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Identifying Laws Applicable to Various Industries and their Initial Compliances – Setting Up of Business Entities and Closure Important Questions

Question 1.
Prepare a checklist for incorporation of One Person Company.
Answer:
Checklist for incorporation of One Person Company:

• Obtain Digital Signature Certificate [DSC] for the proposed Directors.
• Obtain Director Identification Number [DIN] for the proposed directors.
• Select a suitable Company Name, and make an application to the Ministry of Corporate Affairs for the availability of a name.
• Draft MOA & AOA.
• Sign and file various documents including MOA, AOA, Form No. 1, Form No. 22, Form No. 32 etc. with the Registrar of Companies electronically.
• Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty.
• Receipt of Certificate of Registration/Incorporation from ROC.

Question 2.
State any five annual compliances required to be made after incorporation of Unlisted Public Company.
Answer:
Annual Compliances to be made by the Unlisted Public Company after incorporation are given below:

Compliance	Particulars
Form No. MBP-1	Form No. MBP-1 should be received by the company from each director disclosing his concern or interest in any company or bodies corporate, firms, or other association which shall include the disclosure of shareholding held by him.
Form No. DIR-8	Form No. DIR-8 should be received by the company from each director about his disqualification u/s 164(2).
Board Meeting	Every public company shall hold the first meeting of the Board of Directors within 30 days of the date of its incorporation. Subsequent Board Meetings: Every public company shall hold a minimum of meetings of its Board of Directors every year. The gap between the two board meetings should not be more than 120 days.
General meeting	Every public company must hold AGM and EGM of the members of the company as provisions of the Companies Act, 2013 and file with ROC necessary forms in relation to resolutions passed at such general meetings.
Appointment of auditor	Every public company has to appoint an auditor as per Section 139 of the Companies Act, 2013.
Form No. ADT- 1	Every private company has to give notice of appointment of auditor to ROC within 30 days of appointment in Form No. ADT-I.
Books of Account	Every public company should start to keep books of account as per provisions of the Companies Act, 2013.
Statutory registers	Every public company should start to keep various statutory registers as per various applicable provisions of the Companies Act, 2013.
Minutes	Every public company should prepare minutes of meetings as per Section 118 of the Companies Att, 2013.

Question 3.
Adhering to labour laws is integral to every organization, small or big. Explain.
Answer:
Adhering to labour laws is integral to every organization, small or big. When an organization is established and it hires people to work, it is subject to several labour laws regardless of the size of the organization. Laws with regards to minimum wages, gratuity, PF payment, weekly holidays, maternity benefits, sexual harassment and payment of bonus among others will ) need to be complied with.

Some major labour laws applicable to most the organization are:

• Industrial Disputes Act, 1947
• Trade Unions Act, 1926
• Industrial Employment (Standing Orders) Act, 1946
• Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
• Payment of Gratuity Act, 1972
• Contract Labour (Regulation & Abolition) Act, 1970
• Employees Provident Funds & Miscellaneous Provisions Act, 1952
• Employees State Insurance Act, 1948.

An attractive employee policy can be the key to attract and retain good talent. Employee policies can also prove to be the starting point for boosting j employee morale and increasing productivity.

Question 4.
Enumerate the name of any five laws that are applicable to Oil & Petroleum Sector.
Answer:
Various laws that are applicable to Oil & Petroleum Sector are as follows:

• Petroleum Act, 1934
• Petroleum and Minerals Pipelines (Acquisition of Right of User Inland) Act, 1962
• Explosives Act, 1884
• Oilfield (Regulation & Development) Act, 1948
• Petroleum & Natural Gas Regulatory Board Act, 2006
• Oil Industry (Development) Act, 1974
• Mines Act, 1952
• Mines and Minerals (Regulations and Development) Act, 1957
• Territorial Waters, Continental Shelf, Exclusive Economic Zone & Other Maritime Zones Act, 1976 [In short called Maritime Zone Act, 1976]
• Offshore Areas Minerals (Development and Regulation) Act, 2002.

Question 5.
Enumerate the name of any five laws that are applicable to the Insurance Sector.
Answer:
Various laws that are applicable to Insurance Sector are as follows:

• Insurance Act, 1938
• Insurance Regulatory and Development Authority Act, 1999
• General Insurance Business (Nationalization) Act, 1972
• Industrial Disputes (Banking and Insurance Companies) Act, 1949
• Marine Insurance Act, 1963.

