communication means the corporation’s voice and the images it projects of itself to the various stakeholders.
“Corporate Communication is all about managing perceptions and ensuring effective and timely dissemination of information, positive corporate image, smooth and affirmative relationship with all stakeholders”.

(ii) When an investor has a grievance and has a complaint, he has to approach the company concerned, Mutual Fund (MF) or Depository Participant (DP) as the case may be. If he is not satisfied, he can approach SEBI’s Investor Grievance and guidance division for redressal of following complaints:
(a) Issues related to non-receipt of refund order, allotment advice;
(b) Issues related to non-receipt of share certificates;
(c) Issues related to non-receipt of dividends;
(d) Debenture related complaints etc;
(e) Mutual fund related complaints;
(f) Complaints related to Dematerialization or DP;
(g) Disclosures in Prospectus; and
(h) Misleading advertisements etc.
A committee under the Chairmanship of a non-executive director and such other members as may be decided by the Board of the company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. This Committee shall be designated as ‘Stakeholders Relationship Committee’ and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends. The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. The SRC shall consider and resolve the grievances of security holders of the company [Section 178(5)].

Question 17.
“The institutional investors use different tools to assess the health of a company before investing resources in it.” Elaborate. (Dec 2014, 4 marks)
Answer:
Institutional investors remain alert while investing in a company; they assess the health of company before investing resources in it. Following are the tools used by institutional investors:
1. One-to-one meetings: The meetings between institutional investors and companies are extremely important as a means of communication between the two parties.

2. Voting: The right to vote which is attached to voting shares is a basic prerogative of share ownership and is particularly important given the division of ownership (shareholders) and control (directors) in the modem corporation. The right to vote can be seen as fundamental tools for some element of control by shareholders.

3. Focus Lists: A number of institutional investors have established “Focus lists” whereby they target underperforming companies and include them on a list of companies which have underperformed a main index, such as Standard and Poor’s.

4. Corporate Governance rating systems: A number of corporate governance rating systems come up with the development of corporate governance. Example of such firms which have developed corporate governance rating systems are de-minor, Standard and Poor’s and Governance Metrics International (GMI).

Question 18.
Elucidate the following:
(a) Corporate governance rating systems
(b) Shareholder activism (Dec 2015, 5 marks each)
Answer:
(a) Corporate governance rating system:
Corporate governance rating systems with the increasing emphasis on corporate governance across the globe, it is perhaps not surprising that a number of corporate governance rating systems have been developed.
Examples of such firms which have developed corporate governance rating systems are Deminor, Standard and Poor’s, and Governance Metrics International (GMI). The rating system cover several markets, for example, Deminor has tended to concentrate on European companies whilst Standard and Poor’s have used their corporate governance rating system in quite different markets, for example, Russia. GMI ratings cover a range of countries including the US, various countries in the Asia-Pacific region and Europe. These corporate governance rating systems should be of benefit to investors, both potential and those presently invested, and to the companies themselves.

(b) Shareholder activism:
Shareholder activism refers to the active involvement of stockholders in their organization. Active participation in company meetings is a healthy practice. They can resolve issues laid down in the annual and other general meetings and can raise concerns over financial matters or even social causes such as protection of the environment. Shareholder activists include public pension funds, mutual funds, unions, religious institutions, universities, foundations, environmental activists and human rights groups.

Question 19.
Why Shann Turnbull, an Australian expert in corporate governance recommended ‘Corporate Senate’? (Dec 2015, 5 marks)Answer:
Australian expert in corporate governance recommended ‘corporate senate’ to oversee the regular board functioning (senate means a council). The corporate senate will determine accounting policies, direct audit activities, arbitrate on board conflicts, advise AGM on directors benefits. The senate will also nominate directors on the Board and will act as trustees for any Employees Stock Option Scheme (ESOS). The corporate senate will have maximum of 3 (three) members who will be elected on the basis of ‘one vote per shareholder’ instead of ‘one vote per share’ principle. The corporate senate should have no proactive power of any kind. However, it will have the ‘veto’ power over any activity in which the board has a conflict of interests, and even that can be overridden by a vote of 75% of the shares.

Question 20.
Briefly comment on the following statement:
Institutional investors have a crucial role to play in ensuring good corporate governance. (June 2016, 2 marks)
Answer:
There are difference of opinion among the writers on the role of institutional investors in promoting good corporate governance. Wharton, Lorsch and Hanson (1991) argue that institutional investors need not take active interest in the corporate governance of a company because the institutional investors have their primary fiduciary responsibility to their own investors and beneficiaries, which can lead to a conflict of interest with their acting as owners. Admati, Pfleiderer and Zechner (1994), Black (1990), Coffee (1991), and Monks(1995) have argued that absence of appropriate incentives and free rider problems hinder institutional activism efforts.

The free rider problem comes because even when one institutional investor interferes, the other investors get the benefits. Hence, the costs associated with active monitoring are borne by only one investor and this discourages active intervention. Charkham (1994) divides the institutional investors into two categories, which he calls Type A and Type B. Type A institutions have a portfolio of a very small number of companies. Their stake in each individual company is very large. These institutions also keep a close relationship with the companies. Type B institutions, on the other hand, manage a widely diversified portfolio. These companies treat the shares as commodities with no intrinsic qualities other than that of being tradable commodities.

Question 21.
What do you mean by ‘related party transaction’? What are the provisions of listing agreement related to monitoring of related party transactions? (June 2016, 5 marks)
Answer:
Definition of Related Party Transaction:
Regulation 2(1) (zc) defines that “related party transaction” means a transaction involving a transfer of resources, services or obligations between:
1. a listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or

2. a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023; regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract:

Provided that the following shall not be a related party transaction:
(the issue of specified securities on a preferential basis, subject to compliance of the requirements under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(b) the following corporate actions by the listed entity which are uniformly applicable/offered to all shareholders in proportion to their shareholding:

• payment of dividend;
• subdivision or consolidation of securities;
• issuance of securities by way of a rights issue or a bonus issue; and
• buy-back of securities.

(c) acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly applicable/offered to all shareholders/public, subject to disclosure of the same along with the disclosure of related party transactions every six months to the stock exchange(s), in the format as specified by the Board:
Provided further that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exehange(s).
Related Party Transactions [Regulation 23]
1. The listed entity shall formulate a policy on materiality of related . party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly. However, a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one
thousand crore or ten per cent of the annua! consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
1 A. Notwithstanding the above, with effect from July 01, 2019 a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed five percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

2. All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity. However, only those members of the audit committee, who are independent directors, shall approve related party transactions.
“Provjded further that:
(a) the audit committee of a listed entity shall define “material modifications” and disclose it as part of the policy on materiality of related party transactions and on dealing with related party transactions;

(b) a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year exceeds ten per cent of the annual consolidated turnover, as per the last audited financial statements of the listed entity;

(c) with effect from April 1,2023, a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year, exceeds ten per cent of the annual standalone turnover, as per the last audited financial statements of the subsidiary;

(d) prior approval of the audit committee of the listed entity shall not be required for. a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.
Explanation: For related party transactions of unlisted subsidiaries of a listed subsidiary as referred to in (d) above, the prior approval of the audit committee of the listed subsidiary shall suffice.”

3. Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely-
(a) the audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature;

(b) the audit committee shall satisfy itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity;

(c) the omnibus approval shall specify:
(i) the name(s) of the related party, nature of transaction, period of transaction, maximum amount of transactions that shall be entered into,
(ii) the indicative base price / current contracted price and the formula for variation in the price if any; and
(iii) such other conditions as the audit committee may deem fit: Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.

(d) the audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given.

(e) Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year:

(4) All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2) shall require prior approval of the shareholders through resolution and no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not:
Provided that prior approval of the shareholders of a listed entity shall not be required for a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.

Explanation: For related party transactions of unlisted subsidiaries of a listed subsidiary as referred above, the prior approval of the shareholders of the listed subsidiary shall suffice.
Provided further that the requirements specified under this sub-regulation shall not apply in respect,of a resolution plan approved under section 31 of the Insolvency Code, subject to the event being disclosed to the recognized stock exchanges within one day of the resolution plan being approved.

(5) The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases:
(a) transactions entered into between two government companies;
(b) transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
(c) transactions entered into between two wholly-owned subsidiaries of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
Explanation: For the purpose of clause (a), “government company(ies)” means Government company as defined in sub-section (45) of section 2 of the Companies Act, 2013.

(6) The provisions of this regulation shall be applicable to all prospective transactions.

(7) All existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.

(8) The listed entity shall submit to the stock exchanges disclosures of related party transactions in the format as specified by the Board from time to time, and publish the same on its website: Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half year: Provided further that the listed entity shall make such disclosures every six months within fifteen days from the date of publication of its standalone and consolidated financial results: Provided further that the listed entity shall make such disclosures every six months on the date of publication of its standalone and consolidated financial results with effect from April 1, 2023.

Question 22.
(a) Discuss the salient features of CalPERS. What are the main drivers of their corporate engagement programme? (June 2016, 5 marks)
(b) What are the areas in which a company may face ethical issues? Explain with the help of case study as to how investors can force ethical issues on company’s agenda. (June 2016, 5 marks)
Answer:
(a) California Public Employees’ Retirement System (CalPERS) manages retirement benefits for more than 1.6 million California public employees, retirees, and their families. The corporate governance team at CalPERS challenges companies and the status quo; vote proxies; work closely with regulatory agencies to strengthen financial markets; and invest with partners that use corporate governance strategies to add value to the fund by turning around ailing companies. As a strategy CalPERS invest in sick and ailing companies where it employs good governance practices to improvise company’s overall performance.

CalPERS corporate engagement process has the overarching objective of improving alignment of interest between providers of capital and company management. It is CalPERS view that improved alignment of interest will enable the fund to fulfil its fiduciary duty to achieve sustainable risk adjusted returns. The main drivers in the corporate engagement program are:

• Financial Performance: company engagement to address persistent, relative value destruction, through the Focus List Program
• Value Related Risk: material environmental, social and governance factors, such as reputational risk, climate change, board diversity and key accountability measures such as majority voting
• Compliance: in response to State of Federal legislation.

(b) The areas in which a company can face ethical issues includes: Ethics in Finance ‘
The ethical issues in finance that companies and employees are confronted with include:

• In accounting- window dressing, misleading financial analysis.
• Insider trading, securities fraud leading to manipulation of the financial markets.
• Bribery, kickbacks, over billing of expenses and facilitation payments.
• Fake reimbursements.

Ethics in Human Resources:
The ethical issues faced by HRM include:

• Discrimination issues
• Sexual harassment
• Affirmative Action
• Issues affecting the privacy of the employee: workplace surveillance, drug testing, etc.
• Discrimination of whistle-blowers
• Issues relating to the fairness of the employment contract
• Occupational safety and health issues.

Ethics in Marketing:
The ethical issues confronted in this area include:

• Pricing: price fixing, price discrimination and price skimming
• Anti-competitive practices
• Misleading advertisements
• Decisionmaking
• Surrogate advertising
• Black markets and grey markets.

Ethics in Production:
The ethical issues confronted in this area include:

• Defective, addictive and inherently dangerous products.
• Ethical problems arising out of new technologies, for example, genetically modified food.
• Product testing ethics.

Case Study to explain how investors can enforce ethical issues on company’s agenda:
Tesco a UK based Supermarket Chain Company faced an unprecedented revolt over the meagre wages it pays to workers in the developing world to supply its supermarkets with everything from cheap clothing to fruit. Shareholders at the company’s annual meeting in London also voiced their anger at a controversial pay scheme for chief executive Sir Terry Leahy, which could see him pocket over £ 11 million if Tesco’s expansion into the US market succeeded. 8.75% of shareholders refused to back the company’s remuneration policy while 17.71% refused to back Sir Terry’s special US bonus.

Question 23.
(a) Investors must be safeguarded not only against frauds and cheating but also against the losses arising out of unfair practices. What are the SEBI’s regulations for investors’ protection in India? (5 marks)
(b) “Shareholders can ensure that the company follows good corporate governance practices and implements beneficial policies.” Discuss shareholder’s activism. (Dec 2016, 5 marks)
(c) What are the expectations from institutional shareholders? What are the principles of good governance for the institutional investors? (Dec 2016, 5 marks)
Answer:
(a) Securities and Exchange Board of India (SEBI) is the capital market regulator and nodal agency in India who regulates the security market. One of the objectives of the SEBI is to provide a degree of protection to
the investors and to safeguard their rights, steady flow of savings into market and to promote the development of and regulate the securities market.
SEBI has issued many guidelines and regulations to regulate the capital market and to protect the investors. Some of the guidelines are:

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
• SEBI (Ombudsman) Regulation, 2003.
• SEBI (Prohibition of fraudulent and unfair Trade Practices relating to securities market) Regulations, 2003.
• SEBI (Prohibition of Insider Trading ) Regulations, 2015.

The Securities and Exchange Board of India (SEBI) also notified SEBI (Investor Protection and Education Fund) Regulations, 2018 according to which SEBI will establish an Investor Protection and Education Fund which will be used inter-alia, for “aiding investors’ associations recognized by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed”.

(b) Shareholders Activism:
Shareholder activism refers to the active involvement of stockholders in their organization. Active participation in company meetings is a healthy practice. They can resolve issues laid down in the annual and other general meetings and can raise concerns over financial matters or even social causes such as protection of the environment. Shareholder activists include public pension funds, mutual funds, unions, religious institutions, universities, foundations, environmental activists and human rights groups.
A share in a company is not only a share in profits but also a share in ownership. Shareholders must realize that their active participation in the company’s operations ensures:

• better management,
• less frauds and
• better governance.

(c) Institutional shareholders should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.
The institutional shareholders should:

• Take active interest in the composition of the Board of Directors
• Be vigilant
• Maintain regular and systematic contact at senior level for exchange of views on management, strategy, performance and the quality of management.
• Ensure that voting intentions are translated into practice.
• Evaluate the corporate governance performance of the company.

Question 24.
“The central element in corporate governance is the challenges arising out of separation of ownership and control. The shareholders are the true owners of a corporate and the governance function controls the operations of the corporate. There is a strong likelihood that there is mismatch between the expectations of the shareholders and the actions of management”. In the light of above statement, enumerate the core principles of accountable corporate governance. (Dec 2016, 5 marks)
Answer:
Principles of accountable corporate governance:
These core principles of accountable corporate governance are:
(i) Transparency: Operating, financial, and governance information about the companies must be readily transparent to permit accurate market comparisons.
(ii) One-share/One-vote: All investors must be treated equitably and upon the principle of one – share/one vote.
(iii) Sustainability: Companies and external managers are expected to optimize operating performance, profitability and investment returns in a risk -aware manner and with a responsible conduct.
(iv) Political Stability: Progress toward the development of basic dehocratic institutions and principles, including such things as; a strong and impartial legal system; and respect and enforcement of property and shareowner rights.
(v) Code of Best Practices: Code of Best Practices should be followed to promote transparency of information, prevention of harmful labor practices, investor protection and corporate social responsibility.
(vi) Director Accountability: Directors should be accountable to shareowners, and management accountable to directors.
(vii) Long-term Vision: Corporate directors and management should have 1 a long-term strategic vision that, at its core, emphasizes sustained
shareowner value and effective management of both risk and opportunities in the oversight of financial, physical and human capital,
(viii) Proxy Materials: Proxy materials should be written in a manner designed to provide shareowners with the information necessary to make informed voting decisions.
(ix) Access to Director Nominations: Shareowners should have effective access to the director nomination process.

Question 25.
Answer the following in brief:
Discuss the activities for which financial sanctions can be provided under Investor’s Education and Protection Fund. (June 2017, 2 marks)
Answer:
Schedule II to the Investor Education and Protection Fund Authority (Appointment of Chairperson and Members, holding of Meetings and provisions for Offices and Officers) Rules, 2016 stipulate the broad functional divisions of the Authority including sanctioning grants to the registered entities for seminars, programmes, projects or activities in the field of Corporate Governance, Investors’ Education and Protection fund including research activities.

Question 26.
Answer the following:
Discuss Steward Theory of Corporate Governance. (Dec 2017, 2 marks)
Answer:
The word ‘Steward’ means a person who manages another’s property or estate. Here, the word is used in the sense of guardian in relation to a corporation, this theory is value based. The managers and employees are to safeguard the resources of corporation and its property and interest when the owner is absent. They are like a caretaker. They have to take utmost care of the corporation. They should not use the property for their selfish ends. This theory thus, makes use of the social approach to human nature. – Space to write important points for revision

Question 27.
How the institutional investors assess the health of a company before making the investment decision? (Dec 2017, 5 marks)
Answer:
The Institutional Investors use different tools to assess the health of Company before investing resources in it. Some of the important tools are discussed as under:

• One-to-one meetings
• Voting
• Focus lists
• Corporate governance rating systems.

Question 28.
Discuss the rights of shareholder under SEBI Listing Obligations and Disclosure Requirement (LODR) Regulations, 2015. (June 2018, 5 marks)
Answer:
Rights of Shareholders under SEBI (LODR) Regulations, 2015
The listed entity shall seek to protect and facilitate the exercise of the following rights of shareholders:

1. right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes.
2. opportunity to participate effectively and vote in general shareholder meetings.
3. being informed of the rules, including voting procedures that govern general shareholder meetings.
4. opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations.
5. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors.
6. exercise of ownership rights by all shareholders, including institutional investors.
7. adequate mechanism to address the grievances of the shareholders.
8. protection of minority shareholders from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and effective means of redress.

Question 29.
“Investor relations (IR) is a strategic management responsibility that integrates finance, communication, marketing & securities law compliance to enable the most effective two-way communication between a company, financial community and other constituencies”. Elucidate the role and responsibilities of Investor Relations Officer (IRO) in the light of the above statement. (Dec 2018, 5 marks)
Answer:
Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a Company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

Typically, investor relation is a department or person reporting to the Chief Financial Officer. In some companies, investor relation is managed by the public relations or corporate communications departments, and can also be referred to as “financial public relations” or “financial communications”. Many large publicly-traded companies now have dedicated IR officers (IROs) who oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as “one-on-one” briefings), investor relations sections of company websites, and company annual reports. They have the following roles and responsibilities:

• To oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as “one-on-one” briefings), investor relations sections of company websites, and company annual reports.
• Responsible for transmission of information relating to intangible values such as the company’s policy on corporate governance or corporate social responsibility.
• Managing the interactive data and the management of company filings through streaming – data solutions such as XBRL or other forms of electronic disclosure.
• To be aware of current and upcoming issues that an organization may face, particularly those that relate to fiduciary duty and have an organizational impact.
• Must be able to assess the various patterns of stock-trading that a public company may experience as the result of a public disclosure (or any research reports issued by financial analysis).
• Must work closely with the Company Secretary on legal and regulatory matters that affect shareholders.
• IRO’s have access to the Chief Executive Officer (CEO) and Chairman or President of the corporation. This means that being able to understand and communicate the company’s financiaLstrategy, they are also able to communicate the broader strategic direction of the corporation and ensure that the image of the corporation is maintained in a cohesive fashion.
• Due to the potential impact of legal liability claims awarded by courts, and the consequential impact on the company’s share price, IRO often has a role in crisis management, for example, corporate downsizing, changes in management or internal structure, product liability issues and industrial disasters.