Question 6.
Harischander wants to start a manufacturing business but he is not able to decide on the form of business (Type of Business Entity). He seeks your advice about the legal implication and requirements for the various business forms in India on the basis of the following parameters.
(i) Registration f ii) Members liability
(iii) No. of members required
(iv) Taxation
(v) Legal status [June 2019 (5 Marks)]
Answer:

Question 7.
Write a short note on Labour Welfare Fund for social assistance to workers [June 2019 (3 Marks)]
Answer:
To extend a measure of social assistance to workers in the unorganized sector/the concept of the ‘Labour Welfare Fund’ was evolved and five welfare funds were set up under the Ministry of Labour and Employment. These funds are aimed to provide housing, medical care, educational and recreational facilities to workers employed in the beedi industry, certain non-coal mines and cine workers.

Such funds are financed out of the proceeds of the cess levied under respective Acts. Various legislations so enacted are as follows:
1. Mica Mines Labour Welfare Fund Act, 1946: It was enacted to provide for the constitution of a fund for financing the activities which promote the welfare of labour employed in the mica mining industry.

2. Limestone and Dolomite Mines Labour Welfare Fund Act, 1972: It was enacted to provide for the levy and collection of a cess on limestone and dolomite for financing the activities which promote the welfare of persons employed in the limestone and dolomite mines.

3. Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Fund Act, 1976: It was enacted to provide for financing the activities which promote the welfare of persons employed in the iron ore mines, manganese ore mines and chrome ore mines.

4. Beedi Workers Welfare Fund Act, 1976: It was enacted to provide for financing the measures which promote the welfare of persons engaged in beedi establishments.

5. Cine Workers Welfare Fund Act, 1981: It was enacted to provide for financing the activities which promote the welfare of certain cine-workers.

Question 8.
Prabhat is proposing to start a new business wants to know from you the mandatory annual compliances for an LLP and a partnership firm. [Dec. 2019 (3 Marks)]
Answer:
Mandatory Annual Compliance of LLP
All LLPs registered under the LLP Act, 2008 need to file Annual Returns and Statement of Accounts for every Financial Year. It is mandatory for an LLP to file a return irrespective of whether it has done any business or not.

There are three mandatory compliance requirements to be followed by LLPs which are given below.
1. Filing of Statement of Account and Solvency: Every LLP shall, within a period of 6 months from the end of each financial year, prepare a Statement of Account and Solvency in Form No. 8 and such statement shall be signed by the designated partners of the LLP. Every LLP shall file the Statement of Account and Solvency with the ROC every year on or before 31st October.

2. Audit of accounts: Every LLP whose turnover exceeds, in any financial year, ₹ 40,00,000 or its contribution exceed ₹ 25,00,000 has to get accounts audited from a Chartered Accountant.

3. Filing of Annual Return: Every LLP shall file an annual return duly authenticated with the ROC within 60 days of closure of its financial year in the prescribed form. Annual return has to be filed in Form No. 11. The annual return of an LLP having turnover up to ₹ 5 Crore during the corresponding financial year or contribution up to ₹ 50 lakh shall be accompanied with a certificate from a designated partner, other than the signatory to the annual return, to the effect that annual return contains the true and correct information.

In all other cases, the annual return shall be accompanied with a certificate from a Company Secretary in practice to the effect that he has verified the particulars from the books and records of the limited liability partnership and found them to be true and correct.

4. Filing of Income Tax Return: Every LLP has to file an Income Tax Return every within the due date prescribed in Income-tax Act, 1961.

Mandatory Annual Compliance of Partnership:
In partnership, there is no requirement for filing an Annual Return. There is no requirement for a certificate from the company secretary.

Partnership need to file an Income tax return

Setting Up of Business Entities and Closure Questions and Answers

How To Agree To Income Tax Notice Under 143(1)(A) Due To Variance In Income And File Revised Return: If the person has received the income notice under 143(1)(a) due to any variance in income as a mismatch with 26AS and the details are correct. Then the individual has to file a revised return after agreeing to the notice. This article gives the step by step to revision of the Return. As per Form26AS, due to Interest on Fixed Deposit, it also shows how to file Revised Return to Income Tax Notice for Variance.