Question 30.
“Institutional Investors play an important role in promoting good governance, however, this notion has its own pros and cons”. What are these pros and cons? Explain. (Dec 2018, 5 marks)
Answer:
Institutional investors are financial institutions that accept funds from third parties for investment in their own name but on such parties’ behalf. They include pension funds, mutual funds and insurance companies.
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others.
The Pros and Cons on the role of the institutional investors in promoting the good corporate governance may be listed as under:

Pros	Cons
The institutional investors have significant stakes in the companies and so of the voting power.	Mutual Fund Investors have the short term vision hence their performance measurement may not be a significant evaluation in assessing the corporate governance while making the investment decision.
They are in better position to have the access of the information about the company.	The investment objectives are also a deciding factor while making the investment decision.
The stock market performance can visualised with the adoption of the better corporate governance. They may influence in attracting the Foreign Direct Investment in India.	Institutional investors may off load the holding if there is mis-matching in their asset-liability/liquidity position. A common man’s investment portfolio is affected with the decision of the investment by the institutional investors.

Question 31.
2019 – June [2] (a) The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. Elucidate the statement. (June 2019, 5 marks)
Answer:
OECD has defined corporate governance to mean “A system by which business corporations are directed>and controlled”. Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders and spells out the rules and procedures for corporate decision making.

The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises – this statement is the fourth principle of OECD Principles of Governance. This principle recognizes the interest of stakeholders and their contribution to the long term success of the company. The corporate governance framework should consider interest of all stakeholders and include following:

• The rights of stakeholders that are established by law or through mutual agreements are to be respected.
• Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.
• Mechanisms for employee participation should be permitted to develop.
• Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.
• Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and to the competent public authorities and their rights should not be compromised for doing this.
• The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

Question 32.
Highlight the OECD Principles of Corporate Governance with respect to Disclosures and Transparency. (June 2019, 3 marks)
Answer:
OECD has defined corporate governance to mean “A system by which business corporations are directed and controlled”. Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders; and spells out the rules and procedures for corporate decision making.
The OECD principles of Corporate Governance with respect to Disclosures and transparency are given here under-
The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company:
Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company.
2. Company objectives and non-financial information.
3. Major share ownership, including beneficial owners, and voting rights.
4. Remuneration of members of the board and key executives.
5. Information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board.
6. Related party transactions.
7. Foreseeable risk factors.
8. Issues regarding employees and other stakeholders.
9. Governance structures and policies, including the content of any corporate governance code or policy and the process by which it is implemented.
   • Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial reporting.
   • An annual audit should be conducted by an independent, competent and qualified, auditor in accordance with high-quality auditing standards in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
   • External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
   • Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by users.

Question 33.
The big investors, Fils etc. engages the Proxy Advisory Firms to get the important information and recommendations which lead the protection of their interest and safeguard of their fund. Prepare a brief note on reasons for engaging the Proxy Advisory Firms. (Dec 2019, 5 marks)
Answer:
Proxy advisory firms are independent research outfits that evaluate the pros and cons of corporate matters such as mergers, acquisitions, top appointments and CEO pay, which shareholders are expected to vote on in AGMs, EGMs or court-convened meetings.
Institutional investors contract with these firms to carry out comprehensive reviews of voting proposals that the investors themselves have neither the time nor the resources to undertake.
Following are few reasons why institutional investors engage proxy advisors:
1. Proxy advisors generally offer variety of services consisting of both, analyzing the proposals at general meetings and recommending voting decisions.

2. The recommendations of proxy advisors help the investors to obtain a more considered understanding of different agenda items and to. arrive at an informed voting decision, allowing them to optimise their own limited resources and cast their votes in a timely and informed manner.

3. Considering that institutional investors invest in multiple companies in different industry range and across the globe, it may not be feasible for those investors to have informed knowledge of the corporate governance specifications of that country and hence there may be an inability to understand the need and impact of a particular agenda item. Proxy advisors help to combat this issue as well through their informed consultancy. Due to cross border voting investors may face issues in terms of language of a country. The proxy advisors can assist in mitigating the language issues as well. Further, they may also enable the investors to have a voting platform in cases where electronic voting is a pre-requisite at general meetings.

4. Apart from the above, general meetings across the globe may be concentrated during a certain period of the year and therefore the investors may not be in a position to gather information and knowledge about all the companies and hence, may not be in a position to take informed decision while voting. Proxy services industry emerged and expanded with the growth of institutional investors and shareholder activism. Proxy services firms play an important role in the proxy voting system. Such firms offer valuable services which includes analysing of the proposals for general meetings and providing voting recommendations, either based on the their own voting policy or on the investor’s customised voting policy.
Proxy advisers also influence boards’ decision making. They do a good job of policing the boards and governance records of the firms they track, and nudging institutional investors to take a stand on governance issues.

Question 34.
Discuss in brief the actions the institutional investors in g listed company may take under the UK Stewardship Code if they are dissatisfied with the board’s response to their concerns on the performance of the company during the previous financial year. (Dec 2021, 5 marks)
Answer:
The UK Stewardship Code sets out the principles of effective stewardship by investors. Stewardship responsibilities of institutional investors may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure and corporate governance, including culture and remuneration. <
The Stewardship Code also states that institutional shareholders should:

• Publicly disclose their policy on how they will discharge their Stewardship responsibilities.
• Have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
• Monitor their investee companies.
• Establish clear guidelines on when and how they will escalate their stewardship activities.
• Be willing to act collectively with other investors where appropriate.
• Have a clear policy on voting and disclosure of voting activity.
• Report periodically on their stewardship and voting activities.

Institutional investors should have clear guidelines about the circumstances when they will intervene actively. Compliance with the code does not constitute an invitation to manage the affairs of a company. If the company’s board does not respond constructively, the institutional investor should have guidelines for deciding whether and how to escalate their action. For example, an institutional investor may ask for a meeting with the company chairman, or find out whether other institutional shareholders share the same concernsso that joint action can be considered. Institutional investors should endeavour to identify at an early stage issues that may result in a significant loss in investment value. If they have concerns, they should seek to ensure that the appropriate members of the investee company’s board or management are made aware.

Question 35.
“Company law’s central dilemma has been the separation of ownership and control in companies.” Comment. (Dec 2021, 5 marks)
Answer:
Company law’s central dilemma has been the separation of ownership and control in companies. Shareholders, being owners of the company, should ideally play a crucial role in governing the company. However, it is not -practically possible for each shareholder to participate in the decision making process on a day to day basis. Further, the shareholders generally lack the knowledge and professional skills that are required to manage a company. Hence, they elect a board of directors to govern the company and take strategic decisions.
The shareholders vest control of the business in the board of directors, who in turn, appoint management specialists to run the business and return the profits of the business back to the owner shareholders. The directors have a fiduciary responsibility to the shareholders (principal) of their organisation. Companies allow for the separation in the roles of ownership and management. It is not necessary that owners need to be managers and vice versa. Owners and managers may have differing views on various issues in the company. For instance, managers may pursue growth rather than maximize share value, whereas shareholders may prefer high leverage because it increases share values.

Question 36.
Why do institutional investors rely on proxy advisors? (June 2022, 3 marks)

Question 37.
“Corporations pool capital from a large number of investors both in domestic as well as international market. In this context, involvement is ultimately an act of faith in the ability of a corporation’s management to mobilise capital. Investors expect management to act in their interests at all times and adopt good corporate governance.”
Evaluate this statement keeping in mind the investors’ faith, interest of investors and corporate governance practices to be followed by the management. [Old Syllabus] (June 2014, 10 marks)
Answer:
Every Investor likes to invest his money in such companies which are going to improve their business with earning profits and to avoid complexities like hurdles from Government department by following good governance practices.
In this connection company’s goal may be to do the business whose future is bright and earn profit with the growth of GDP of country also.
Each companies, firms are well trained in earning profit but they avoid to follow the governance thinking it useless or curtailing their profit, but to protect the interest of investor. Government has compelled to the companies to follow the guidelines through their agencies like Registrar of Companies, SEBI, RBI, CCI etc.

To protect the interest of investor Government initiated the role of the Company Secretaries. The Company Secretary acts as a bridge between Company and Investors, who acts as a referee to compel the companies to follow the governance and also acts as a Grievance Officer for investors.
We, therefore can conclude that Corporate Governance brings about an equilibrium between the expectations of the owners, employees, customers and all other stakeholders. It builds continuing bonds with shareholders, employees, investors, depositors, borrowers, suppliers, customers and business constituents.

Corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfilment of the requirements of law but in ensuring commitment of the Board in managing the company in a transparent manner for maximizing stakeholder value. The real onus of achieving desired levels of corporate governance lies with corporates themselves and not in external measures.

Question 38.
ECHO Enterprises Ltd., a listed company has following subsidiaries. The details of income of ECHO Enterprises Ltd. and its subsidiaries are as under:

Holding Company	₹ in Crore
ECHO Enterprises Ltd.	1,000.00

 

Subsidiaries	₹ in Crore
ANCHOR Batteries Ltd.	200.00
EAZY Chemicals Ltd.	250.00
REAL Power Ltd.	400.00

Examine the above in terms of Regulation 24 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to compliance relating to subsidiaries and advise the Boards of all companies regarding various compliances. (June 2022, 10 marks)

Corporate Governance and Shareholders Rights Notes

Investor Relations (IR):
Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

Class Action Suits:
Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders.

Minority Shareholders:
Shareholders who do not exert control over the board of directors of the companies, even if together they own the majority of shares.

Scores:
SEBI has set up a separate cell to address the grievances of investors – SEBI Complaints Redressal System.

Sustainability:
Sustainability is the ability to continue a defined behavior indefinitely.

Chapter 2 General Principles of Drafting and Relevant Substantive Rules – CS Professional Drafting, Pleadings and Appearances Notes is designed strictly as per the latest syllabus and exam pattern.

General Principles of Drafting and Relevant Substantive Rules – Drafting, Pleadings and Appearances Study Material

Question 1.
Write a note on ‘covenants and undertakings’. (June 2013, 4 marks)
Answer:
Covenants and Undertakings : The term “covenant” is defined as an agreement under seal, which stipulates for the truth of certain facts. In Whasten’s Law Lexicon, a covenant has been explained as an agreement or consideration or promise by the parties, by deed in writing, signed, sealed and delivered, by which either of the parties, pledged himself to the other than something is either done or shall be done for stipulating the truth of certain facts. Covenant clause includes undertakings also. Usually, covenant is stated first.

In some instances the covenants and “undertaking” are mixed, i.e. can not be separated in that case, they are joint together, words put for this as “The Parties aforesaid hereto hereby mutually agree with each other as follows.” Such covenants may be expressed or implied.

Question 2.
Write a note on the folloyving:
Habendum and reddendum (Dec 2013, 4 marks)
Answer:
Habendum

1. Habendum is a part of deed which states the interest, the purchaser is to take in the property. The habendum clause starts with the words. “TO HAVE AND TO HOLD”
2. Formerly in England, if there was a gratuitous transfer, the transferee was not deemed to be the owner of the beneficial estate in the property.
3. The habendum limits the estate mentioned in the parcels.
4. In India, such Phrases as “to have and to hold” or such an expression as “to the use of the purchaser” can very well be avoided as in cases except those of voluntary transfers, such an expression is superfluous.

Reddendum
This is peculiar to a deed of lease. Here is mentioned this mode and time fixed for payment. It begins with the word “rendering or paying” with reference to the reserved rent is payable during the terms of the lease. Place where payable and instalment where mentioned. If there is apportionment of rent that is also mentioned.

Question 3.
Write notes on the following:
Covenants and undertakings. (Dec 2014, 4 marks)

Question 4.
Write notes on the following:
Habendum (June 2018, 4 marks)
Answer:
Habendum:
Habendum is a part of deed which states the interest yet to be taken by the purchaser. Habendum clause starts with the words “TO HAVE AND TO HOLD”.

Formerly in England in case of a gratuitous transfer, the equitable interest wherein remained with the transferor and the transferee was not deemed to be the owner of the beneficial interest.

It was therefore, necessary to indicate in the deed that it was being transferred for the use of the transferee if it was intended to confer an equitable estate in him.

It was for that reason that the habendum commenced with the words: “to have to hold to the use of ……………….”. Now it is not necessary to express it so. In the modern deeds, however, the expression “to have and” are omitted.

The habendum limits the estate mentioned in the parcels. The transferee is mentioned again in the habendum for whose use the estate is conveyed.

If the property conveyed is encumbered, reference thereto should be made in the habendum. If the parties to transfer enter into covenants, they should be entered after the habendum.

Question 5.
Write notes on the following : (Dec 2018, 4 marks each)
(a) Recitals
(d) Expert’s opinion.
Answer:

• Recitals contain the short story of the property up to its vesting into its transferors.
• Recitals may be of two kind. One narrative recitals which relate to the past history of the property transferred and sets out the facts and instrument necessary to show the title and relation to the party to the subject matter of the deed as to how the property was originally acquired and held and in what manner it has developed upon the grantor.
• The extent of interest and the title of the person should be recited. It should be written in chronological order, i.e. in order of occurrence.
• This forms part of narrative recitals. This is followed by inductory recitals, which explain the motive or intention behind execution of deed.
• Recitals carry evidentiary significance in the deed. It is an evidence against the parties to the instrument and those claiming under and it may operate as estoppel [Ram Charan v. Girija Nandini, 3 S.C.R. 841(1965)].
• Recital normally begins with the words “Whereas” and when there are several recitals instead of repeating the words “Whereas” before each and every one of them, it is better to divide the recitals into numbered paragraphs. For example, “Whereas

(d) Drafting of legal documents is a skilled job. The duty of a draftsman is to express the intention of the parties clearly and concisely in technical language. If the draft document has been prepared for the first time to be used again and again with suitable modification depending upon the requirements of each case it should be got vetted by the experts to ensure its suitability and legal fitness if the corporate executive feels it so necessary.

Expert opinion comes from the professional who has acquired knowledge and skills through study and practice over the years, in a particular field or subject, to the extent that his or her opinion may be helpful in fact finding, problem solving, or understanding of a situation.

Question 6.
Write note on the following:
Components of Deed (Dec 2018, 4 marks)
Answer:
The elements of deeds are as follows:

• Description of the Deed Title.
• Place and Date of execution of a Deed.
• Description of Parties to the Deed.
• Recitals.
• Testatum.
• Consideration.
• Receipt Clause.
• Operative Clause.
• Description of Property.
• Parcels Clause.
• Exceptions and Reservations.
• Premises and Habendum.
• Covenants and Undertaking.
• Testimonium Clause.
• Signature and Attestation.
• Endorsements and Supplemental Deeds.
• Annexures or Schedules.

Question 7.
Write notes on the following : (Aug 2021)
(c) Latent Deed and Special Warranty Deed. (4 marks)
(d) Engrossment and Stamping of a Deed. (4 marks)
Answer:
(c) Latent Deed and Special Warranty Deed
A latent deed is a deed kept for twenty years or more in man’s strong box.

Special warranty deed which is in terms a general warranty deed, but warrants title only against those claiming by, through, or under the grantor, conveys the described land itself, and the limited warranty does not, of itself, carry notice of title defects.

(d) Engrossment and Stamping of a Deed
The draft of document is required to be approved by the parties. In case of companies it is approved by Board of Directors in their meeting or by a duly constituted committee of the board for this purpose by passing requisite resolution approving and authorising of its execution. The document after approval is engrossed, i.e., copied fair on the non-judicial stamp-paper of appropriate value as may be chargeable as per Indian Stamp Act.

In case document is drafted on plain paper but approved without any changes, it can be lodged with Collector of Stamps for adjudication of stamp duty, who will endorse certificate recording the payment of stamp duty on the face of document and it will become ready for execution. If a document is not properly stamped, it is rendered inadmissible in evidence nor it will be registered with Registrar of Assurances.

Question 8.
Distinguish between the following:
‘Legal document’ and ‘instrument’. (Dec 2013, 3 marks)
Answer:
Legal Document: .

1. “Document” as defined in Section 3(18) of General Clause Act, 1894, means any matter expressed or described upon any substance by means of letters, figures or marks.
2. which may be used for the purpose of recording that matter.
3. Example:
   • A writing is a document.
   • Words printed, lithographed or photographed are document.

Instrument:
The word “instrument” includes every document by which any right or liability is, or purports to be, created, transferred, modified, limited, extended, suspended, extinguished or recorded.

Question 9.
Distinguish between the following :
‘Indenture’ and ‘deed escrow’. (June 2014, 4 marks)
Answer:
Indenture:
Indenture are those deeds in which there are two or more parties. It was written in duplicate upon one piece of parchment and two parts were severed so as to leave an indented or vary edge, forging being then, rendered very difficult. Indentures were so called as at one time they are indented or cut with uneven edge at the top.

In olden times, the practice was to make as many copies or parts as they were called, of the instruments as they were parties to it, which parts taken together formed the deed and to engross all of them of the same skin of parchment.

Deed Escrow:
A deed signed by one party will be delivered to another as an “escrow” for it is not a perfect deed. It is only a mere writing (Scriptum) unless signed by all the parties and dated when the last party signs it. The deed operates from the date it is last signed.

Escrow means a simple writing not to become the deed of the expressed to be bound thereby, until some condition should have been performed.

Question 10.
Distinguish between the following:
‘Habendum’ and ‘reddendurri. (June 2015, 4 marks)

Question 11.
Distinguish between the following:
‘Supplementary deeds’ and ‘endorsements’. (Dec 2015, 4 marks)
Answer:
Endorsement
Endorsement means to write on the back or on the face of a document wherein it is necessary in relation to the contents of that document or instruments. The term endorsement is used with reference to negotiable documents like:
(a) Cheque
(b) Bill of exchange
(c) Hundiesetc.
(d) Promissory notes.
For e.g. On the back of the cheque to sign one name as payee to obtain cash is an endorsement on the cheque.

Supplementary is a document which is entered into between the parties on the same subject on which there is a prior/ex-documents existing an operative for adding new fact to the document on which the parties to the document have agreed which otherwise cannot be done by way of endorsement. Thus, supplemental deed is executed to give effect to the new fact in the deed.

Question 12.
Distinguish between the following:
‘Endorsement’ and ‘engrossment’. (June 2016, 4 marks)
Answer:

Endorsement

Engrossment

Endorsement means to write on the back or on the face of a document. The term endorsement is used with reference to negotiable instruments like cheques, bill of exchange etc. For example on the back of the cheque to sign one’s name as payee to obtain cash is an endorsement on the cheque. Endorsement is used to give significance to a particular document with reference to new facts to be added in it. Endorsement is also used to express definite approval to a particular document.

The draft of document is required to be approved by the parties. In case of companies it is approved by Board of Directors in their meeting or by a duly constituted committee of the board for this purpose by passing requisite resolution approving and authorising of its execution. The document after approval is engrossed i.e. copied fair on the non­judicial stamp-paper of appropriate value as may be chargeable as per Stamp Act.

Question 13.
Distinguish between the following:
‘Operative clause’ and ‘testimonium clause’. (Dec 2016, 4 marks)
Answer:
‘Operative clause’ and ‘testimonium clause’
Operative clause is followed by the real operative words which vary according to the nature of the property and transaction involved therein. The words used in operative parts will differ from transaction to transaction. For example, in the case of mortgage the usual words to be used are “Transfer by way of simple mortgage” (usual mortgage) etc. The exact interest transferred is indicative after parcels by expressing the intent or by adding habendum. (The parcel is technical description of property transferred and it follows the operative words).

Testimonium is the clause in the last part of the deed. Testimonium signifies that the parties to the document have signed the deed. This clause marks the close of the deed and is an essential part of the deed.

The usual form of testimonium clause is as under:
“In witness whereof, parties hereto have hereunto set their respective hands and seals the date and year first above written”. This is the usual English form of testimonium clause. In India, except in the case of companies and corporations seals are not used and in those cases testimonium clause reads as under:

“In witness whereof the parties hereto have signed this day on the date above written”.

Thus testimonium clause can be worded according to the status and delegation of executants.

Question 14.
Distinguish between the following:
Conveyance and Contract (Dec 2017, 4 marks)
Answer:

Contract	Conveyance
(a) Under the contract which enables party to the contract to take action in case of nonperformance or breach of contract to take action against the party who breaches the contract .hence one party who suffers can demand compensa­tion or special performance. So right of action is created in contract .where scanner says right of action is not created .	(a) It alters the ownership of existing right.
(b) Provisions of Indian Contract Act, 1872 governs any contract.	(b) Whereas it is governed by the Transfer of Property Act, 1882.
(c) Contract remains to be performed and its specific performance may be sought.	(c) Conveyance passes on the title of property to another person.
(d) A contract to mortgage or sale would not amount to actual transfer of interest in the property.	(d) The deed of mortgage or sale would operate as conveyance of such interest.

Question 15.
Distinguish between the following :
Drafting and Documentation (Dec 2018, 4 marks)
Answer:

• Drafting may be defined as the synthesis of law and fact in a language form. It is the development and preparation of legal instruments such as constitutions, statutes, regulations, ordinances, contracts, wills, conveyances, indentures, trusts and leases, etc.
• The process of drafting operates in two planes: the conceptual and the verbal. Besides seeking the right words, the draftsman seeks the right concepts. Drafting, therefore, is first thinking and second composing.
• Drafting may cover all types of documents in business usages.
• Drafting, in legal sense, means an act of preparing the legal documents like agreements, contracts, deed etc.
• Commercial houses, banks and financial institutions have been using the term “documentation” in substitution of the words “drafting and conveyancing”
• Documentation refers to the activity which symbolizes preparation of documents including finalisation and execution thereof.
• Documentation is a set documents provided on paper, or online, or on digital or analog media, such as audio tape or CDs. Examples are user guides white papers, on-line help, quick-reference guides, Proper documentation provides evidence of what has transpired as well as provides information for researching discrepancies. Supporting documentation may come in paper or electronic form.

Question 16.
Distinguish between Conveyance and Contract. (Dec 2021, 4 marks)

Question 17.
Distinguish between the following:
Testatum and testimonium clause. (June 2022, 4 marks)

Question 18.
Explain the following:
Parcels clause as a component of a deed. (June 2013, 4 marks)
Answer:
Parcels Clause
This is a technical expression meaning methodical description of the property. It is necessary that in case of non-testamentary document containing a map or plan of the property shall not be accepted unless it is accompanied by the True Copy. Usually the Parcel Clause starts with the words All Those ……………… And further or description covers as per the type of property subjected to transfer under the deed. This clause includes words such as : Messuages, Tenements, Hereditaments, Land, Water etc. But use of these words has been rendered unnecessary in view of Section 8 of Transfer of Property Act, 1882. This Section has cut down the length of the deeds and done away with description of minute details of the incidents of the property intended to be conveyed.

Question 19.
“Drafting may be defined as the synthesis of law and fact in a language form.” Explain. (Dec 2013, 8 marks)
Answer:
Drafting may be defined as the synthesis of law and fact in a language form [Stanley Robinson: Drafting its application to conveyancing and commercial document 1980]

1. All three characteristics rank equally in importance.
2. Legal drafting is the crystallization and expression in definitive form of a legal right, privilege function, duty or status.
3. Legal instrument such as constitution, status, regulations, ordinances, contract, wills, conveyances, indentures, trusts and leases.

NOTE: The process of drafting operates in two planes the conceptual and verbal besides seeking the right words Drafting therefore is first thinking and second composing.

Question 20.
Explain the following :
(a) Reasons for drafting recitals in a deed with due caution.
(c) Drafting and conveyancing have the same meaning though these are not interchangeable. (June 2014, 4 marks each)
Answer:
(a) Recitals should be inserted with great caution because they precede the operative part and as a matter of fact contain the explanation to the operative part of the deed. If the same is ambiguous recitals operate as estoppel. Recital offers good evidence of facts recited therein. Recitals are not generally taken into evidence but are open for interpretation for the courts. If the operative part of the deed is ambiguous anything contained in the recital will help in its interpretation or meaning. In the same sense, it is necessary that where recitals contain chronological events that must be narrated in chronological order.

Recitals carry evidentiary importance in the deed. It is an evidence against the parties to the instrument and those claiming under and it may operate as estoppel [Ram Charan v. Girija Nandini, 3 SCR 841 (1965)].

(c) Distinction between drafting and conveyanclng:
Both the terms “drafting and conveyancing’ provide the same meaning although these terms are not interchangeable. Conveyancing gives more stress on documentation much concerned with the transfer of property from one person to another, whereas “drafting” gives a general meaning synonymous to preparation or drafting of documents, Documents may include document relating to transfer of property as well as other “documents” in a sense as per definition given in Section 3 (18) of the General Clauses Act, 1897 which include any matter written, expressed or described upon any substance by means of letters figures or mark, which is intended to be used for the purpose of recording that matter.

For example, for a banker the document would mean loan agreement, deed of mortgage, charge pledge, guarantee, etc. For a businessman document would mean something as demanded under Section 2(4)0f the Indian Sale of Goods Act, 1930 so as to include a document of title to goods i.e. “Bill of lading, dock warrant, warehouse-keepers certificate, wharfingers certificate, railway receipt multi model transport document warrant or order for the delivery of goods and any other document used in ordinary course of business as proof of the possession or control of goods or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented”.

The Companies Act, 2013 defines vide Section 2(3b) the term “document” in still wider concept so as to include “summons, requisitions order, other legal process and registers, whether issued, sent or kept in pursuance of this or any other Act, or otherwise”. Thus, drafting may cover all types of documents in business usages.

In India, the commercial houses banks and financial institutions have been using the term “documentation”. In substitution of the words “drafting and conveyancing”. Documentation refers to the activity which symbolises preparation of documents including finalisation and execution thereof.

Question 21.
In the light of judicial pronouncements, discuss the following:
Testamentary disposition is personal; it cannot be delegated to any other person. (June 2014, 4 marks)
Answer:

• Testamentary disposition is the disposition or transfer of property that takes effect upon the death of the person making it. The testator retains almost entire control of the property until death.
• In short, it is the gift of property which takes effect at the time of the death of the person making the disposition. The transfer can be made by deed, by an inter vivos transaction, or by will.
• All instruments used to make testamentary dispositions must comply with the requirements of the statute of wills.
• Testamentary disposition also used to refer to the process of dead persons’ will being complied with by announcing the division of the assets of the dead person amongst the people whose name has been mentioned in the will.
• Section 59 of the Indian Succession Act, provides for the persons capable of making wills. Accordingly, every person of sound mind not being a minor may dispose of his property by will.
• The testamentary capacity is recognized only in a sound disposing state of mind. Soundness of mind denotes the mental capacity of the testator as to what he is doing, his capability of understanding his extent of his property, the person who is the object of his bounty and the persons who are thereby excluded.
• Testamentary disposition is personal, it cannot be delegated to any other person. A testator cannot confide to another the right to make a will for him. (Tienouth v. Mulroney 227 P.2d 590 (1951).

Question 22.
Explain the following:
Drafting of legal documents is a skilled job requiring observance of many do’s and don’ts. (Dec 2014, 4 marks)
Answer:
The essence of the process of drafting is synthesis of law and fact in a languages. A proper understanding of drafting cannot be realised unless the nexus between the law, the facts and the language is fully understood and accepted. This requires serious thinking followed by prompt action to reduce the available information into writing with a legal meaning.

Some Do’s :

1. Reduce the group of words to single word;
2. Use simple verb for a group of words;
3. Avoid round-about construction;
4. Avoid unnecessary repetition;
5. Write shorter sentences;
6. Express the ideas in fewer words;
7. Prefer the active to the passive voice sentences;
8. Choose the right word;
9. know exactly the meaning of words and sentences you are writing; and
10. Put yourself in the place of reader, read the document and satisfy yourself about the content, interpretation and the sense it carries.

Some Don’ts: The following things should be avoided while drafting the documents:
(a) Avoid the use of words of same sound. For example, the words “Employer” and “Employee”.
(b) When the clause in the document is numbered it is convenient to refer to any one clause by using single number for it. For example, “in clause 2 above” and so on.
(c) Negative in successive phrases would be very carefully employed.
(d) Draftsman should avoid the use of words “less than” or “more than”, instead they must use “not exceeding”.
(e) If the draftsman has provided for each of the two, positions to happen without each other and also happen without, “either” will not be sufficient; he should write “either or express the meaning of the two in other clauses.

In writing and typing the following mistakes always occur which should be avoided:

1. “And” and “or”;
2. “Any” and “my”;
3. “Know” and ‘now’;
4. “Appointed’ and “Applied”;
5. “Present” and “Past” tense.

Question 23.
“Drafting of documents is very important part of legal documentation. Documents are subject to interpretation when no clear meaning could be inferred by a simple reading of documents.”
Explain this statement with reference to the rules relating to interpretation of formal legal documents. (June 2015, 10 marks)
Answer:
Where the agreement is formal and written, the following rules of the interpretation may be applied:
(1) A deed constitutes the primary evidence of the terms of a contract, or of a grant, or of any other disposition of property (Section 91 of the Evidence Act). The law forbids any contradiction of, or any addition, subtraction or variation in a written document by any extrinsic evidence, though such evidence will be admissible to explain any ambiguity (Section 92 of the Evidence Act).

(2) In cases of uncertainty, the rules embodied in provisos 2 and 6 of Section 92 of the Evidence Act can be invoked for construing a deed.

(3) The cardinal rule is that clear and unambiguous words prevail over any hypothetical considerations or supposed intention. But if the words used are not clear and unambiguous the intention will have to be ascertained.

(4) In case the terms are not unambiguous it is legitimate to take into account the surrounding circumstances for ascertaining the intention of the parties. The social milieu, the actual life situations and the prevailing conditions of the country are also relevant circumstances.

(5) Sometimes a contract is completed in two parts. At first an executory contract is executed and later on an executed contract. In case of any difference between the preliminary contract and final contract, the terms of the latter must prevail.

(6) If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the latter clause is to be rejected as repugnant and the earlier clause prevails.

(7) The Court must interpret the words in their popular, natural and ordinary sense, subject to certain exceptions as,

1. where the contract affords an interpretation different from the ordinary meaning of the words; or
2. where the conventional meanings are not the same with their legal sense.

(8) Hardship to either party is not an element to be considered unless it amounts to a degree of inconvenience or absurdity so great as to afford judicial proof that such could not be the meaning of the parties.

(9) All mercantile documents should receive a liberal construction.

(10) No clause should be regarded as superfluous, since merchants are not in the habit of inserting stipulations to which they do not attach some value and importance. The construction adopted, should, as far as possible, give a meaning to every word and every part of the document.

(11) Construction given to mercantile documents years ago and accepted in the mercantile world should not be departed from, because documents may have been drafted in the faith thereof.

(12) If certain words employed in business, or in a particular locality, have been used in particular sense, they must prima facie be construed in technical sense.

(13) The ordinary grammatical interpretation is not to be followed, if it is repugnant to the general context.

(14) Antecedent facts or correspondence, or words deleted before the conclusion of the contract cannot be considered relevant to ascertain the meaning.

(15) Evidence of acts done under a deed can, in case of doubt as to its true meaning, be a guide to the intention of the parties, particularly when acts are done shortly after the date of the instrument.

(16) Unless the language of two documents is identical, and interpretation placed by courts on one document is no authority for the proposition that a document differently drafted, though using partially similar language, should be similarly interpreted.

(17) If the main clause is clear and the contingency mentioned in the proviso does not arise, the proviso is not attracted at all and its language should not be referred to for construing the main clause in a manner contradictory to its import.

(18) The fact that a clause in the deed is not binding on the ground that it is unauthorised cannot ipso facto render the whole deed void unless it forms such an integral part of the transaction as to render it impossible to severe the good from the bad.

Question 24.
Explain the following:
All instruments are legal documents but all legal documents are not instruments. (June 2015, 4 marks)
Answer:
According to Black’s Law Dictionary an instrument is a written document, a formal or legal document in writing, such as a contract, agreements, deed, will, bond, or lease.

Under Section 2(b) of the Notaries Act, 1952, and Section 2(14) of the Indian Stamp Act, 1899, the word “instrument” includes every document by which any right or liability is, or purports to be, created, transferred, modified, limited, extended, suspended, extinguished or recorded. In the context of the General Clauses Act, it has to be understood as including reference to a formal legal writing like an order made under constitutional or statutory authority.

Whereas legal documents includes contract, agreements, deed etc. which need not contain matters presumed or implied by law. It is better in such an agreement to specify even such matters and all other matters so as to make it a complete code, embodying the rights and duties of each party. Thus, all instruments are legal documents but all legal documents are not instruments.

Question 25.
Examine the following statement:
Drafting is the synthesis of law and fact in a language form. (Dec 2015, 4 marks)
Answer:
Drafting may be defined as the synthesis of law and fact in a language form: [Stanley Robinson: Drafting its application to conveyancing and commercial document, 1980]

1. All three characteristics rank equally in importance.
2. Legal drafting is the crystallization and expression in definitive form of a legal right, privilege function, duty or status.
3. Legal instruments such as constitution, status, regulations, ordinances, contract, wills, conveyances, indentures, trusts and leases.

NOTE: The process of drafting operates in two planes the conceptual and verbal besides seeking the right words Drafting therefore is first thinking and second composing.

Question 26.
Comment on the following :
Conveyance is an act of transfer of any property. (June 2016, 5 marks)
Answer:
Mitra’s legal and commercial dictionary defines “conveyance” as the action of conveyancing, a means or way of conveyancing’, an instrument by which title to property is transferred, a means of transport, vehicle.

“Conveyance”, as defined in Clause 10 of Section 2 of the Indian Stamp Act, 1899, “includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided by Schedule I” of the Act.

Section 5 of transfer of property act defines ‘transfer of property” as an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, and one or more other living persons; and ‘to transfer property” is to perform such act.

Thus, Conveyance is an act of by which movable or immovable property is transferred by way of sale, lease, gift or exchange.

Question 27.
“Recitals carry evidentiary importance in the deed. It is an evidence against the parties to the instrument and those claiming under and it may operate as estoppel.” Write a detailed note on this statement with reference to the decisions of the courts. (June 2016, 8 marks)
Answer:
Recitals contain the brief history of the property up to its vesting into its transferors. Care should be taken that recitals are precise and intelligible.

Recitals precede the operative part and as a matter of fact contain the explanation to the operative part of the deed. Any inaccuracy in the recitals may act as estoppels under section 115 of the Evidence Act. Recital offers good evidence of facts recited therein. Recitals are not generally taken into evidence but are open for interpretation for the Courts.

If the operative part of the deed is ambiguous anything contained in the recital will help in its interpretation or meaning. In the same sense, it is necessary that where recitals contain chronological events that must be narrated in chronological order. Supreme Court in Provash Chandra Dalui v. Biswanath Banerjee [1989 Supp (1) SCC 487] laid down the following proposition:

“Ex praecedentibus et consequentibus optima fit interpretation.” The best interpretation is made from the context. Every contract is to be construed with reference to its object and the whole of its terms. The whole context must be considered to ascertain the intention of the parties.

Thus, recital carry evidentiary importance in the deed. It is an evidence against the parties to the instrument and those claiming under and it may operate as estoppels [Ram Charan v. Girija Nandini, 3 SCR 841 (1965)].

Question 28.
Comment on the following statements:
(a) Things that should be avoided while drafting a document.
(b) Drafting and Conveyancing have same meaning and are interchangeable words. (Dec 2017, 5 marks each)
Answer:
(a) The following things should be avoided while drafting the documents :
(a) Avoid the use of words of same sound. For example, the words “Employer” and “Employee”.
(b) When the clause in the document is numbered it is convenient to refer to any one clause by using single number for it. For example, “in clause 2 above” and so on.
(c) Negative in successive phrases would be very carefully employed.
(d) Draftsman should avoid the use of words “less than” or “more than”, instead they must use “not exceeding”.
(e) If the draftsman has provided for each of the two positions to happen without each other and also happen without, “either” will not be sufficient; he should write “either or express the meaning of the two in other clauses.

In writing and typing the following mistakes always occur which should be avoided:

1. “And” and “or”;
2. “Any” and “my”;
3. “Know” and “now”;
4. “Appointed” and “Applied”;
5. “Present” and “Past” tense.

(b)
Distinction between drafting and conveyancing
Both the terms “drafting and conveyancing” provide the same meaning although these terms are not interchangeable. Conveyancing gives more stress on documentation much concerned with the transfer of property from one person to another, whereas “drafting” gives a general meaning synonymous to preparation or drafting of documents, Documents may include document relating to transfer of property as well as other “documents” in a sense as per definition given in Section 3 (18) of the General Clauses Act, 1897 which include any matter written, expressed or described upon any substance by means of letters figures or mark, which is intended to be used for the purpose of recording that matter.

For example, for a banker the document would mean loan agreement, deed of mortgage, charge pledge, guarantee, etc. For a businessman document would mean something as definded under Section 2(4) of the Indian Sale 3f Goods Act, 1930 soas to include a document of title to goods i.e. “Bill of lading, dock warrant, warehouse-keepers certificate, wharf ingers certificate, railway receipt multi model transport document warrant or order for the delivery of goods and any other document used in ordinary course of business as proof of the possession or control of goods or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented”.

As per Section 2(36) of the Companies Act, 2013 the term “document includes summons, notice, requisition, order, declaration, form and register, whether issued, sent or kept in pursuance of this Act or under any other law for the time being in force or otherwise, maintained on paper or in electronic form. Thus, drafting may cover all types of documents in business usages.

In India, the commercial houses banks and financial institutions have been using the term “documentation”. In substitution of the words “drafting and conveyancing”. Documentation refers to the activity which symbolises preparation of documents including finalisation and execution thereof.

Question 29.
Amino attestendi (June 2018, 5 marks)
Answer:
Amino Attestendi:
It is one of the usual parts or components of deed in general. After attestation clause, signatures of the executants of the documents and their witnesses attesting their signatures follow. It is essential that the attesting witness should have put his signature, amino attestendi, intending for the purpose of attesting that he has seen the executant sign or has received from him, a personal acknowledgement of his signature.

Question 30.
Explain the following :
Legality of a written deed for performing a promise in near future. (June 2018, 4 marks)
Answer:
A contract is an agreement enforceable by law. [Section 2(h) of the Indian Contract Act, 1872]. For every contract, there should be an agreement that is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object.

The agreement should not be declared void hereby to form a contract. This definition of contracts as per Indian Contract Act, 1872 is based on Sir Pollock’s definition which states that every agreement and promise enforceable at law is a contract. Thus for the formation of a contract, there must be an agreement and something in addition to that, i.e., an agreement, and its enforceability at law.

Hence, parties may contract to perform a promise in future and the deed containing such a promise will be legal in the eyes of law .