Suppose an individual has received an income tax notice for Inconsistency in Salary Income and Form 26AS. In that case, they should read the article on Income Tax Notice for Inconsistency in Salary Income and Form 26AS.

Due to variance in income, how to agree to income tax notice under 143(1)(a)

If one has not filed the original return before the due date (31St July of assessment year), one can’t file a revised return.

How To Calculate The New Tax Liability

Calculate the net tax liability of an individual, which appears as a variance, by adding the income.

For example, if a person had not shown Income From Fixed Deposit, then they need to add it as Income from other sources. Under section 234A, if any tax due, one would not have to pay interest, but one may have to pay 234C, 234B interest if due.

Any individual can pay the self-assessment tax using Challan 280 offline or online. Please use the correct year of assessment. Please save the receipt of the paid Challan.

By logging on to the income tax website- click on File Revised Return.

Click on My Account-> eFiled Returns.

One can choose the option Quick eFile.

Show the New income deducted TDS, which was not mentioned earlier

New tax paid

Show Revised Return.

How to Filed the Revised Return

For filing the revised return, all individuals will be required to enter the date of filing the original Return and the acknowledgement number in the revised form. If one more than once files a revised return, then at first and every subsequent revision, one will have to enter the filing date and the acknowledgement number relating to the original Return only. One can file a revised return through physical mode or online.

Steps To Fill the Form

• PART-A General (Fill Excel ITR form: Personal Information, Filing Status)
• For Whether revised or original return, select the R-Revised option.
• For Return filed under section opt for Revised 139(5) option.
• Enter the receipt number for E-filing acknowledgement from the ITR-V, which one would have got after filing the original Return.
• Check all the inputted Details again and Submit.
• One will get a new ITR-V considered as the revised Return.
• E-verify, all the revised Returns of the individual or send across both revised and original Return ITR-V forms within 120 days to the IT department Bangalore.
• Go to the table-Proceeding.
• Please click on the link of ‘Proceeding Name’, and the person will be taken to the next screen
• Under the response option, click on the Submit button and then select the type of response the individual wants to choose, i.e., Agree/Disagree/Partially Agree.
• If one needs to select Agree, the system will auto-populate the acknowledgement number of the latest revised Return one has filed in response to the intimation.
• After selecting ‘Agree’, click on submit button.
• And File Revised Return.
• For any Variance File Revised Return to Income Tax Notice as per Form26AS due to Variance with Salary Income.
• One has to file the revised Return under section Revised 139(5).
• So, say No to the Question Are you filing u/s 119(2)(b)/92CD.

For Income Tax Department, the Source of their Salary Income is the Total Amount Paid/credited in Form 26AS

On the website of incometaxindiaefiling.gov.in of ITR1, a quick e-File ITR option IS available and pick the amount in the column of “Income under Salary”.

So, if one look at Form 26AS and Part A, which shows the details of TDS, their Income from Salary should match the amount designated in the Total amount credited/paid,

ITR1 is simple, and one needs to enter the value of Total tax credited from Form 26AS and fill the TDS details in Income from Salary as per Form 26AS.

ITR2 needs to break up the income in Schedule S. If one doesn’t have any prerequisites, then the individual just needs to deduct the professional tax from the Income.

In two places of Income from Salary is filled in Income Tax Return or ITR, individuals in Income from Salary and TDS details.

Banks deduct TDS on interest amount only if the amount of interest for an FD is more comprehensive than Rs.10,000 per year. The rate of TDS deducted is 10% on interest income by banks, provided your PAN number is available with the bank. If the bank doesn’t have the individual’s PAN in its records on interest income, TDS is deducted at 20%.

If one submit Form 15H/Form 15G to the bank, stating that since the individual taxable income will be below the minimum tax slab for the year, and the bank shouldn’t deduct TDS on their FD Interest.

A record of all the payments related to TDS deducted on every individual’s Fixed Deposits is included in Form 26AS. The Form26AS explains the TDS on the Fixed Deposit. Form 26AS when interest on Fixed Deposit gained is 47854 with TDS subtracted as Rs 4785 (10% of 47854).