Question 31.
Why the knowledge about the rules df drafting of pleadings and conveyancing important in corporate affairs? Illustrate. (Dec 2019, 5 marks)
Answer:
Importance of drafting and conveyancing for a company executive could be well understood as the company has to enter into various types of agreements with different parties and have to execute various types of documents in favour of its clients, banks, financial institutions, employees and other constituents. The importance of the knowledge about drafting and conveyancing for the corporate executives has been felt particularly for the three reasons viz.,

1. for obtaining legal consultations;
2. for carrying out documentation departmentally;
3. for interpretation of the documents.

With the knowledge of drafting and conveyancing, there could be better interaction by the corporate executives while seeking legal advice from the legal experts with reference to the matters to be incorporated in the documents, to decide upon the coverage and laying down rights and obligations of the parties therein. Robust knowledge of rules on drafting assist in better communication, extraction of more information, arriving on workable solutions, and facilitates settlement of the draft documents, engrossment and execution thereof.

Knowledge of drafting and conveyancing for the corporate executives is also essential for doing departmental wise documentation. An executive can make a better document with all facts known and judging the relevance and importance of all aspects to be covered therein.

A number of documents are required to be studied and interpreted by the corporate executives. In India, in the absence of any legislation on conveyancing, it becomes imperative to have knowledge about the important rules of law of interpretation so as to put right language in the documents, give appropriate meaning to the words and phrases used therein, and incorporate the will and intention of the parties to the documents.

Question 32.
The date of the execution of a deed is material for the purpose of limitation and registration of the document. If the date is accidently missing in the deed, how do you, as a company secretary, will deal with such a situation? Refer the relevant law on the point. (Dec 2019, 6 marks)
Answer:
The date on which the document is executed comes immediately after the description of the deed. For example, “This Deed of Mortgage made on the first day of January, 2019”. It is the date of execution which is material in a document for the purpose of application of law of limitation, maturity of period, registration of the document and passing on the title to the property as described in the document.

Thus, the “date” of the document is important. Date of execution of document is inscribed on the deed. The date is not strictly speaking an essential part of the deed. A deed is perfectly valid if it is undated or the date given is an impossible one, e.g. 30th day of February. If no date is given oral evidence will always be admissible to prove the date of execution only it leaves necessary to prove it.

However, it is of great importance to know the date from which a particular deed operates. In India there is a short period of 4 months (Section 23 of Registration Act) for its registration from the date of execution within which a deed must be presented for registration. The date is important for application of law of limitation also. In view of the extreme importance of date of execution of deed it should be regarded as an essential requirement. The date of deed is the date on which parties sign or executing it. If several parties to a deed sign the deed on different dates, in such cases, the practice is to regard the last of such dates as the date of deed.

In order to avoid mistake and risk of forgery, the date should be written in both words and figures.

Question 33.
Enumerate the usual parts or components or clauses of a deed. (Dec 2020, 5 marks)
Answer:
A deed is a writing-
(a) paper, vallum or parchment,
(b) sealed and

(c) delivered, whereby an interest, right or property passes, or an obligation binding on some persons is created or which is in affirmance of some act whereby an interest, right or property has been passed.

A deed is a present grant rather than a mere promise to be performed in the future.

Deeds are in writing, signed, sealed and delivered.

Deeds are instruments, but all instruments are not deeds.

A deed is divided into different paragraphs. Under each part relevant and related information is put in paragraph in simple and intelligible language. The usual parts or components or clauses of deeds in general are mentioned as follows:

1. Description of the Deed Title
2. Place and Date of execution of a Deed
3. Description of Parties to the Deed
4. Recitals
5. Testatum
6. Consideration
7. Receipt Clause
8. Operative Clause
9. Description of property
10. Parcels Clause
11. Exceptions and Reservations
12. Premises and Habendum
13. Covenants and undertakings
14. Testimonium Clause
15. Signature and attestation
16. Endorsements and supplemental Deeds
17. Annexures or Schedules.

Question 34.
Discuss the guidelines for use of particular words and phrases in the conveyancing. (Aug 2021, 5 marks)
Answer:
There cannot be any clear cut rule which can be laid down as guideline for using the particular words and phrases in the conveyancing. However, the draftsman must be cautious about the appropriate use of the words and should be clear of its meaning. The following rules may be prescribed for the guidance of the draftsman for using, any particular word and phrase in the drafting of the documents:

1. For general words refer to ordinary dictionary for ascertaining the meaning of the words. For example, Oxford Dictionary or Webster’s Dictionary.
2. For legal terms refer to legal dictionary like Wharton’s Law Lexicon or other dictionaries of English Law written by eminent English Lexicographers as Sweet Cowel, Byrne, Stroud, Jowit, Mozley and Whiteley, Osborn etc. In India, Mitra’s Legal and Commercial Dictionary is quite sufficient to meet the requirements of draftsman.
3. As far as possible current meaning of the words should be used and if necessary, case law, where such words or phrases have been discussed, could be quoted in reference.
4. Technical words may be used after ascertaining their full meaning, import of the sense and appropriate use warranted by the circumstances for deriving a technical or special meaning with reference to the context.
5. The choice of the words and phrases should be made to convey the intention of the executor to the readers in the same sense he wishes to do.
6. The draftsman should also use at times the recognised work of eminent legal expert on the interpretation of statutes.

Question 35.
Explain Indenture and Cyrographum in relation of a deed. (Aug 2021, 4 marks)
Answer:
Indenture
Indenture are those deeds in which there are two or more parties. It is written in duplicate upon one piece of parchment and two parts were severed so as to leave an indented or vary edge, forging being then, rendered yery difficult. Indentures were so called as at one time they were indented or cut with uneven edge at the top.

In olden times, the practice was to make as many copies or parts as they were called, of the instruments as they were parties to it, which parts taken together formed the deed and to engross all of them of the same skin of parchment. This practice of indenting of deeds is no more used in England and at present indenture means a deed between two or more persons / parties importing the meaning of executed contract of conveyancing.

Cyrographum
This was another type of indenture in olden times. The word “Cyrographum” was written between two or more copies of the document and the parchment was cut in a jugged line through this word. The idea was that the difficulty of so cutting another piece of parchment that it would fit exactly into this cutting and writing constituted a safeguard against the fraudulent substitution of a different writing for one of the parts of the original.

Question 36.
Elucidate eight principles which a draftsman should keep in mind while drafting. (Dec 2021, 4 marks)
Answer:
The draftsman should keep in mind the following Principles of drafting:

1. As far as possible the documents should be self-explanatory.
2. The draftsman should begin by satisfying himself that he appreciates what he means to say in the document.
3. The well drafted document should be clear to any person who has competent knowledge of the subject matter.
4. The draft must be readily intelligible to a layman.
5. The documents may not be prefect because it says too much or too little or is ambiguous or contains one or more of the facts because it has to be applied in circumstances which the draftsman never contemplated. This should be avoided.
6. Nothing is to be omitted or admitted at random on the document that is to say negative statement should generally be avoided.
7. Use of judicial language should be made.
8. The text of documents should be divided into paragraphs containing the relevant facts.
9. Schedule should be provided in the documents. Whether any portion of the document should be put into the schedule(s) will depend on the circumstances.
10. The active voice is preferable to the passive voice, unless the passive voice in a particular connection make the meaning more clear.

Question 37.
Write a note on testimonium clause of a Deed. (Dec 2021, 4 marks)
What are the considerations to be taken into account in the case of the words used in an agreement are found ambiguous? (4 marks)
Answer:
(i) Testimonium Clause of deed

• Testimonium is the clause in the last part of the deed.
• This signifies that the parties to the document have signed the deed.
• This clause marks the close of the deed and is an essential part of the deed.

The usual form of Testimonium clause is as under:
“In witness whereof, parties hereto have hereunto set their respective hands and seals the date and year first above written”. This is the usual English form of testimonium clause. In India, except in the case of Companies and corporations seals are not used and in those cases testimonium clause read as under:

“IN WITNESS WHEREOF parties hereto have signed this DEED on the date above written.”

So, testimonium clause can be worded according to the status and delegation of the executants. Also, this clause in the deed presupposes that the proper parties are signing the document.

(ii)

• The cardinal rule is that clear and unambiguous words prevail over any hypothetical considerations or supposed intention.
• But if the words used are not clear and unambiguous the intention will have to be ascertained.
• In other words, if the intention of the parties can be gathered from the words and expressions used in a deed, such an intention does not require to be determined in any other manner except giving the words their normal or natural and primary meanings.
• It is the dominant intention of the document as disclosed from its whole tenor that must guide the construction of its contents.
• In case the terms are not unambiguous it is legitimate to take into account the surrounding circumstances for ascertaining the intention of the parties.
• The social milieu, the actual life situations and the prevailing conditions of the country are also relevant circumstances.

Question 38.
Discuss Engrossment and Stamping of a Deed. (Dec 2021, 4 marks)

Question 39.
What do you understand by the Endorsements and Supplemental Deeds? Does such endorsement and supplemental deeds attract stamp duty? (June 2022, 6 marks)

General Principles of Drafting and Relevant Substantive Rules Notes

Drafting – Its Meaning

• it’s the development and preparation of legal documents such as constitutions, statutes, contracts, wills, deeds, leases etc. Its important element are:
  • Knowledge of LAW
  • Knowledge of FACTS
  • To put those facts in a LANGUAGE
• It involves THINKING & COMPOSING, so as to give a correct presentation of legal status, rights and duties of the parties, terms and conditions, remedies etc. in a self explanatory manner without any ambiguity.

Conveyancing – Its Meaning

Conveyance means:

• An act of conveyancing or transferring
• Any property, whether movable or immovable
• From one person to another
• Within the legal structure of the country
• But does not include acquisition by inheritance The transfer mev be :
• by sale
• by lease
• by giving gift
• by exchange
• by will

Drafting v/s Conveyancing

Drafting	Conveyancing
Preparation of documents for Transfer of property, and Others	Preparation of documents for Transfer of property

Both drafting and conveyancing are a type of documentation.
Conveyance v/s Contract

Basis	Conveyance	Contract
Meaning	It deals with the transfer of property.	It remains to be performed and its specific performance may be sought.
Rights	It just transfers the ownership of existing right without creating any right.	It may / may not create a right of action.
Act	Transfer of Property Act, 1882.	Indian Contract Act, 1872.

General Principles of Drafting & Conveyancing

• As certain the names, addresses etc. of parties
• Express the intention of the parties clearly and concisely
• Use legal language wherever possible
• No information is to be omitted or admitted at random
• The draft must be readüy understandable by layman
• Understand the legal provisions on the subject matter
• Document should be supported by schedules
• The document should be self explanatory
• Use of active voice
• Document should be properly numbered
• Avoiding negative language.

Some Important Rules of Drafting
1. Fowlers’five rules of drafting:
Every writer should endeavour to be:

• Direct
• Simple
• Brief
• Vigorous
• Lucid

i.e. he should use familiar, concrete, single & short words in active voice and prefer the usage of saxon word instead of the Roman words to avoid any complications.

2. Sketch or scheme of the draft document:
Every draftsman should prepare a sketch of the contents of a document before taking up its drafting i.e. he should conceive its design & outline to make sure that nothing is left undone which ought to be done.

3. Skeleton draft and its self – appraisal:
The draftsman should prepare the structure of the draft which should be filled in as he proceeds with his work. Then, he should do a self – appraisal of the document to identify any irregularities.

4. Special attention to be given to certain documents:
It must be ensured that the contractual obligations are not contrary to the concerned law. In case of transfer of property, it’s necessary to ensure the perfect title of the transferor to such property.

5. Expert’s opinion:
The draftsman should take expert’s opinion wherever necessary, to ensure the suitability & legal fitness of the document.
In short, the draftsman should put himself in the place of the reader and make sure that it carries sense.

Some Do’s & Don’ts of Drafting

Some Do’s:

1. Reduce the group of words to single word;
2. Use simple verb for a group of words;
3. Avoid round-about construction;
4. Avoid unnecessary repetition;
5. Write shorter sentences;
6. Express the ideas in fewer words;
7. Prefer the active to the passive voice sentences;
8. Choose the right word;

Some Don’ts:

1. Avoid the use of words of same sound. For example, the words “Employer” and “Employee”;
2. When the clause in the document is numbered it is convenient to refer to any one clause by using single number for it. For example, “in clause 2 above” and so on.
3. Negative in successive phrases would be very carefully employed.
4. Draftsman should avoid the use of words “less than” or “more than”, instead, he must use “not exceeding”.

Guidelines for use of words & phrases
The following principles may be prescribed for the guidance of draftsman for using any particular words and phrases :

• For general words, refer to ordinary dictionary e.g. Oxford dictionary.
• For legal terms refer to legal dictionary e.g. Wharton’s lax lexicon.
• Use the current meaning of words as far as possible and quote the relevant case laws.
• Technical words should be used only after ascertaining their full meaning.

Interpretation of deeds and documents
Though, there is no law in India on the interpretation of documents, but the following set of principles of interpretation of documents commands wide acceptance by the judiciary all over India.
1. Rules under informal agreements:
Here, the rule of reasonable expectation applied i.e the agreement is to be interpreted

• in the sense in which
• the party who used the words in question should reasonably have apprehended
• that the other party may apprehend them.

2. Rules under formal agreements:

• The document itself is the primary evidence. Other evidences will be secondary.
• If the words used are clear & unambiguous then such words should be given their normal meanings unless the contract gives a different meaning to those words.
• In case of ambiguous words, the intention of the parties as disclosed by the whole document should be considered.
• Earlier clause prevails: An obligation created by an earlier clause can’t be destroyed by a latter clause.
• Interpretation of documents that have been accepted in the past should not be departed from.
• An invalid clause in the deed cannot render the whole deed void unless it’s impossible to severe that invalid clause from the rest.
• Executed contract prevails over the executory contract.
• Judicial interpretation of similar documents in the past can just be an aid in the interpretation of documents.

Need for knowledge of drafting & conveyancing for corporate executives

• To aid in obtaining legal consultations & legal advice.
• For carrying out documentation departmentally.
• To study & interpret documents.

Document
As per General Clauses Act, 1894, Document means:

• any matter expressed or described
• upon any substance
• by means of letters, figures or marks
• for the purpose of recording that matter Features of a Document:
• Provides information
• Acts as a proof or evidence of anything

Examples of Document:

• A writing
• Words printed or photographed
• An inscription on a metal plane or stone
• A caricature (i.e. caricature means a hand – made sketch of a person)

Instrument
As per Indian Stamp Act, 1899, Instrument includes :

• every document
• by which any right or liability
• is, or purports to be
• created, transferred, modified, limited, extended, suspended, extinguished or recorded

Examples of Instrument:

• Awards made by industrial Courts
• A will
• Instrument includes decree
• Instrument does not include acts of parliament unless there is a statutory definition to that effect in the act.

Deed
Deed is :

• an instrument
• by which two or more persons.
• agree to effect any right or liability.

Examples of Deeds :

• Gift Deed
• Sale Deed
• Partnership Deed
• Lease Deed

A deed is of non – testamentary character. Deeds are in writing, signed, sealed and delivered.

Kinds of deeds:

S. No.	Type of Deed	Particular
1.	Good deed	Conveys a good title
2.	Good & sufficient deed	Passes a good title
3.	Inclusive deed	Purports to convey
4.	Latent deed	Kept for 20 years or more in a strong box
5.	Pretended deed	Is apparently or prima facie valid
6.	Warranty deed	Contains a covenant of warranty
7.	Lawful deed	Conveys a good or lawful title

Some Other Terms Connected With Deeds:
(a) Deed Pool
It’s
. a deed between 2 or more parties
. where as many copies are made as there are parties
. so that each party may possess a copy
No. of copies = No. of parties

(b) Deed poll
A deed made and executed by a single party e.g. power of Attorney.

• It’s drawn in first person usually.

(c) Indenture

• Such type of deeds involve two or more parties.
• It was written in duplicate upon one piece of a material and two parts were severed so as to leave a vary (uneven edge) edge. As a result, forging such documents was difficult.
  

(d) Cyrographum

• It’s similar to indenture.
• The only difference is that here, the word ‘cyrographum’ was written and torn in between so as to make it very difficult for any person to forge another deed that would fit exactly into this cutting with the same zig zag lines.
  Deed
  

(e) Deed Escrow
A deed signed by one party will be delivered to another as an ‘escrow’.

• It will operate from the date when it’s last signed.

(f) Components of deeds
A deed is divided into different paragraphs. Under each part, the related information is put in that paragraph in simple language. The usual components of a deed are as follows:

Particulars
(i) Non – Operative Part

1. Description of the Deed title
2. Place and Date of execution of a Deed
3. Description of parties to the Deed

(ii) Operative Part

1. Recitals (Short Story)
2. Testatum
3. Consideration
4. Receipt Clause
5. Operative Clause
6. Description of Property
7. Parcels Clause
8. Exceptions and reservation
9. Premise and Habendum
10. Covenants and Undertakings

(iii) Formal Part

1. Testimonium Clause
2. Signature and Attestation
3. Endorsements and supplemental deeds
4. Annexures or Schedules

• Description of the Deed Title
• Place and Date of Execution of a Deed
• Description of parties
• Recitals (Short Story)
  1. Narrative Recitals
  2. Introductory Recitals
• Testatum
• Consideration
• Receipt
• Description of Property
• Operative Clause
• Parcels Clause
• Exceptions and Reservations Clause
• Premises and Habendum
• Covenants and Undertakings
• Testimonium Clause
• Signature and Attestation Clause
• Endorsements and Supplemental Deeds
• Annexures or Schedules

Engrossment and Stamping of a Deed

• The draft of the document is required to be approved by the parties.
• After approval, the document is engrossed i.e. copied fair on the non-judicial stamp paper of appropriate value as per Stamp Act.
• In case, the document is drafted on plain paper but approved without any changes, it can be lodged with the collector of stamps for adjudication of stamp duty.
• An improperly stamped document is rendered inadmissible.

Chapter 9 Corporate Governance and Other Stakeholders – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Corporate Governance and Other Stakeholders – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Write short note On the following:
Whistle blower mechanism [Old Syllabus] (June 2014, 3 marks)?
Answer:
Whistle Blower Policy: The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.

Question 2.
Write short note on the following:
Clarkson principles of stakeholder management. [Old Syllabus] (June 2014, 3 marks)

Question 3.
Write short note on the following:
Whistle blower policy [Old Syllabus] (Dec 2014, 3 marks)
Answer:
Regulation 22 of SEBI LODR Regulations, 2015 following are the requirements for the ‘Whistle Blower Policy’ in a listed entity:
1.The listed entity shall formulate a vigil mechanism/whistle blower policy for directors and employees to report genuine concerns.

2. The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the. audit committee in appropriate or exceptional cases.

Question 4.
Explain the key principles of Stakeholder Engagement. (June 2017, 5 marks)
Answer:
Key principles of Stakeholder engagement

• Communicate: Interactions from the various stakeholders should be promoted.
• Consult, early and often: Always ask the right questions to get the useful information and ideas.
• Remember, they are human: Operate with an awareness of human feelings.
• Plan it: Time investment and careful planning against it, has a significant payoff.
• Relationship: Try to engender trust with the stakeholders. Seek out networking opportunity.
• Simple but not easy: Show your care. Be empathetic. Listen to the stakeholders.
• Managing risk: Stakeholders can be treated as risk and opportunities that have probabilities and impact.
• Compromise: Compromise across a set of stakeholders’ diverging priorities.
• Understand what success is: Explore the value of the project to the stakeholder.
• Take responsibility: Project governance is the key of project success.