If one has needs, they have to open Form 12BA and Salaries other than perquisites, see the value of income. Add 2400 to it. One needs to show their gratuities and other allowances.

As per Form26AS, For Variance due to Fixed Deposit Interest, File Revised Return to Income Tax Notice.

If their Income under Head Salaries in ITR does not match the Total Amount Credited/Paid in Form 26AS, one will get this notice. In two places, Income from Salary is filled in Income Tax Return or ITR, one in Income from Salary and other TDS details. One has to revise and Disagree with the notice of the ITR.

Tax Deducted & Collected at Source – CMA Inter Direct Tax Study Material is designed strictly as per the latest syllabus and exam pattern.

Tax Deducted & Collected at Source – CMA Inter Direct Tax Study Material

Distinguish Between

Question 1.
Difference between TDS and TCS (Dec 2019, 5 marks)
Answer:
Difference between T.D.S and TCS
T.D.S [Tax deducted at Source]
Tax is deducted only if amount is taxable in the hands of receiver
T.D.S requirements arise at the time of payment or at the time crediting the account of payee, whichever is earlier
All T.D.S rates are fixed i.e. 1%, 2% 5% etc.
But if payment made to a non-resident foreign company or payment of salary, surcharge and health education cess shall be considered.

T.C.S [Tax collected at Source]
Section 206 C: Seller shall collect tax from buyer at the time of debiting the account or receipt of amount of Buyer whichever is earlier.
T.C.S is not applicable if buyer is Government, embassies, consulates, high commissions.
T.C.S is collected in case of following goods:

• Alcoholic liquor for human consumption
• Tender leaves
• Timber and any other forest product
• Scrap
• Minerals being coal, lignite, or iron
• Motor Vehicle.

Descriptive Question

Question 2.
A Company pays in August, 2022, a remuneration of ₹ 50,000 to its Director, which is not in the nature of salary. State whether tax has to be deducted from the payment and if so the amount to be deducted. (June 2013, 3 marks)
Answer:
Section 194J has been amended with effect from July 12, 2017 to provide that tax will be deducted u/s 194J on the remuneration paid/payable to a Director, which is not in the nature of salary, at the rate of 10% of such remuneration. The amount of tax to be deducted would therefore come to ₹ 5,000.

Question 3.
State the provisions relating to deduction of tax at source from premature withdrawal from Employees Provident Fund. (June 2019, 4 marks)
State the time of tax deduction at source and the threshod limits of such deduction in case of payment to contractors. (June 2019, 3 marks)
Answer:
If the employee makes withdrawal before continuous service of five years, the withdrawal would be subject to tax. Section 1 92A provides for deduction of tax @ 10% on premature withdrawal from employees provident fund scheme.

Tax is to be deducted at the time of payment of accumulated balance due to the employee. Tax deduction is not to be made it the amount of such payment or aggregate amount of such payment to the payee is less than ₹ 50,000.

As per section 194C, in case of payment to contractors, tax is to be deducted at source at the time of crediting the account of the payee or at the time of payment, whichever is earlier. No deduction is required to be made if the consideration for the contract does not exceed ₹ 30,000. However, it is provided that tax will be required to be deducted at source where the amount credited or paid or likely to be credited or paid to a contractor or subcontractor exceeds ₹ 30,000 in a single payment or ₹ 1,00,000 in the aggregate during a financial year.

Practical Questions

Question 4.
State briefly whether the following transaction require deduction of tax at source:
Payment of royalty of ₹ 5 lacs by P. Limited, an Indian Company to another Indian Company, Q. Limited
Payment of interest of ₹ 7,500 by D. Limited, an Indian Company to M. Limited, an Indian Company for delayed payment of sale proceeds.
Payment of ₹ 1,00,000 by a partnership firm, resident in India to Mr. L, resident contractor for manufacturing a product as per requirement of the firm. The contractor used materials which were purchased by him from a company. (June 2013, 3 marks)
Answer:
As the amount of royalty paid to resident exceeds ₹ 30,000, tax is required to be deducted at 7.5% under Section 194J.
Payment of interest by D. Ltd. to M. Ltd., resident required deduction of tax at 7.5%, as the amount of interest exceeds ₹ 5,000. (Section 194A)

Under Section 194C work does not include manufacturing or supplying of product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or its associate. As L used the materials purchased from a third party, the firm is not required to deducted tax at source.