Question 5.
“Stakeholder analysis is the identification of a project’s/activity’s key stakeholders, an assessment of their interests and the ways in which these interests affect project’s riskiness and viability.” Elaborate the statement. (June 2012, 5 marks)
Answer:
Stakeholder analysis is the identification of a project’s/ activity’s key stakeholders, an assessment of thefr interests, and the ways in which these interests affect project riskiness and viability. It is linked to both institutional appraisal and social analysis, drawing on the information deriving from these approaches but also contributing to the combining of such data in a single framework. Stakeholder analysis contributes to project design/activity design through the logical framework and by helping to identify appropriate forms of stakeholders participation.

Doing a stakeholder analysis can:

• draw out the interests of stakeholders in relation to the problems which the project is seeking to address (at the identification stage) or the purpose of the project (once it has started).
• identify conflicts of interests between stakeholders.
• help to identify relations between stakeholders which can be built upon and may enable to establish synergies.
• help to assess the appropriate type of participation by different stakeholders.

Question 6.
Discuss briefly the Caux Round Table (CRT) and its principles of business. (June 2012, 5 marks)
Answer:
The Caux Round Table (CRT) is based on the belief that the world business community should play an important role in improving economic and social conditions.
The Caux Round Table was founded in 1986 by Frederick Phillips, former President of Philips Electronics and Oliver Giscard d Estaing, former vice Chairman of INSEAD, as a means of reducing escalating trade tensions.
The CRT Principles for business were formally launched in 1994 and presented at the United Nations world summit on social development in 1995. The Principles are comprehensive statement of responsible business practice formulated by’business leaders for business leaders.

Business behaviour can affect relationships among nations and the prosperity and well being of us all. Business is often the first contact between nations and by the way in which it causes social and economic changes, has a significant impact on the level of fear or confidence felt by people world wide.
The emphasis is on seeking to establish what is right rather than who is right.

Principle 1: The Responsibilities of Businesses beyond shareholders toward stakeholders:
Business have a role to play in improving the lives of all their customers, employees, and shareholders by sharing with them the wealth they have created. Suppliers and competitors as well should expect business to honour their obligation in a spirit of honesty and fairness. As responsible citizens of the local, national, regional and global communities in which they operate, businesses share a part in shaping the future of those communities.

Question 7.
Discuss briefly the following:
Stakeholder engagement (Dec 2012, 3 marks)
Answer:
Stakeholder engagement is an alliance building tool. Corporate practice stakeholder engagement in an effort to understand the needs of their stake holders create partnership and promote dialogue. Stakeholder engagement identifies stakeholders, assesses stakeholder needs, develop stakeholder relations plans and form alliances with stakeholders.

Question 8.
Discuss the Clarkson Principles of Stakeholder Management. (Dec 2012, 5 marks)
Answer:
The Clarkson Principle of stakeholder management
Max Clarkson (1922 – 1998) founded the Centre for Corporate Social Performance and Ethics in the faculty of management, now the Clarkson Centre for Business Ethics & Board effectiveness or CC (BE)2. The Clarkson Principles Emerged From a Project undertaken by the Centre for Corporate Social Performance and Ethics:

Principle 1: Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders and should take their interests appropriately into account in decision -making and operations.

Principle 2: Managers should listen to and openly communicate with stakeholders about their respective concerns and contribution, and about the risks that they assume because of their involvement with the corporation.

Principle 3: Managers should adopt processes and modes of behaviour that are sensitive to the concerns and capabilities of each stakeholder constituency.

Principle 4: Managers should recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among them, taking into account their respective risks and vulnerabilities.

Principle 5: Managers should work cooperatively with other entities, both public and private to ensure that risks and harm arising from corporate activities are minimized and where they can not be avoided , appropriately compensated.

Principle 6: Manager should avoid altogether activities that might jeopardize inalienable human rights (e.g. The right to life) or give rise to risks which, if clearly understood, would be patently unacceptable to relevant stakeholders.

Principle 7: Manager should acknowledge the potential conflicts between (a) Their own role as corporate stakeholders and (b) Their legal and moral responsibilities for the interests of all stakeholders, and should address such conflicts through open communication, appropriate reporting and incentive systems and where necessary, third party review.

Question 9.
(a) “Stakeholders engagement is an alliance building tool.”Comment.
(b) Discuss briefly the Clarkson principles of stakeholder management. (June 2013, 5 marks each)
Answer:
(a) Stakeholder engagement is an alliance – building tool. Corporations practice stakeholder engagement in an effort to understand the needs of their stakeholders create partnership and promote dialogue. Stakeholder engagement identifies stakeholders, assesses stakeholders needs, develops stakeholders relations plans and forms alliance with stakeholders.

Stakeholder’s engagement leads to increased transparency, responsiveness, compliance, organisational learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature of sustainability performance.

Stakeholder engagement involves following steps:

• identify stakeholder.
• Establish the goals and objectives of the company for stakeholder engagement.
• Identify stakeholder needs and interests.
• Determine the stakeholder engagement strategy.
• Evaluate outcome and internalize learnings.

Question 10.
Explain the following:
The Clarkson principles of stakeholder management. (Dec 2014, 3 marks)

Question 11.
“Employees’ participation in Corporate Governance system can be found in many countries and corporations throughout the
world.” In the light of this statement, discuss some of the important examples for ensuring good governance by employees. (Dec 2014, 4 marks)
Answer:
Employee participation in corporate governance systems can be found in many countries and corporations throughout the world. Following are the some important example for ensuring good governance by employees:
1. Right to consultation: Where employees must be consulted on certain management decisions. This right increases transparency of management decisions and allows employee opinion to ameliorate the asymmetry of information between management and the market.

2. Right to nominate/vote for supervisory board members: In many . cases employee participation on the board is mandated. This right
creates a check and balance system between management and the supervisory board, which in turn creates the perception of greater fairness.

3. Compensation/privatization programs that make employees holders of shares, thereby empowering employees to elect the board members, which, in turn holds management responsible.
Employees have a stake in the long-term success of the corporation. In that regard the shareholders are not the only residual claimants. “Employees possess skills and knowledge which are specific to their particular corporation and may be of limited value if they were to become employed elsewhere. Moreover, employees care about a wide range of decisions within corporations.” – Greenfield (1998).

Question 12.
“Organisation that builds mutually strong relationship with its vendors improves its overall performance in the market place.” Discuss. (Dec 2014, 4 marks)
Answer:
Vendors play a key role in the success of an organisation. The organisation which builds a mutually strong relationship with its vendors improves its overall performance in the marketplace. The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the company’s bottom line. However, a well managed vendor relationship will result in increased customer satisfaction, reduced costs, better quality and better sen/ice from the vendor. It ultimately contributes toward the good governance of an organisation. A proper systematic approach of vendor management will benefits all the employees, organisation, customer and vendors.

Question 13.
What do you understand by the ‘stakeholders concept’? Whether this concept has been recognised in law? [Old Syllabus] (Dec 2014, 5 marks)
Answer:
Stakeholder Concept:
In a business context, customers, investors and shareholders, employees, suppliers, government agencies, communities and many others who have a “stake” or claim in some aspect of a company’s products, operations, markets, industry and outcomes are known as stakeholders. These groups are influenced by business, but they also have the ability to affect businesses.

Stakeholders provide resources that are more or less critical to a firm’s long-term success. These resources may be both tangible and intangible. Shareholders, for example, supply capital; suppliers offer material resources or intangible knowledge; employees and managers grant expertise, leadership and commitment; customers generate revenue and provide infrastructure and the media transmits positive corporate images.

Recognition of Stakeholder Concept in Law
The stakeholder concept has been reflected in the laws governing the corporate for a long period. The labour laws seeks to ensure fair and equitable treatment to employees, the environment protection laws seeks ensure adoption of measures which will minimize the negative impact on environment. Tax laws give incentives in the form of tax holidays for development of backward areas. Tax benefits in the form of exemptions for donations made to recognized funds and organizations etc.

Question 14.
What do you understand by ‘stakeholder analysis’? (June 2015, 5 marks)
Answer:
Stakeholder Analysis:
Stakeholder analysis is the identification of a project’s/activity’s key stakeholders, an assessment of their interests, and the ways in which these interests affect project riskiness and viability. It is linked to both institutional appraisal and social analysis: drawing on the information deriving from these approaches, but also contributing to the combining of such data in a single framework. Stakeholder analysis contributes to project design/activity design through the logical framework, and by helping to identify appropriate forms of stakeholder participation.

Doing a stakeholder analysis can:

• draw out the interests of stakeholders in relation to the problems which the project is seeking to address (at the identification stage) or the purpose of the project (once it has started).
• identify conflicts of interests between stakeholders,
• help to identify relations between stakeholders which can be built upon, and may enable establish synergies
• help to assess the appropriate type of participation by different stakeholders.

Question 15.
Discuss Clarkson principles of stakeholder management. (June 2015, 5 marks)

Question 16.
“Better stakeholders’ engagement ensures good governance.” Analyse this statement in the context of employees as stakeholders. (Dec 2015, 5 marks)
Answer:
Better Stakeholders Engagement Ensures Good Governance:
Stakeholders are characterized by their relationship to the company and their needs, interests and concerns, which will be foremost in their minds at the start of an engagement process. However, as the process unfolds they will soon take a particular role with related tasks and responsibilities. Representatives of special interests, such as employees invited to participate in stakeholder panels to review company performance and/or reporting practices in the following manner:

Right to consultation:
Where employees must be consulted on certain management decisions. This right increases transparency of management decisions and allows employee opinion to ameliorate the asymmetry of information between management and the market.

Right to nominate/vote for supervisory board members:
In many cases employee participation on the board is mandated. This right creates a check and balance system between management and the supervisory board, which in turn creates the perception of greater fairness.
Compensation/privatization programs that make employees holders of shares, thereby empowering employees to elect the board members, which, in turn holds management responsible.

Question 17.
Answer the following in brief:
How a better stakeholder engagement ensures good governance? (June 2017, 2 marks)
Answer:
Better Stakeholder Engagement ensures Good Governance
Stakeholders are characterized by their relationship to the company and their needs, interests and concerns, which will be foremost in their minds at the start of an engagement process. However, as the process unfolds they will soon take a particular role with related tasks and responsibilities.

The following are Just some of the different roles that stakeholders can play:

• Experts, such as academics, who have been invited to contribute knowledge and strategic advice to the company’s board.
• Technical advisors with expertise on the social and environmental risks associated with particular technological and scientific developments invited to sit on scientific and ethical panels in science-based industries.
• Representatives of special interests, such as employees, local communities or the environment, commonly invited to participate in stakeholder panels to review company performance and/or reporting practices.
• Co-impiementers, such as NGOs, who have partnered with the company to implement a joint solution or program to address a shared challenge.

Question 18.
Answer the following:
“Stakeholder is any group of individuals which can effect or is affected by the organization.” What are the types of stakeholders? (Dec 2017, 2 marks)
Answer:
The stakeholders may be classified into Primary and Secondary
Stakeholders:

• Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.
• Secondary stakeholders do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special interest groups.

Question 19.
“How does better stakeholder engagement enables good governance.” Discuss. (Dec 2017, 5 marks)
Answer:
Stakeholders are characterized by their relationship to the company and their needs, interests and concerns, which will be foremost in their minds at the start of an engagement process. However, as the process unfolds they will soon take a particular role with related tasks and responsibilities. The following are just some of the different roles that stakeholders can play:

• Experts, such as academics, who have been invited to contribute knowledge and strategic advice to the company’s board;
• Technical advisors with expertise on the social and environmental risks associated with particular technological and scientific developments invited to sit on scientific and ethical panels in science-based industries;
• Representatives of special interests, such as employees, local communities or the environment, commonly invited to participate in stakeholder panels to review company performance and/or reporting practices;
• Co-implementers, such as NGOs, who have partnered with the company to implement a joint solution or program to address a shared challenge.
• Stakeholders can only be well informed and knowledgeable if companies are transparent and report on issues that impact stakeholders. Both parties have an obligation to communicate sincerely and attempt to understand, hot just be understood.

Question 20.
“Stakeholder engagement provides opportunities to further align business practices with societal needs and expectations, helping to drive long-term sustainability and shareholder value”. In the context of this, discuss key principles of stakeholder engagement. (June 2018, 5 marks)
Answer:
Key Principles of Stakeholder engagement

• Communicate: Interactions from the various stakeholders should be promoted.
• Consult, early and often: Always ask the right questions to get the useful information and ideas.
• Remember, they are human: Operate with an awareness of human feelings.
• Plan it: Time investment and careful planning against it, has a significant ‘ payoff.
• Relationship: Try to engender trust with the stakeholders. Seek out networking opportunity.
• Simple but not easy: Show your care. Be empathetic. Listen to the Stakeholders.
• Managing risk: Stakeholders can be treated as risk and opportunities that have probabilities and impact.
• Compromise: Compromise across a set of stakeholders’ diverging priorities.
• Understand what success is: Explore the value of the project to the stakeholder.
• Take responsibility: It’s always the responsibility of everyone to maintain an ongoing dialogue with stakeholders.

Question 21.
What are CRT Principles of Responsible Business? Discuss. (Dec 2018, 5 marks)
Answer:
The 2009 CRT Principles for Responsible Business comprise of seven principles and more detailed Stakeholder Management Guideline covering each of the key stakeholder dimensions of ethical business practices i.e., customers, employees, shareholders, suppliers, competitors, and communities.

The CRT Principles for Business are a worldwide vision for ethical and responsible corporate behavior and serve as a foundation for action for business leaders worldwide. As a statement of aspirations, the CRT Principles aim to express a world standard against which business behavior can be measured. The Caux Round Table has sought to begin a process that identifies shared values, reconciles differing values, and thereby develops a shared perspective on business behavior acceptable to and honoured by all.

CRT Principles for Responsible Business set forth ethical norms for acceptable businesses behaviour. The principles also have a risk management foundation because good ethics is good risk management. And they balance the interests of business with the aspirations of society to ensure sustainable and mutual prosperity for all.
Seven CRT Principles are:
Principle 1: Respect stakeholders beyond shareholders.
Principle 2: Contribute to economic, social and environmental development. Principle 3: Build trust by going beyond the letter of the law.
Principle 4: Respect rules and conventions.
Principle 5: Support responsible globalisation.
Principle 6: Respect the environment.
Principle 7: Avoid illicit activities.

Question 22.
Write a brief note on Caux Round Table (June 2019, CRT). (June 2019, 3 marks)
Answer:
The Caux Round Table (CRT) is an international network of business leaders working to promote a morally and sustainable way of doing business. The Caux Round Table was founded in 1986 by Frits Philips Sr, former President of Philips Electronics, and Olivier Giscard d’Estaing, former Vice-Chairman of INSEAD, as a means of reducing escalating international trade tensions between Europe, Japan and the USA. At the urging of Ryuzaburo Kaku, then Chairman of Canon Inc. the CRT began to focus attention on the importance of global corporate responsibility in reducing social and economic threats to world peace and stability. This led to the development of the 1994 Caux Round Table Principles for Business around three ethical foundations, namely:

• responsible stewardship
• the Japanese concept of Kyosei – living and working for mutual advantage: and
• respecting and protecting human dignity.

These principles recognize that while laws and market forces are necessary, they are insufficient guides for responsible business conduct. The Caux Round Table believes that the world business community should play an important role in improving economic and social conditions. Through an extensive and collaborative process in 1994, business leaders developed the CRT Principles for Business to embody the aspiration of principled business leadership. The CRT believes that its Principles for Responsible Business provide necessary foundations for a fair, free and transparent global society.

Question 23.
“Better Stakeholder engagement ensures Good Governance”. In light of this sentence, elaborate the role of stakeholders in governance. (Dec 2019, 3 marks)
Answer:
Stakeholders are characterized by their relationship to the company and their needs, interests and concerns, which will be foremost in their minds at the start of an engagement process. However, as the process unfolds they soon take a particular role with related tasks and responsibilities. The following are just some of the different roles that stakeholders can play:

• Experts, such as academicians, who have been invited to contribute knowledge and strategic advice to the company’s board.
• Technical advisors with expertise on the social and environmental risks associated with particular technological and scientific developments invited to sit on scientific and ethical panels in science-based industries.
• Representatives of special interests, such as employees, local communities or the environment, commonly invited to participate in stakeholder panels to review company performance and/or reporting practices.
• Co-implementers, such as NGOs, who have partnered with the company to implement a joint solution or program to address a shared challenge.
  Stakeholders can only be well informed and knowledgeable if companies are transparent and report on issues that impact stakeholders. Both parties have an obligation to communicate sincerely and attempt to understand, not just be understood.

Question 24.
“A responsible business activity contributes to good public policy and to human rights in the communities in which it operates.” Explain the responsibilities of business provided in the Caux Round Table’s (CRT) Stakeholder Management Guidelines. (Dec 2020, 5 marks)
Answer:
As a global corporate citizen, a responsible business actively contributes to good public policy and to human rights in the communities in which it operates. Business therefore has a responsibility to:
a. Respect human rights and democratic institutions, and promote them wherever practicable.
b. Recognize government’s legitimate obligation to society at large and support public policies and practices that promote social capital.
c. Promote harmonious relations between business and other segments of society.
d. Collaborate with community initiatives seeking to raise standards of health, education, workplace safety and economic well-being.
e. Promote sustainable development in order to preserve and enhance the physical environment while conserving the earth’s resources.
f. Support peace, security and the rule of law.
g. Respect social diversity including local cultures and minority communities.
h. Be a good corporate citizen through ongoing community investment and support for employee participation in community and civic affairs.

Question 25.
Define the role of Stakeholders in Corporate Governance under SEBI (LODR), Regulations, 2015. (Aug 2021, 5 marks)
Answer:
Role of Stakeholders in Corporate Governance:
As per Regulation 4(2)(d) of SEBI (LODR) Regulations, 2015 the listed entity should recognise the rights of stakeholders and encourage co-operation between listed entity and the stakeholders in the following manner:-

• The listed entity should respect the rights of stakeholders that are established by law or through mutual agreements.
• Stakeholders should have the opportunity to obtain effective redress for violation of their rights.
• Stakeholders should have access to relevant, sufficient and reliable information on a timely and regular basis to enable them to participate in Corporate Governance process.
• The listed entity should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.
  (Note: According to SEBI (LODR) 2nd Amendment Regulations, 2021 dt. 5th May, 2021, in regulation 4(2)(d)
• the words ‘vigil mechanism/ whistle blower policy’ shall be used instead of the words ‘whistle blower mechanism’).

Question 26.
“Shareholders and stakeholders are both associated with a corporation, but their interests in the organization differ.” Explain with reference to stakeholder theory. (Dec 2021, 5 marks)
Answer:
A shareholder is a person or entity that owns shares in the company. A shareholder is entitled to vote in general meetings, receive dividends from the company, transfer the shares etc. and include equity shareholders and preference shareholders of the company. Stakeholders represent a substantially broad group, because they include anyone having an interest in the success or failure of a business. A company’s stakeholders are “those groups without whose support the organization would cease to exist.” This group include shareholders, but goes well beyond shareholders to also include creditors, customers, employees, investors, suppliers, the local community, government agencies and many others who have a ‘stake’ or claim in some aspect of the company’s products, operations, markets, industry and outcomes. Thus, shareholders are a subset of the larger group of stakeholders.