Question 5.
Abhishek & Co. a partnership firm incurred the following expenses:
Salary paid to staff ₹ 12,00,000 of which two employees were paid salary in excess of ₹ 2,00,000 each. No tax was deducted at source on those salary payments.
Interest paid to bank on working capital limit ₹ 27,500. No tax was deducted at source.
Interest on capital paid to partners at 15% per annum of ₹ 1,50,000. No tax was deducted on such interest payment.

Payments made to contractors for job work process ₹ 6,87,000.
Two parties to whom payments were ₹ 87,000 and ₹ 1,02,000 for which no tax was deducted at source. The parties however have agreed to admit the receipt in their income statement and pay tax there on.
Rent paid for machinery ₹ 20,000 per month for 8 months. No tax was deducted at source on this amount
Determine the allow ability or otherwise of the above said expenses due to non-deduction of tax at source. (June 2013, 5 marks)
Answer:
Salary paid to staff is a deductible expenditure even though no tax was deducted at source on such payment. Section 40a(ia) dis allowance is not applicable for salary expenditure.

Interest paid to bank is subject to exemption given in Section 194A(3)(iii), hence the question of deduction of tax at source on interest paid to bank does not arise.

Interest on capital paid to partners at 15% will be liable for disallowance to the extent of 3% since Section 40(b) mandates
allowance only to the extent of 12% per annum. Allowable interest will be ₹ 1,20,000/-. Section 1 94A(3)(iv) provides exception, hence no tax deduction at source is required for the interest paid to partners of the firm.

Payments made to contractor when exceeds in aggregate ₹ 1,00,000, tax is deductible at source as per Section 194C. However, further proviso to Section 40(a)(ia) carves out an exception viz, that if the payee has admitted the said receipt ¡n his return of income and paid tax on such income, the payer is not deemed to be an assessee in default under the first proviso to Section 201(1), the disallowance envisaged in Section 40(a)Qa) will not apply. Therefore, if the recipients/payees have paid tax on their income including the contract receipt given in the question, the disallowance u/s 40(a)(ia) will not apply.

Rent paid for machinery above ₹ 2,40,000 ¡n a financial year warrants deduction of tax at source under Section 194-I. Since the aggregate payment was only ₹ 1,60,000 the expenditure does not attract tax deduction provision contained in Section 194-I. Thus it is out of the clutches provided in Section 40(a)(ia).

Question 6.
State whether TDS/TCS provisions are attracted in the following cases:
(i) A newspaper paid ₹ 2,00,000 to ex-cricketer of New Zealand for writing series of articles during World Cup Cricket matches.
(ii) Mr. X purchased jewellery from a showroom for ₹ 5,50,000 on 10.1 0.2022 by cheque.
(iii) When Mr. Y purchased fly ash from a factory to use the fly ash for manufacture of bricks.
(iv) A partnership firm having a turnover of ₹ 40 lakhs during the financial year 2022-23 made contract payment of 35,000 to an individual for a single bill. (June 2015, 4 marks)
Answer:
Liability to TDS/TCS
(i) As per Section 194E tax is deductible at source at 20% on the payment made to non-resident foreign citizen sportsman.
(ii) When jewellery is purchased in cash the tax collection at source will apply. In this case as the purchase was made by means of cheque, TCS provisions will not apply.
(iii) When goods purchased are meant for manufacturing it is not liable for tax collection at source. Only when it is for the purpose of trade, TCS provisions will apply.
(iv) Tax is deductible at source in respect of each contract when ¡t exceeds ₹ 30,000. [Clause (i)(k) of the Explanation to Section 194C will be applicable to partnership firms.]