Traditionally, shareholders have been considered more important than all other stakeholders in a business, .since they own the entity and have rights to receive its cash flows under certain circumstances. However, the stakeholder theory suggests that the purpose of a business is to create as much value as possible for stakeholders. It creates an ecosystem of related groups, all of whom need to be considered and satisfied to keep the company healthy and successful in the long term. In order to succeed and be sustainable over time, executives must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same direction.

Question 27.
Describe the principles in respect of:
(1) Audit, Risk and Internal Control
(2) Remuneration
Under the UK Corporate Governance Code, 2018. (June 2022, 5 marks)

Question 28.
Stakeholder engagement is the process by which an organisation involves people who may be affected by the decision it makes or can influence the implementation of its decisions. In reference to stakeholder’s engagement, explain the three key principles of stakeholder’s engagement. (June 2022, 3 marks)

Corporate Governance and Other Stakeholders Notes

Stakeholder analysis:
Stakeholder analysis is a key part of stakeholder management. A stakeholder analysis.of an issue consists of weighing and balancing all of the competing demands on a firm by each of those who have a claim on it, in order to arrive at the firm’s obligation in a particular case. A stakeholder analysis does not preclude the interests of the stakeholders overriding the interests of the other stakeholders affected, but it ensures that all affected will be considered.

The Caux Round Table (CRT):
The Caux Round Table (CRT) is an international network of business leaders working to promote a morally and sustainable way of doing business. The CRT believes that its Principles for Responsible Business provide necessary foundations for a fair, free and transparent global society.

Primary stakeholders:
Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.

Secondary stakeholders:
Secondary stakeholders do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special interest groups.

Corporate Social Responsibilities:
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Chapter 1 Judicial and Administrative Framework – CS Professional Drafting, Pleadings and Appearances Notes is designed strictly as per the latest syllabus and exam pattern.

Judicial and Administrative Framework – Drafting, Pleadings and Appearances Study Material

Question 1.
Write note on the following:
Affidavits (Dec 2012, 4 marks)
Answer:
An affidavit being a statement or declaration on oath by the deponent, is an important document. Therefore, great care is required in drafting it. The consequences of a false affidavit are serious. The following rules should be remembered when drawing up an affidavit:

1. Not a single allegation more than is absolutely necessary should be inserted;
2. The person making the affidavit should be fully described in the affidavit;
3. An affidavit should be drawn up in the first person;
4. An affidavit should be divided into paragraphs, numbered consecutively and as far as possible, each paragraph should be confined to a distinct portion of the subject;
5. Every person or place referred to in the affidavit should be correctly and fully described, so that he or it can be easily identified;
6. When the declarant speaks of any fact within his knowledge he must do so directly and positively using the words “I affirm” or “I make oath and say”;
7. Affidavit should generally be confined to matters within the personal knowledge of the declarant and if any fact is within the personal knowledge of any other person and the petitioner can secure his affidavit about it, he should have it filed. But in interlocutory proceedings, he is also permitted to verify facts on information received, using the words “I am informed by so and so” before every allegation which is so verified. If the declarant believes the information to be true, he must add “and I believe it to be true”.

Question 2.
Write note on the following:
Applicability of principle of res judicata. (June 2019, 4 marks)
Answer:
The principle of res judicata aims at bringing finality to the litigation. The basic principle is that a final judgement rendered by a court of competent jurisdiction is conclusive on merits as to rights of the parties and constitutes an absolute bar against subsequent action involving the same claim. In other words, a matter once litigated, when it is adjudicated on merits, the same matter must not agitated in another court.

The principle of resjudicata applies only under following circumstances:

• The matter directly and substantially in issue has been directly and substantially in issue in a former suit between same parties or between whom they claim litigation under the same title.
• The matter is in the competent court to try such subsequent suit or the suits in which such issue has been subsequently raised and has been heard and finally decided.

The word former suit means suit decided prior, irrespective of the date of institution.

The matter must be decided on merits i.e. the issue was alleged by one party and denied by the other. The principle of res-judicata is one of convenience and not one of absolute justice and it should not be unduly conditioned and qualified by technical interpretations.

Question 3.
Write notes on the following:
Powers of Parliament to delegate and limitations of Law making role of the Parliament. (Dec 2020, 4 marks)
Answer:
In view of the multifarious activities of a welfare state, the legislature cannot work out all the details to fit the varying aspects of complex situations.

It must necessarily delegate the working out of details to the executive or any other agency.

Hence, one of the most significant developments of the present century is the growth in the legislative powers of the executives.

There is no such general power granted to the executive to make l^w, it only supplements the law under the authority of legislature.

This supplementary legislation is called as ‘delegated legislation’ or ‘subordinate legislation’.

The development of the legislative powers of the administrative authorities in the form of the delegated legislation occupies very important place in the study of the administrative law.

The Parliament cannot supply the necessary quantity and quality legislation for effective running of the country. Some of the limitation of the law making role of the Parliament are as under:

(i) Limited period of time: The Parliament conducts its session only for a limited period of time whereas the complexity of modern administration requires that there must be a lawmaking body available on tap. Certain emergency situations may arise which necessitate special measures.

(ii) Complicated and technical matters: The volume of the business of the Parliament has increased and it has no time for the consideration of complicated and technical matters. The Parliament cannot provide the society with the requisite legislation because of lack of time.

(iii) Handling by experts: Certain matters covered by delegated legislation are of technical nature which require handling by experts. In such cases it is inevitable that powers to deal with such matters is given to the appropriate administrative agencies to be exercised according to the requirements of the subject matter.

(iv) Removal of difficulty clause: Parliament while deciding upon a certain course of action cannot foresee the difficulties, which may be encountered in its execution. Accordingly various statutes contain a ‘removal of difficulty clause’ empowering the administration to remove such difficulties by exercising the powers of making rules and regulations.

(v) Flexibility: The practice of delegated legislation introduces flexibility in the law. The rules and regulations, if found to be defective, can be modified quickly.

Question 4.
Write notes on the following:
Supreme Court of India plays the role of the guardian of Constitution of India. (Dec 2020, 4 marks)
Answer:
(1) Supreme Court of India is the highest level of Court of Indian juridical system which is established as per Part V, Chapter IV of the Constitution of India. It plays the role of the guardian of the Constitution of India.

(2) The Supreme Court exercises original jurisdiction exclusively to hear the cases of disputes between the Central Government and the State Governments or between the States. The Supreme Court has original but not exclusive jurisdiction for enforcement of Fundamental Rights as per the provision of Constitution of India through the way of writs. This Court is also an appellate Court.

(3) Supreme Court has the power to exercise extra ordinary jurisdiction to hear any appeal related to any matter for which any court or tribunal had decided with judgment through the option of special leave petition except the case of tribunal related to Armed Forces.

(4) Supreme Court has the power to withdraw or transfer any case from any High Court. The Supreme Court has the authority to review any verdict ordered. The order of Supreme Court is binding on all courts across India.

(5) Advisory jurisdiction : The Supreme Court has the option to report its opinion to the President about any questions raised of public importance referred to it by the President.

Question 5.
Distinguish between the following:
‘Revision’ and ‘appeal’. (Dec 2014, 4 marks)
Answer:
Difference between Revision and Appeal

Revision	Appeal
Application for revision can be made only to the High Court.	Appeal can be preferred to any Court superior to one from whose decree or order appeal is sought to be preferred. That superior court need not necessarily be a High Cburt.
Application for revision can be made to the High Court only when relief by way of appeal is not available.	Appeal lies only from appealable decrees and orders.
Revision cannot be applied for as a right.	Right of appeal is substantive, given by law.
The power of the High Court to exercise revisional jurisdiction either of its own motion or on the request of a party is discretionary.	The Court to which an appeal has been preferred is bound to consider it according to the procedure prescribed.
If a party is dead and his legal representatives are not brought on the record within the prescribed time, the revision does not abate the High Court has power to bring the party to the Court.	In the event of the death of a party if his legal representatives are not brought on the record within the time prescribed by law, the appeal abates.
Revision can be applied for only on grounds of jurisdiction and not on the question of law or fact.	In an appeal the appellate Court has power to consider both the question of law and fact.

Question 6.
Distinguish between “Summons and Warrant”. (June 2019, 4 marks)
Answer:
Summon Case: According to section 2(w) of the Code of Criminal Procedure, 1973 summon-case means a case relating to an offence, and not being a warrant-case. Those cases in which an offence is punishable with an imprisonment of fewer than two years is a summons case. A summons case doesn’t require the method of preparing the evidence.

Nevertheless, a summons case can be converted into a warrant case by the Magistrate if after looking into the case he thinks that the case is not a summon case.

Important points about summons case are as under:

• A summons case can be converted into a warrant case.
• The person accused need not be present personally.
• The person accused should be informed about the charges orally. No need for framing the charges in writing.
• The accused gets only one opportunity to cross-examine the witnesses

Warrant Case : According to Section 2(x) of Code of Criminal Procedure, 1973 a warrant case is one which relates to offences punishable with death, imprisonment for life or imprisonment for a term exceeding two years. The trial in warrant cases starts either by the filing of FIR in a police station or by filing a complaint before a Magistrate.

Later, if the Magistrate is satisfied that the offence is triable exclusively by the Court of Session, he sends the case to the Sessions court for trial. The process of sending it to Sessions court is called “committing it to Sessions court”.

Important features of a warrant case are as under:

• Charges must be mentioned in a warrant case
• Personal appearance of accused is mandatory
• A warrant case cannot be converted into a summons case
• The accused can examine and cross-examine the witnesses more than once
• The Magistrate should ensure that the provisions of Section 207 are complied with. Section 207 of Cr. P.C. 1973, include the supply of copies such as police report, FIR, statements recorded or any other relevant document to the accused.

Question 7.
Distinguish between the following :
Summons case and warrants case. (Dec 2019, 4 marks)

Question 8.
Distinguish between the following :
Distinguish between Appeal and Review. (Dec 2021, 4 marks)

Question 9.
Summary trial. (June 2019, 4 marks)
Answer:
Summary trial is the name given to trials where cases are disposed of speedily and the procedure are simplified and the recording of such trials are done summarily. Summary trials provide to procure justice even for small offences that may otherwise have taken years to complete legal proceedings.

Those cases in which an offence is punishable with an imprisonment of not more than six months can be tried in a summary way. Summary trials may be conducted in High Courts, City Civil Courts or Courts of Small Causes. It may also be conducted in certain other courts. However, the High Court may by notification in the Official Gazette order that only a particular category of suits may be tried by such court.

The trial procedure is provided from Section 260 to Section 265 of the Code of Criminal Procedure, 1973. The procedure followed in the summary trial is similar to summons case. In the judgement of a summary trial, the judge should record the substance of the evidence and a brief statement of the finding of the court with reasons. Imprisonment up to three months can be passed.

Stages of Criminal Trial in Summary Cases:

• The procedure followed in the summary trial is similar to summons-case.
• Imprisonment up to three months can be passed.
• In the judgement of a summary trial, the judge should record the substance of the evidence and a brief statement of the finding of the court with reasons.

Question 10.
‘Limited judicial control over delegated legislation can be exercised by the courts’. Discuss and cite leading case law, if any. (Dec 2019, 5 marks)
Answer:
Judicial control over delegated legislature can be exercised at the following two levels:
(1) Delegation may be challenged as unconstitutional; that is the delegation can be challenged in the courts of law as being unconstitutional, excessive or arbitrary
or

(2) That the Statutory power has been improperly exercised.
Limitations of delegated legislation set out under Article 13(3)(a) of the Constitution of India are as under :-
(a) Delegated Legislation should not infringe any provisions, basic structure (e.g Keshavananda Bharati, a famous case) or even the philosophy as described in The Preamble of the Constitution of India.
(b) Delegated Legislation should not infringe any fundamental right. J Even the procedure must confirm such rights.
(c) Delegated Legislation should be within the limits laid down in the statue. The validity of the rules can be described at this stage in two ways

1. They run counter to the provisions of the Act, and
2. They have been made in excess of the authority delegated by the legislature. Here the substance of the Rules and Regulations impugned has to be looked into and not the procedural requirements of the rule-making that may be prescribed in the statue. Latter is looked into procedural ultra vires rule.

High Court and Supreme Court have struck down defective Delegated Legislation Rules etc time and again.

Question 11.
Explain the principle of res-judicata and it’s impact on litigation. (Dec 2020, 5 marks)

Question 12.
When are issues framed by the court? On what basis, issues are framed? (Dec 2020, 4 marks)
Answer:
The Court shall at first hearing, after reading the plaint and written statement ascertain upon what material propositions of facts or law parties are at variance.

Court is required to pronounce judgement on all the issues. Issues may be framed from allegations made on oath by the parties or in answer to interrogatories or from contents of documents produced by either party.

If the Court is of the opinion that the case or any part thereof may be disposed of on issue of law only, it may first try it, if issue relates to:

1. Jurisdiction of the Court,
2. Bar to the suit created by law for the time being in force.

Where the parties are at issue on some question of law or fact and issues have been framed by the Court as herein-above provided, if the Court is satisfied that no further argument or evidence than what the parties can at once adduce is required upon such of the issues as may be sufficient for decision of the suit and that no injustice will result from proceeding with the suit forthwith, the Court may proceed to determine such issues and if the finding thereon is sufficient for the decision, may pronounce judgement accordingly.

Question 13.
Review of a case means re-examination or reconstruction of its own decision by the same court. Explain. (Dec 2020, 4 marks)
Answer:
Review means re-examination or re-consideration of its own decision by the very same court. An application for review may be necessitated by way of invoking the doctrine ‘actus curiae neminem gravabit which means an act of the Court shall prejudice no man. The other maxim is, ‘lex non cogit ao impossibillia’ which means the law does not compel a man to do that what he cannot possibly perform.

Section 114 of the Code of Civil Procedure, 1908 provides for a substantive power of review by a Civil Court and consequently by the appellate courts.

Section 114 of the code, although does not prescribe any limitation on the power of the court but such limitations, have been provided for in Order 47, Rule 1 of the CPC.

The section is worded as follows:
Review – Subject as aforesaid, any person considering himself aggrieved –
(a) by a decree or order from which an appeal is allowed by this Code, but from which no appeal has been preferred
(b) by a decree or order from which no appeal is allowed by, this Code, or
(c) by a decision on a reference from a Court of Small Causes, may apply for a review of judgment to the Court which passed the decree or made the order, and the Court may make such order thereon as it thinks fit.

An ‘aggrieved’ person is one who has suffered a legal grievance, i.e., against whom a decision has been pronounced which has wrongfully affected his title or wrongfully deprived him of something which he was entitled to.

All decrees or orders cannot be reviewed. The right of review has been conferred by Section 114 and Order XLVII of the Code.

Question 14.
Illuminate the consequence of a civil suit in the following independent situations: (Aug 2021, 5 marks)

1. Defendant has not appeared on the day fixed and the case not been adjourned.
2. It was found that summons was not served to defendant for the day so fixed for appearance.
3. Neither the plaintiff nor the defendant appears before the court on the day so fixed.
4. The defendant appears and does not admit claim partly or wholly, but the plaintiff does not appear.
5. The defendant appears and admits claim partly or wholly, but the plaintiff does not appear.

Answer:

1. If defendant is absent, court may proceed ex-parte, if case not been adjourned.
2. If it is observed that summon is not been served, the court may dismiss the suit.
3. Where neither the plaintiff nor the defendant appears, the court may dismiss the suit.
4. Where the defendant does not admit the plaintiff’s claim and plaintiff does not appear, the court may dismiss it.
5. Where the defendant admits the plaintiff’s claim partly or wholly, the decree will be passed accordingly. If the defendant admits the claim, or part thereof, in which case the Court shall pass a decree against the defendant upon such admission, and where part only of the claim has been admitted, shall dismiss the suit so far as it relates to the remainder.

Question 15.
“No revision where right to appeal exists”. Comment and state when revision may be treated as an appeal? (Aug 2021, 5 marks)
Answer:
Section 401 (4) of the Code of Criminal Procedure, 1973 (Cr. P.C.), provides that the party having right of appeal cannot apply for revision. The Cr. P.C. provides a remedy, by way of revision under Chapter XXX and if the party does not file an appeal against an order of the inferior criminal Court, he will not be permitted to prefer a revision against that order.

But legal bar does not stand in the way of High Court’s exercise of power of revision suomotu. It can itself call for the records of proceedings of any inferior criminal Court and has power to enhance the sentence by exercising its revisional jurisdiction.

According to section 115(2) the Code of Civil Procedure, 1908, the High Court shall not, under section 115, vary or reverse any decree or order against which an appeal lies either to the High Court or to any Court subordinate thereto.

According to section 401 (5) if an appeal lies under the Code of Criminal Procedure, 1973 but an application for revision has been made to the High Court by any person and the High Court is satisfied that such application was made under the erroneous belief that no appeal lies thereto and that it is necessary in the interest of Justice so to do, the High Court may treat the application for revision as a petition of appeal and deal with the same accordingly.

Question 16.
“Tribunals are a part of the executive branch of the government which are assigned with the powers and duties to act in judicial capacity for settlement of disputes.” Comment and name any four of such tribunals along with the aim of formation. (Aug 2021, 4 marks)
Answer:
Tribunals in India are a part of the Executive Branch of the Government which are assigned with the powers and duties to act in judicial capacity for settlement of disputes. Part XIVA of the Constitution of India makes provisions for establishment and functioning of the Tribunals in India. They are quasi-judicial bodies that are less formal, less expensive and enable speedy disposal of cases.

1. Debt Recovering Tribunal (DRT) has been established for expeditious adjudication and recovery of debts in order to reduce the non-performing assets.
2. National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of Company Law Board, Board for Industrial and Financial Reconstruction, Appellate Authority for industrial and financial reconstruction and winding up matters etc. vested with High Court.
3. Consumer Forum has been established for settlement of consumer disputes.
4. Motor Accident Claims Tribunal deals with matters relating to compensation of motor accidents.
5. National Green Tribunal disposes cases relating to environmental protection and conservation of forests etc.

Question 17.
Discuss the stages of Criminal Trial in Summons Cases. (Dec 2021, 4 marks)
Answer:
Stages of Criminal Trials in Summons Case are as given below:-
1. Pre-trial : In the pre-trial stage, the process such as filing of FIR and investigation is conducted.

2. Charges : In summons trials, charges are not framed in writing. The accused appears before the court or is brought before the court then the Magistrate would orally state the facts of the offense he is answerable.

3. Plea of guilty: The Magistrate asked the accused if he pleads guilty or has any defence to support his case. If the accused plead guilty, the Magistrate records the statement in words of the accused as far as possible and may convict him on his discretion.

4. Plea of guilty and absence of accused : In cases of petty offences, where the accused want to plead the guilty without appearing before the Court, the accused should send a letter containing an acceptance of guilt and the amount of fine provided in summons. The Magistrate can on his discretion convict the accused.

5. Prosecution and defence evidence : If the accused does not plead guilty, then the process of trial starts. The prosecution and the defence are asked to present evidence in support of their cases. The Magistrate is also empowered to take the statement of the accused.

6. Judgement: When the sentence is pronounced in a summons case, the parties need not argue on the quantum of punishment given. The sentence is the sole discretion of the Judge.

Question 18.
Explain Interlocutory proceedings and Interlocutory Orders. (Dec 2021, 4 marks)
Answer:
Interlocutory Proceedings :

• Interlocutory proceedings are court hearings that focus on a specific matter related to a trial during the life cycle of the case.
• The period involved between initiation and disposal of litigation is substantially long.
• The intervention of the court may sometimes be required to maintain the position as it prevailed on the date of litigation.
• In legal parlance it is known as “status quo”.
• It means preserving existing state of things on a given day. In that context interlocutory orders are provisional, interim, and temporary as compared to final. ”
• It does not finally determine cause of action but only decides some intervening matter pertaining to the cause.
• The procedure followed in the court is that the separate application for interim relief is moved at the time of filing of suit or at a subsequent stage.
• The court either grants the order ex-parte or issues urgent show cause notice and the reply is to be filed within short time.

Interlocutory order:

• An order which is not final but merely provisional or temporary is generally known as interlocutory order.
• But the true test of determining whether or not, an order is interlocutory in nature is whether the order in question finally disposes of the rights of the parties or leaves the case still alive and undecided.
• For Example, grant or cancellation of bail, adjournment of cases, etc. are interlocutory orders.
• The Supreme Court has, however, held that the term ‘interlocutory order’ as used in Section 397(2) should be given liberal construction in favour of the accused in order to ensure fairness of the trial and the revision power of the High Court or the Sessions Judge could be attracted to “intermediate’ or ‘quasi-final orders which are not purely interlocutory in nature.

Question 19.
“The system of Appeal provides an opportunity to correct Judicial Orders which otherwise would operate unjustly” Elaborate with relevant provision under the Civil Procedure Code, 1908 and the Criminal Procedure Code, 1973. (June 2022, 5 marks)

Question 20.
Draft the following as per the instructions (Assume facts, if required):
Specimen application for review of a judgment. (June 2022, 4 marks)

Question 21.
(i) Explain various stages of a criminal trial in a warrant case. (June 2022) (6 marks)
(ii) “A subordinate Court cannot be supposed to entertain a reasonable doubt on a point of Law.” Explain and state various provisions of reference under the Civil Procedure Code, 1908. (6 marks)

Question 22.
Sohan is tried summarily by the Metropolitan Magistrate on the charge of committing theft and is sentenced to undergo imprisonment for a period of six months. Can Sohan challenge this decision ? If so, on what grounds? (June 2012, 5 marks) [CSEP -1]
Answer:
Sohan can challenge the decision of the court.

A ‘summary trial’ is a fast-track procedure that provides for speedy trial of cases. Under Section 260 of the Code of Criminal Procedure, 1973, any Magistrate of First Class or a Metropolitan Magistrate or a Chief Judicial Magistrate can hear cases of offences not punishable with death, life imprisonment or even imprisonment of more than two years in a summary trial.

Included would be offences like petty theft (where the value of the stolen property does not exceed rupees two hundred), assisting in such theft * or in keeping its proceeds hidden, acquiring or keeping such stolen property, trespass, breaking into a house, insulting someone with the intention of provoking him to a violent act, and helping anyone in the performance of these crimes.

Section 261 covers the conduct of a summary trial by a Magistrate of second class.

Section 262 provides the procedure involved in a summary trial. These cases are also known as summons cases, since they do not normally make use of warrants. Moreover, the maximum punishment that can be pronounced in such cases is of imprisonment upto three months.

Question 23.
Rush Bank, a banking company, wants to take action against the defaulting borrower, being Company Secretary advise the appropriate forum to file the petition. Suggest, whether THFL, and MBFC (not a banking company) can file the petition against the defaulting borrower before the same forum ? Give a reasoned reply. (Dec 2019, 4 marks)
Answer:
The Debt Recovery Tribunals have been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers. Debt Recovery Tribunal (DRT) was established for expeditious adjudication and recovery of debts due to banks and financial institutions in order to reduce the non-performing assets of the Banks and Financial Institutions.

DRT acts as a single judicial forum for adjudication of cases as well as execution of the decrees passed for recovery of debts due to banks and financial institutions under RDDBFI Act and Securitisation and Reconstruction of Financial Assets „.id Enforcement of Security Interests (SARFAESI) Act, 2002.

Hence Rush Bank can file the petition before the Debt Recovery Tribunal against the defaulting borrower.

Assuming THFL and MBFC (not a banking company) being financial institutions can also file the petition before the Debt Recovery Tribunal against the defaulting borrower.

Question 24.
Write short note on Interlocutory order.
Answer:
Sub-section (2) section 397 bars the exercise of revisional power in relation to any interlocutory order passed in any appeal, inquiry, trial or other proceeding. The statutory bar on the power of revision in relation to interlocutory orders is intended with the object of eliminating inordinate delay in the disposal of criminal cases and to ensure expeditious trials.

What is an interlocutory order has always been a debatable issue, more so, because it has not been defined anywhere in the Code of Criminal Procedure. An order which is not final but merely provisional or temporary is generally called an interlocutory order. But the true test of determining whether or not, an order is interlocutory in nature is whether the order in question finally disposes of the rights of the parties or leaves the case still alive and undecided. For instance, grant or cancellation of bail, adjournment of cases, etc. are interlocutory orders.

The Supreme Court has, however, held that the term ‘interlocutory order’ as used in Section 397(2) should be given liberal construction in favour of the accused in order to ensure fairness of the trial and the revisional power of the High Court or the Sessions Judge could be attracted to ‘intermediate’ or ‘quasi-final’ orders which are not purely interlocutory in nature.

Question 25.
Write short note Debt Recovery Tribunal.
Answer:
The Debt Recovery Tribunals have been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers. (DRT) was established for expeditious adjudication and recovery of debts due to banks and financial institutions in order to reduce the non-performing assets of the Banks and Financial Institutions.

Prior to the introduction of Debt Recovery Tribunal, petitions had to be filed separately for adjudication of cases and execution proceedings in different courts depending upon their jurisdiction. DRT acts as a single judicial forum for adjudication of cases as well as execution of the decrees passed for recovery of debts due to banks and financial institutions under RDDBFI Act and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002.

Question 26.
Write short note Ex-parte Decree.
Answer:
A decree against the Defendant without hearing him or in his absence/in absence of his defence can be passed under the following circumstances:-
(i) Where any party from whom a written statement is required fails to present the same within the time permitted or fixed by the court, as the case may be the court shall pronounce judgement against him, or make such order in relation to the suit as it thinks fit and on pronouncement of such judgement a decree shall be drawn up.

(ii) Where Defendant has not filed a pleading, it shall be lawful for the court to pronounce judgement on the basis of facts contained in the plaint, except against person with disability.

(iii) Where the Plaintiff appears and Defendant does not appear when suit is called up for hearing and summons is properly served the court may make an order that suit will be heard ex parte.

f an exparte decfee is passed and the Defendant satisfies that he was prevented by sufficient cause then he has the following remedies open:

1. Prefer appeal against decree.
2. Apply for Review.
3. Apply for setting aside the Ex-parte Decree.

The words “Sufficient Cause” has not been defined and it will depend on facts and circumstances of each case.

The Defendant is not entitled to approach the court to set aside the exparte decree as a matter of right. An exparte decree is an equally effective decree unless set aside in appeal or by the same court. The court, which passed exparte decree, has the power to set aside the decree.

Question 26.
Discuss modes of control over delegated legislation.
Answer:
Modes of control over delegated legislation: The practice of conferring legislative powers upon administrative authorities though beneficial and necessary Is also dangerous because of the possibility of abuse of powers and other attendant evils.

There is consensus of opinion that proper precautions must be taken for ensuring proper exercise of such powers. Wider discretion is most likely to result in arbitrariness. The exercise of delegated legislative powers must be properly circumscribed and vigilantly scrutinized by the Court and Legislature. The control of delegated legislation may be one or more of the following types:

1. Procedural;
2. Parliamentary; and
3. Judicial

1. Procedural: Control of delegated legislation by procedure – From the citizen’s post of view the most beneficial safeguard against the dangers of the misuse of delegated Legislation is the development of a procedure to be followed by the delegates while formulating rules and regulations.

The Acts of Parliament delegating legislative powers to other bodies or authorities often provide certain procedural requirements to be complied with by such authorities while making rules and regulations etc. These formalities may consist of consultation with interested bodies, publication of draft rules and regulations, hearing of objections, considerations of representations etc.

2. Parliamentary: Parliamentary control in India over delegation: Discretion as to the formulation of the legislative policy is prerogative and function the legislature and it cannot be delegated to the executive. Discretion to make notifications and alterations in an Act while extending it and to effect amendments or repeals in the existing laws is subject to the condition precedent that essential legislative functions cannot be delegated. In order to avoid the dangers, the scope of delegation is strictly circumscribed by the Legislature by providing for adequate safeguards, controls and appeals against the executive orders and decisions.

3. Judicial: Judicial control over delegated legislature can be exercised at the following two levels:
1. Delegation may be challenged as unconstitutional; that is the delegation can be challenged in the courts of law as being unconstitutional, excessive or arbitrary or

2. That the Statutory power has been improperly exercised.

3. The scope of permissible delegation is fairly wide. Within the wide limits delegation is sustained if it does not, otherwise; infringe the provisions of the Constitution. Article 13(3)(a) of the Constitution of India lays down that law, which includes any ordinances, order, by-law, rule, regulation, notification, etc. if found in violation of fundamental rights would be void. The limitations imposed by the application of the rule of ultra vires are quite clear. If the Act of the Legislature under which power is delegated is ultra vires, the power of the legislature in the delegation can never be good.

4. The court can inquire into whether delegated legislation is within the limits laid down by the statute. The validity of the rules may be assailed as the stage in two ways:-

1. That they run counter to the provisions of the Act; and
2. That they have been made in excess of the authority delegated by the legislature.

Question 27.
Discuss procedural aspects of working of Civil Courts.
Answer:
Procedural aspects of working of Civil Courts:
1. Jurisdiction: The Civil Procedure Code,1908 stipulates that the courts shall have jurisdiction to try all suits of a civil nature excepting suits of which cognizance is either expressly or impliedly barred.
The jurisdiction is basically of three types.
(a) Pecuniary
(b) Territorial: The purpose of territorial jurisdiction is to ensure smooth and speedy trial of the matter with least inconvenience to the affected parties.
(c) As to subject matter: For example, Motor Vehicles Act provides for special tribunal for matters under it.

Similarly disputes relating to terms of sen/ice of government servants go to Administrative Tribunals. .

2. Stay: With the object of preventing courts of concurrent jurisdiction simultaneously trying two parallel suit in respect of the same matter in issue, Civil Procedure Code has vested inherent power in the court to stay the suit.

3. Res Judicata and bar to further Suits: The principle of res judicata aims at bringing finality to the litigation. The basic principle is that a final judgement rendered by a court of competent jurisdiction is conclusive on merits as to rights of the parties and constitutes an absolute bar against subsequent action involving the same claim.

4. Plaint: The entire legal machinery under the Civil Law is set in motion by filing of plaint and hence plaint is the actual starting point of all pleadings in a case. Though the law has not laid down any tight jacket formats for plaints, its minimum contents have been prescribed.

5. Summons: When the suit is duly instituted summons may be issued to Defendant to appear and answer the claim. Summons is an instrument used by the court to commence a civil action or proceedings and is a means to acquire jurisdiction over party. It is a process directed to a proper officer requiring him to notify the person named, that an action has been commenced against him, in the court from where process is issued and that he is required to appear, on a day named and answer the claim in such action.

6. Appearance of Parties: On the day fixed in the summons the Defendant is required to appear and answer and the parties shall attend the court unless the hearing is adjourned to a future day fixed by the court. If the Defendant is absent court may proceed ex-parte. Where on the day so fixed it is found that summons has not been served upon Defendant as consequence of failure of Plaintiff to pay the court fee or postal charges the court may dismiss the suit.

7. Adjournments: Courts have the power to adjourn a case and take it up on a future date. Adjournments frequently sought by the parties contribute significantly to the delays caused in deciding the matters. The granting of adjournments is at the discretion of the court. The rules governing adjournments are considerably strict if applied in their true spirit.

8. Ex-parte Decrees: A decree against the Defendant without hearing him or in his absence/in absence of his defence can be passed under the following circumstances:-

1. Where any party from whom a written statement is required fails to present the same within the time permitted or fixed by the court, as the case may be the court shall pronounce judgement against him, or make such order in relation to the suit as it thinks fit and on pronouncement of such judgement a decree shall be drawn up.
2. Where Defendant has not filed a pleading, it shall be lawful for the court to pronounce judgement on the basis of facts contained in the plaint, except against person with disability.

9. Interlocutory Proceedings: The period involved between initiation and disposal of litigation is substantially long. The intervention of the court may sometimes be required to maintain the position as it prevailed on the date of litigation. In legal parlance it is known as “status quo”.’ It means preserving existing state of things on a given day. In that context interlocutory orders are provisional, interim, temporary as compared to final.

10. Written Statement: The Defendant is required to file a written statement of his defence at or before the first hearing or such time as may be allowed along with the list of documents relied upon by him. If Defendant disputes maintainability of the suit or takes the plea that the transaction is void it must be specifically stated. A general denial of grounds alleged in the plaint is not sufficient and denial has to be specific.

11. Examination of Parties: Examination of parties is an important stage after appearance. At first hearing of the suit the court shall ascertain from each party or his pleader whether he admits or denies such allegations of fact as are made in the plaint or written statement. Such admissions and denials shall be recorded. The examination may be an oral examination.

12. Production of documents: The parties or their pleaders shall produce at or before the settlement of issues, all documentary evidence of every description in their possession or power, on which they intend to rely, and which has not been filed in the court or ordered to be produced.

13. Framing of Issues: The court shall at first hearing, after reading the plaint and written statement ascertain upon what material propositions of facts or law parties are at variance.

14. Affidavits: The court may at any time for sufficient reason order that any particular fact or facts may be proved by affidavit or affidavit of any witness may be read at hearing, on such condition, as court thinks reasonable.

15. Final Argument: Once the documents have been exhibited in the court and the witness(es) of both the sides examined and cross-examined, the stage is set for ‘final arguments’.

16. Judgement: Judgement means the statement given by the judge on ground of which a decree is passed. The court after the case has been heard shall pronounce judgement in open court either within one month of completion of arguments or as soon thereafter as may be practicable, and when the judgement is to be pronounced judge shall fix a day in advance for that purpose.

17. Decree and Execution: After the decree is passed the process of execution which involves actual implementation of the order of the court through the process of the court starts the entire process of executing of decree.

Question 28.
The summary trials are reserved for small offences to reduce the burden on courts and to save time and money. Discuss Briefly.
Answer:
Cases which generally take only one or two hearings to decide the matter comes under this category. The summary trials are reserved for small offences to reduce the burden on courts and to save time and money. Those cases in which an offence is punishable with an imprisonment of not more than six months can be tried in a summary way. The point worth noting is that, if the case is being tried in a summary way, a person cannot be awarded a punishment of imprisonment for more than three months.

Stages of Criminal Trial In Summary Cases

• The procedure followed in the summary trial is similar to summons-case.
• Imprisonment up to three months can be passed.
• In the judgement of a summary trial, the judge should record the substance of the evidence and a brief statement of the finding of the court with reasons.

Judicial and Administrative Framework Notes

Constitutionality
The power of Legislature to delegate its legislative power is not prohibited in the Constitution.
There are risks inherent in the process of delegation. An overburdened legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. It may:
(a) not lay down any policy at all;
(b) declare its policy in vague and general terms;
(c) not set down any standard for the guidance of the executive;
(d) confer an arbitrary power to the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation.

Modes of control over delegated legislation
The control of delegated legislation may be one or more of the following types:
(i) Procedural:
(ii) Parliamentary; and
(iii) Judicial

(i) Procedural
Control of delegated legislation by procedure: From the citizen’s post of view the most beneficial safeguard against the dangers of the misuse of delegated Legislation is the development of a procedure to be followed by the delegates while formulating rules and regulations. The Acts of Parliament delegating legislative power to other bodies or authorities often provide certain procedural requirements to be complied with by authorities while making rules and regulations etc,

(ii) Parliamentary
Parliamentary control in India over delegation: Discretion as to the formulation of the legislative policy is prerogative and function the legislature and it cannot be delegated to the executive. Discretion to make notifications and alterations in an Act while extending it and to effect amendments or repeals in the existing laws is subject to the condition precedent that essential legislative functions cannot be delegated.

(iii) Judicial
Judicial control over delegated legislature can be exercised at the following two levels:

1. Delegation may be challenged as unconstitutional; that is the delegation can be challenged in the courts of law as being unconstitutional, excessive or arbitrary or
2. That the Statutory power has been improperly exercised.

Some of the important Tribunals are as follows
1. Debt Recovery Tribunal (DRT)
The Debt Recovery Tribunals have been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers. (DRT) was established for expeditious adjudication and recovery of debts due to banks and financial institutions in order to reduce the non-performing assets of the Banks and Financial Institutions.

2. National Company Law Tribunal
National Company Law Tribunal (NCLT) is a quasi-judicial body exercising equitable jurisdiction, which was earlier being exercised by the High Court or the Central Government. It has been established by the Central Government under section 408 of the Companies Act, 2013 with effect from 1^st June 2016. The Tribunal has powers to regulate its own procedures.

The establishment of the National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the following authorities:

1. Company Law Board
2. Board for Industrial and Financial Reconstruction.
3. The Appellate Authority for Industrial and Financial Reconstruction
4. Jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High Courts.

3. Consumer Forum

• To protect the rights of the consumers in India and establish a mechanism for settlement of consumer disputes, a three-tier redressal forum containing District, State and National level consumer forums has been set up.
• The District Consumer Forum deals with consumer disputes involving a value of upto Rupees twenty lakh.
• State Commission has jurisdiction in consumer disputes having a value of upto ₹ 1 crore.
• The National Commission deals in consumer disputes above ? 1 crores, in respect of defects in goods and or deficiency in service.
• It is important to note that consumer courts do not entertain complaints for alleged deficiency in any service that is rendered free of charge or under a contract of personal service.

4. Motor Accident Claims Tribunal (MACT)
The Motor Accidents Claims Tribunal deals with matters related to compensation of motor accidents victims or their next of kin. Victims of motor accident or legal heirs of motor accident victims or a representing. Advocate can file claims relating to loss of life/property and injury cases resulting from Motor Accidents. Motor Accident Claims Tribunal are presided over by Judicial Officers from the State Higher Judicial Service and are under direct supervision of the Hon’ble High Court of the respective state.

5. Central Administrative Tribunal (CAT)
An administrative Tribunal is a multi-member body to hear on cases filed by the staff members alleging non-observation,of-their terms of service or any other related matters and to pass judgments on those cases. For adjudication of disputes with respect to recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union or other local authorities within the territory of India or under the control of Government of India and for matters connected therewith or incidental thereto.

6. National Green Tribunal (NGT)
National Green Tribunal was established for effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources including enforcement of any legal right relating to environment and giving relief and compensation of damages to persons and property and for related matters.

Types of Courts
(i) Supreme Court of India
The Supreme Court exercises original jurisdiction exclusively to hear the cases of disputes between the Central Government and the State Governments or between the States. The Supreme Court has original but not exclusive jurisdiction for enforcement of Fundamental Rights as per the provision of Constitution of India through the way of writs. This court is also an appellate court.