Question 7.
Mrs. Zeenat is running a proprietary business whose accounts are audited under section 44AB since her turnover always
exceeded ₹ 1oo lakhs. She pays a monthly rent of ₹ 13,000 for the office premises to Mr. Jack, the owner of the building, an individual. She also pays ₹ 10,000 per month to Mr. Jack for the use of furniture, fixtures and vacant land appurtenant to the building. Is she liable to deduct tax at source on these payments? If no tax is deducted at source, what would be the
consequence? (Dec 2015, 4 marks)
Answer:
Yes, Mrs. Zeenat is liable to deduct tax an source. TOS on rent ¡s liable lo be deducted by the person making the payment If the total amount to be paid during the year exceeds ₹ 2,40,000 p.a This limit is ₹ 2,40,000 p.a. is per tax payer. Exception to the above rule: No TDS on rent is liable to be deducted if the payment is being made by an individual when is not required to get his tax audit done u/s 44AB.

Consequence If no TDS deducted:
1. As per Section 40(a)(ia) any sum payable to a resident which is subjected to deduction of tax at source would attract 30% disallowance if it is paid without deduction of tax at source.

2. Levy of Interest: 1 % for every month or part of the month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted.

3. Levy of penalty: Penalty of an amount equal to tax not deducted could be imposed uls 271C.

Question 8.
Nathan Gramin Bank, which does not have core banking facility, has paid the following amounts as interest to Mrs. Hemalatha, a resident individual on 31 -03-2023:

Particulars	Branch 1 (₹)	Branch 2 (₹)
Interest on fixed deposit	6,000	7,000
Interest on recurring deposit	3,500	2,300
Total	9,500	9,300

What is the tax to be deducted at source?
Will the answer differ, if the bank has core banking facility? (June 2016, 3 marks)
Answer:
Interests on fixed deposit as well as recurring deposit are to be considered. Where there is no core banking facility, then the TDS obligation has to be seen branch-wise. If the total interest paid is below ₹ 40,000, then there will be no obligation to
deduct tax at source. Hence in the first instance, there will be no obligation to deduct tax at source.

In case there is core banking facility, then the TDS obligation is to be considered for each deductee, for the bank as a whole.
Since total amount of interest does not exceed ₹ 40,000. Hence, there is no need to deduct tax at source.

Question 9.
Answer the following question with brief reason/working:
Balaji Ltd, a textile manufacturing company paid ₹ 15 lakhs as contract payments to MIs. Ramesh Engineers (a partnership firm) for construction of godown building. At what rate the tax ¡s deductible at source on such contract payment? (Dec 2016, 1 mark)
Answer:
Since the payment is made to a person other than an individual or HUF, the rate of tax deduction under section 1 94C would be 2%.

Question 10.
What is the rate of tax and the amount of tax to be deducted at source from the following payments?
(i) Discount of ₹ 50,000 allowed to a customer
(ii) Sales commission of ₹ 12,000
(iii) House worth ₹ 60 lakhs given as prize in a TV show to a resident individual
(iv) Purchase of rural agricultural land for ₹ 90 lakhs. (Dec 2016, 5 marks)
Answer:
Obligation to deduct tax at source
(i) Discount of ₹ 50,000 allowed to a customer.
There will be no liability to deduct tax at source. Only if it is commission, there will be TDS obligation.
(ii) Sales Commission of ₹ 1 2,000.Tax is not deducted at source under section 194-H., because the amount of sales commission is less than ₹ 15,000.
(iii) House worth ₹ 60 lakhs given as prize in a TV show to a resident individual. As per section 1 94B, tax ¡s required to be deducted at 30% as the amount of winning exceeds ₹ 1,0000. The amount TDS is ₹ 18 lakhs (i.e. 30% of ? 60 lakhs) and the same has to be recovered from the winner before the house is handed over to him.
(iv) Purchase of rural agr cultural land for ₹ 90 lakhs. There is no obligation to deduct tax at source, where the property purchased from a resident is rural agricultural land.

Question 11.
Examine the applicability of TDS provisions for the financial year 2022-23 and amount of tax, if any, to be deducted in the
following cases:
(i) Payment of fee for technical services of ₹ 22,000 and royalty of ₹ 25,000 to Mr. Ram who is having PAN.
(ii) Payment of ₹ 2,00,000 made to Mr. X for purchase of diaries made according to specifications of M/s ABC Ltd. However, no material was supplied for such diaries to Mr. X by M/s ABC Ltd.
(iii) Rent paid for plant and machinery ₹ 1,50,000 by a partnership firm having sales turnover of ₹ 25,00,000 and net loss of ₹ 15,000. (Dec 2017, 6 marks)
Answer:
(i) Payment of fee for technical services of ₹ 22,000. No. TDS required to be deducted because the amount is less than ₹ 30,000. But In case of royalty tax required to be deducted @ 10% ₹ 2,500.
(ii) There is no need of TDS in case of payment of ₹ 2,00,000 for purchase of diaries.
(iii) Since the amount of Rent for plant & machinery is less than ₹ 2,40,000. There is no need of TDS.