(ii) High Courts of India
Article 226 of Constitution of India has given the power to the High Courts to issue different writs for the enforcement of Fundamental Rights guaranteed under the Constitution. High Courts also hear appeals against the orders of lower courts. Article 227 of Indian Constitution has empowered all High courts to practice superintendence over all the courts of tribunal effective within the regional jurisdiction of the High Court.

(iii) Lower Courts of India
The District Court in India are established by the respective State Government in India for every district or more than one district taking into account the number of cases, population distribution in the district. These courts are under administrative control of the High Court of the State to which the district concerned belongs.

(iv) Revenue Courts
There is a government apparatus to deal with revenue matters. These are ‘courts’ but are not a part of Judiciary because they come under the administration of the State governments. Revenue courts deal with matters pertaining to stamp duty, registration etc.

Procedural aspects of working of Civil Courts
1. Jurisdiction
The Civil Procedure Code,1908 stipulates that the courts shall have jurisdiction to try all suits of a civil nature excepting suits of which cognizance is either expressly or impliedly barred.

The jurisdiction is basically of three types.
(a) Pecuniary
(b) Territorial: The purpose of territorial jurisdiction is to ensure smooth and speedy trial of the matter with least inconvenience to the affected parties.
(c) As to subject matter: For example, Motor Vehicles Act provides for special tribunal for matters under it. Similarly disputes relating to terms of service of government servants go to Administrative Tribunals.

2. Stay
With the object of preventing courts of concurrent jurisdiction simultaneously trying two parallel suit in respect of the same matter in issue, Civil Procedure Code has vested inherent power in the court to stay the suit.

3. Res Judicata and bar to further Suits
The principle of res judicata aims at bringing finality to the litigation. The basic principle is that a final judgement rendered by a court of competent jurisdiction is conclusive on merits as to rights of the parties and constitutes an absolute bar against subsequent action involving the same claim.

4. Plaint
The entire legal machinery under the Civil Law is set in motion by filing of plaint and hence plaint is the actual starting point of all pleadings in a case. Though the law has not laid down any tight jacket formats for plaints, its minimum contents have been prescribed.

5. Summons
When the suit is duly instituted summons may be issued to Defendant to appear and answer the claim. Summons is an instrument used by the court to commence a civil action or proceedings and is a means to acquire jurisdiction over party. It is a process directed to a proper officer requiring him to notify the person named, that an action has been commenced against him, in the court from where process is issued and that he is required to appear, on a day named and answer ‘ the claim in such action.

6. Appearance of Parties
On the day fixed in the summons the Defendant is required to appear and answer and the parties shall attend the court unless the hearing is adjourned to a future day fixed by the court. If the Defendant is absent court may proceed ex-parte. Where on the day so fixed it is found that summons has not been served upon Defendant as consequence of failure of Plaintiff to pay the court fee or postal charges the court may dismiss the suit.

7. Adjournments
Courts have the power to adjourn a case and take it up on a future date. Adjournments frequently sought by the parties contribute significantly to the delays caused in deciding the matters. The granting of adjournments is at the discretion of the court. The rules governing adjournments are considerably strict if applied in their true spirit.

8. Ex-parte Decrees
A decree against the Defendant without hearing him or in his absence/in absence of his defence can be passed under the following circumstances:
(i) Where any party from whom a written statement is required fails to present the same within the time permitted or fixed by the court, as the case may be the court shall pronounce judgement against him, or make such order in relation to the suit as it thinks fit and on pronouncement of such judgement a decree shall be drawn up.

(ii) Where Defendant has not filed a pleading, it shall be lawful for the court to pronounce judgement on the basis of facts contained in the plaint, except against person with disability.

9. Interlocutory Proceedings
The period involved between initiation and disposal of litigation is substantially long. The intervention of the court may sometimes be required to maintain the position as it prevailed on the date of litigation. In legal parlance it is known as “status quo”. It means preserving existing state of things on a given day. In that context interlocutory orders are provisional, interim, temporary as compared to final.

10. Written Statement
The Defendant is required to file a written statement of his defence at or before the first hearing or such time as may be allowed along with the list of documents relied upon by him. If Defendant disputes maintainability of the suit or takes the plea that the transaction is void it must be specifically stated. A general denial of grounds alleged in the plaint is not sufficient and denial has to be specific.

11. Examination of Parties
Examination of parties is an important stage after appearance. At first hearing of the suit the court shall ascertain from each party or his pleader whether he admits or denies such allegations of fact as are made in the plaint or written statement. Such admissions and denials shall be recorded. The examination may be an oral examination.

12. Production of documents
The parties or their pleaders shall produce at or before the settlement of issues, all documentary evidence of every description in their possession or power, on which they intend to rely, and which has not been filed in the court or ordered to be produced. ”

13. Framing of Issues
The court shall at first hearing, after reading the plaint and written statement ascertain upon what material propositions of facts or law parties are at variance.

14. Affidavits
The court may at any time for sufficient reason order that any . particular fact or facts may be proved by affidavit or affidavit of any witness may be read at hearing, on such condition, as court thinks reasonable.

15. Final Argument
Once the documents have been exhibited in the court and the witness(es) of both the sides examined and cross-examined, the stage is set for ‘final arguments’.

16. Judgement
Judgement means the statement given by the judge on ground of which a decree is passed. The court after the case has been heard shall pronounce judgement in open court either within one month of completion of arguments or as soon thereafter as may be practicable, and when the judgement is to be pronounced judge shall fix a day in advance for that purpose.

17. Decree and Execution
After the decree is passed the process of execution which involves actual implementation of the order of the court through the process of the court starts the entire process of executing of decree.

Types of Criminal Trial
1. Warrant Cases
According to Section 2(x) of Code of Criminal Procedure, 1973 a warrant case is one which relates to offences punishable with death, imprisonment for life or imprisonment for a term exceeding two years. The trial in warrant cases starts either by the filing of FIR in a police station or by filing a complaint before a Magistrate. Later, if the Magistrate is satisfied that the offence is punishable for more than two years, he sends the case to the Sessions court for trial.

Important features of a warrant case are:

• Charges must be mentioned in a warrant case
• Personal appearance of accused is mandatory
• A warrant case cannot be converted into a summons case
• The accused can examine and cross-examine the witnesses more than once.

2. Summon Cases
According to Section 2(w) of Code of Criminal Procedure, 1973, those cases in which an offence is punishable with an imprisonment of fewer than two years is a summon case. A summon case doesn’t require the method of preparing the evidence. Nevertheless, a summon case can be converted into a warrant case by the Magistrate if after looking into the case he thinks that the case is not a summon case.

Important points about summons case

• A summons case can be converted into a warrant case.
• The person accused need not be present personally.
• The person accused should be informed about the charges orally. No need for framing the charges in writing.
• The accused gets only one opportunity to cross-examine the witnesses.

Stages of Criminal Trial in a Summons Case

1. Pre-trial
2. Charges
3. Plea of guilty
4. Plea of guilty and absence of the accused
5. Prosecution and defense evidence
6. Judgement

Summary Trial
Cases which generally take only one or two hearings to decide the matter comes under this category. The summary trials are reserved for small offences to reduce the burden on courts and to save time and money. Those cases in which an offence is punishable with an imprisonment of not more than six months can be tried in a summary way. The point worth noting is that, if the case is being tried in a summary way, a person cannot be awarded a punishment of imprisonment for more than three months.

Stages of Criminal Trial in Summary Cases

• The procedure followed in the summary trial is similar to summons-case.
• Imprisonment up to three months can be passed.
• In the judgement of a summary trial, the judge should record the substance of the evidence and a brief statement of the finding of the court with reasons.

Appellate Forum
Any society that claims to uphold the supremacy of law will definitely have an elaborate provision for appeal under its various laws. This is because the majesty of judiciary not with standing, at the end of the day, judges are human beings and they can also be at fault just like any other individual. It is a fundamental tenet of a just society that the shortcomings of men should not operate to the disadvantage of fellow human beings in the courts of law.

Reference
Section 395 of Code of Criminal Procedure, 1973 (Cr.P.C.) empowers a Court subordinate to the High Court to make a reference to the High Court under sub-section (1) if following conditions exist:
1. The case pending before it must ihvolve a question as to validity of any Act, Ordinance or Regulation. A mere plea raised by a party challenging the validity of an Act is not sufficient to make a reference to the High Court unless the Court itself is satisfied that a real and substantial question as to validity of the Act is actually involved for the disposal of the case.

2. Secondly, the Court should be of the opinion that such Act, Ordinance Regulation, as the case may be, is invalid or inoperative but has not been so declared by High Court or by the Supreme Court.

3. While making a reference to the High Court, the Court shall refer to the case setting out’its opinion and reasons for making a reference.

Revision

• Sections 397 to 401 of the Code deal with the revisional jurisdiction of the High Court and the Sessions Court.
• Revision lies both in pending and decided cases and it can be filed before a High Court or a Court of Session.
• Very wide discretionary powers have been conferred on the Sessions Court and the High Court.
• The object of the revision is to confer upon superior criminal courts a kind of paternal or supervisory jurisdiction in order to correct miscarriage of justice arising from misconception of law, irregularity of procedure, neglect of proper precautions of apparent harshness of treatment which has resulted on the one hand in some injury to the due maintenance of law and order, or on the other hand in some
  undeserved hardship to individuals.

Interlocutory Order
Sub-section (2) section 397 bars the exercise of revisional power in relation to any interlocutory order passed in any appeal, inquiry, trial or other proceeding. The statutory bar on the power of revision in relation to interlocutory orders is intended with the object of eliminating inordinate delay in the disposal of criminal cases and to ensure expeditious trials.

Illegally or with material irregularity
The words ‘illegally’ and ‘material irregularity’ in Section 115 do not cover either error of fact or of law. These words do not refer to the decision arrived at but to the manner in which it is reached. The errors as contemplated relate to material defects of procedure.

Section 115 empowers the High Court to satisfy itself upon three matters, viz., (a) that the order of the subordinate court is within its jurisdiction, (b) that the case is one in which the court ought to exercise jurisdiction, and (c) that in exercising jurisdiction the court has not acted illegally that is in breach of some provision of law, or with material irregularity.

Chapter 10 Governance and Compliance Risk – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Governance and Compliance Risk – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Write short note on:
Factors to be kept in mind for planning to mitigate compliance risk. (Dec 2020, 3 marks)
Answer:
Factors to be kept in mind for planning to mitigate compliance risk

• What kinds of compliance failures would create significant brand risk or reputational damage? Could the failures arise internally, in the supply chain, or with regard to third parties operating on the organization’s behalf?
• What is the likely impact of that damage on the organization’s market value, sales, profit, customer loyalty, or ability to operate?
• What kinds of compliance missteps could cause the organization to lose the ability to sell or deliver products/services for a period of time?
• How should the compliance program design, technology, processes, and resource requirements change in light of growth plans, acquisitions, or product/category/ service expansions?
• Is the organization doing enough to inform customers, investors, third parties, and other stakeholders about its vision and values? Is it making the most of ethics, compliance, and risk management investments as potential competitive differentiators?
• What are the total compliance costs beyond salaries and benefits at the centralized level—and how are costs aligned with the most significant compliance risks that could impact the brand or result in significant fines, penalties, and/or litigation?
• How well-positioned is the compliance function? Does it have a seat “at the table” in assessing and influencing strategic decisions?
• What are the personal and professional exposures of executive management and the board of directors with respect to compliance?

Question 2.
A successful compliance-risk management program which is an essential for sound and vibrant operational system contains certain elements. Point out such elements. (June 2019, 3 marks)
Answer:
The compliance framework needs to be comprehensive, dynamic, and customizable, allowing the organization to identify and assess the categories of compliance risk to which it may be exposed. A successful compliance-risk management program which is. an essential component for sound and vibrant operational system contains the following elements:

• Active board and senior management oversight: An effective board and senior management oversight is the cornerstone of an effective compliance risk management process.
• Effective policies and procedures: Compliance risk management policies and procedures should be clearly defined and consistent with the nature and complexity of an institution’s activities.
• Compliance risk analysis and comprehensive controls: Organizations should use appropriate tools in compliance risk analysis like self-assessment, risk maps, process flows, key indicators and audit reports; which enables in establishing an effective system of internal controls.
• Effective compliance monitoring and reporting: Organizations should ensure that they have adequate management information systems that provide management with timely reports on compliances like training, effective complaint system and certifications.
• Testing: Independent testing should be conducted to verify that compliance-risk mitigation activities are in place and functioning as intended throughout the organization.

Question 3.
Compliance Management is the most important part of any business. Highlight the risk of non-compliances. (Dec 2019, 5 marks)
Answer:
Failing to comply with rules, regulations, and specifications could have costly consequences. In the famous Sahara case, the Group was accused of failing to refund over 200 billion rupees to its more than 30 million small investors that it had collected through two unlisted companies of Sahara. In 2011, SEBI ordered Sahara to refund this amount with interest to the investors, as the issue was not in compliance with the requirements applicable to the public offerings of securities. Later in 2014, Mr Subrata Roy, the chairman of Sahara was arrested for the said fraud. His proposal to settle the matter was rejected by the court and SEBI.
Thus non-compliance with the laws of the land can have multi-faceted consequences, ranging from penalties, additional fines to prosecution. Following are some of the risks of non compliance :

• Penalties and Fines: Penalties include financial fines, limitations on activities, additional barriers to approval and even imprisonment.
• Criminal Charges: Criminal charges are a potential consequence for certain regulatory non-compliance.
• Reputational Damage: A business’ public image is a key to its success. When a company is thrust into the public eye for failing to comply with regulations, there are reputational repercussions, which eventually lead to distrust.
• Access to Markets and Product Delays : Non-compliance across enterprise and business network could result in exclusion from the tendering processes and supplier databases. In addition, companies that place value on corporate compliance may avoid doing business with companies which are non compliant as they would want to ensure that they meet their own regulatory obligations.
• Roadblock in Funding : A company cannot get funded, even in the seed investment level, whose compliances are not up to date.

Question 4.
“Governance, Risk and Compliance (GRC) is the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity.” Explain. (Aug 2021, 3 marks)
Answer:
Governance, Risk and Compliance (GRC) is the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity. GRC refers to a strategy for managing an organization’s overall governance, enterprise risk management and compliance with regulations. GRC is a set of processes and practices that runs across departments and functions. GRC might be enabled by a dedicated platform and other tools, although this is not mandatory. While organizations generally don’t need to maintain a separate GRC department, most organizations have a team in place to manage the GRC platform and tools. The scope of GRC doesn’t end with just governance, risk, and compliance management, but also includes assurance and performance management, information security management, quality management, ethics and values management, and business continuity management.

Effective GRC implementation helps the organization to reduce risk and improve control effectiveness, security and compliance through an integrated and unified approach that reduces the ill effects of organizational silos and redundancies.

Question 5.
How is compliance different from conformance?
Answer:
Conormance is voluntary adherence to a standard, rule, specification, requirement, design, process or practice.
Compliance is forced adherence to a law, regulation, rule, process or practice.
Conformance applies to strategies and plans that are adopted to be more productive or to improve quality.
Compliance applies to laws and regulations that one has no option but to follow or face penalties. Such regulations may potentially be productive for society but don’t necessarily contribute to an organization’s goals,

Question 6.
What inputs should Internal Auditors be able to validate or provide to the CRMP?
Answer:
Internal Auditors should be able to validate or provide the following inputs to the CRMP:

• Impacted Areas – processes, systems and policjes
• Existing Controls
• Additional Controls – arising from amendments to, or new legislation
• Risk Exposure – High, Medium, Low
• Responsible Party – Affected Parties
• Monitoring Plan – Business Unit Compliance

Question 7.
What are the possible risks of non-compliance?
Answer:
possible risks of non-compliance

Compliance Area	Possible Risk of Non Compliance
Direct tax compliance	Imposition of penalty Prosecution of directors Loss of reputation
Indirect tax compliance	Cancellation of licences Withdrawal of tax benefits Stoppage of operations Loss of reputation
Labour law compliance	Imposition of penalty Prosecution of directors / occupier Loss of reputation Employee dissatisfaction
Environment, health and safety laws	Stoppage of operations Loss of reputation Imposition of penalty
Corporate law compliance	Imposition of penalty Vacation / prosecution of directors / senior management Loss of reputation

Question 8.
Prepare the checklist that has to be followed for setting up a good compliance program.
Answer:
Checklist to be followed for setting up a good compliance program:
(a) Understand the Scope: Identify all regulatory and internal compliance needs and efforts to challenge if organizational responsibilities are properly aligned. This should not be a “one and done” step, but rather performed periodically as regulatory landscapes and operational environments are typically changing.

(b) Gather Internal and External Intelligence: Tap the collective intelligence of the company by soliciting thoughts from the Board, management and employees. Also look beyond the walls of the organization to understand industry developments and competitor reactions to corporate compliance. This includes researching legal actions to help identify risks.

(c) Define Objectives: Define objectives from an enterprise and business unit standpoints. This should be a significant part of the periodic strategic planning process.

(d) Conduct a Risk Assessment: Identify risks, probabilities, and the significance in terms of both qualitative and quantitative measures. Consider scenarios from a cause-and-effect standpoint.

(e) Align Controls: Policies, procedures, and actions within a process, should be in place to address the risks to best achieve objectives.

(f) Verify /Buy-In and Understandability: Everyone needs to know their roles. For control owners to be expected to act appropriately, they need to understand the “why” and “how” of the compliance program. Controls need to be clearly communicated, ideally with a feedback loop so control owners can voice their insights and concerns.

(g) Test Cultural Support: Many organizations have put in place paper programs that have no real effect on the operations of the organization. Determine if the cultures at headquarters and all relevant business units are supportive of a strong corporate compliance program. This can be accomplished through surveys, independent reviews and entity-level control assessments.

(h) Assess On-Going Compliance: Build monitoring, internal audit and special reviews into the compliance program to help ensure that controls are operating effectively. This effort should also seek to identify the most-efficient alignment of responsibilities and controls.

(i) Train, Educate and Communicate: Deliver periodic targeted training and share compliance information with the business units, global functions, external partners, customers, vendors, and other stakeholder groups.

(j) Measure Results and Report to Board: Develop a reporting dashboard to keep management groups and the Board aware of compliance measures, trends and developments. This should address both internal and external activities.

Governance and Compliance Risk Notes

Compliance Vs Conformance:
Conformance is voluntary adherence to a standard, rule, specification, requirement, design, process or practice. Compliance is forced adherence to a law, regulation, rule, process or practice.
Conformance applies to strategies and plans that are adopted to be more productive or to improve quality.
Compliance applies to laws and regulations that one has no option but to follower face penalties. Such regulations may potentially be productive for society but don’t necessarily contribute to an organization’s goals.

Legal compliance:
Legal compliance is the process or procedure to ensure that an organization follows relevant laws, regulations and business rules. The definition of legal compliance, especially in the context of corporate legal departments, has recently been expanded to include understanding and adhering to ethical codes within entire professions, as well.

Challenges for Effective Corporate Compliance management:

• Large number of legislations and multiple regulators
• Multiple business locations attracting state legislations
• Lack of ownership /awareness of functional staff about compliance requirements
• Segmented compliance initiatives
• Time-consuming and unreliable manual reporting
• Dynamic legal environment, lack of a robust updation process, frequent changes in process owners and internal processes.

Compliance Risk:
Compliance risk is exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices.

Internal Audit:
Internal audit is a dynamic profession involved in helping organisations achieve their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organization.