Question 12.
State whether the following transactions attract tax deduction at source (TDS) provisions and the rate of tax and the amount of tax deductible in applicable cases:
(i) Interest on recurring deposit of ₹ 12,000 paid by a nationalized bank to Mr. Dhoni.
(ii) Prize amount of ₹ 8,000 paid by Excellence Ltd. to Mr. Saha a winner of crossword puzzle contest conducted by the company.
(iii) Commission of ₹ 21,000 paid to Kumble and Co. by Dravid Co. Ltd. for purchase of raw materials.
(iv) Chandra Ltd. paid ₹ 40,000 per month as generator rent from 1st August, 2022 and up to 31st March, 2023 to Mr. Shastri. (June 2018, 8 marks)
Answer: .
(i) TDS on interest other than “Interest on Securities” (Paid to Resident Only):
Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10% (TDS is also to be deducted from interest on Fixed Deposit and Recurring Deposits with banks and Co-operative banks)

(ii) TDS on Winnings from lottery or Crossword Puzzle (Paid to Resident as well as Non-Resident):
As per Section 194B, a person responsible foraying to any person any income by way of winnings from lotteries or Crossword Puzzles exceeding ₹ 10,000 is required, at the time of such payment, to deduct income tax thereon at the rate of 30%. Where the winnings are wholly in kind, the person responsible for paying shall, before releasing the winnings in kind, ensure that tax has been paid in respect of the winnings. In the present case, since the amount paid by Excellence Ltd. to Mr. Saha is ₹ 8,000 which is less than, 10,000 therefore, Excellence Ltd. does not required to deduct TDS.

(iii) TDS on Commission or Brokerage (Paid to Resident only) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in Section 194D) or brokerage shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of 5%.

Provided that no deduction shall be made under this section in a case where the amount of such income or as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of or to, the payee, does not exceed ₹ 15,000. Since in the present case, the amount of ₹ 21,000 paid by Dravid Co. Ltd. to Kumble & Co. a resident which is exceed the amount ₹ 15,000, therefore, Dravid Co. Ltd. should deduct TDS@ 5%, i.e. ₹ 1050.

(iv) TDS on Rent (Paid to Resident Only)
Any pers, not being an individual or a Hindu Undivided Family, who is responsible paying to a resident any income by way of rent, shall, at the time of edit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of:

• 2% for the use of any machinery or plant or equipment, and
• 10% for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings. In the present case, Chandra Ltd. paid ₹ 40,000 per month as generator rent for a period of 8 months (i.e. 1st August, 2022 to 31st March, 2023)

Therefore, the TDS amount which should be charged 40,000 × 8 months × 2/100 = 6,400.00.

Question 12.
Examine the applicability of tax deduction at source provisions, rate of TDS and the amount of tax deduction (if any) in the
following cases for the financial year 2022-23:
(i) Payment of ₹ 50,000 made to Mr. Peter, an England cricketer, by an Indian newspaper agency on 3rd August, 2022, for contribution of articles in relation to the sport of cricket.
(ii) Payment made on 1.02.2023 by a company to resident sub-contractor (individual) ₹ 4,00,000 with outstanding balance of ₹ 1,20,000 shown in the books of account, as on 31.03.2023.
(iii) Wining from horse race ₹ 1,00000.
(iv) ₹ 2,00,000 paid to Mr. X, a resident individual on 20.02.2023 by the State of Kamataka on compulsory acquisition of his urban land (vacant site). (Dec 2019, 6 marks)
Answer:
(i) As per Section 194 E: if any person make payment to Non-resident for participation in any game, Advertisement, liable to deduct T.D.S @ 20% plus cess. In this case, Indian newspaper agency liable to deduct T.D.S on payment made to Mr. Peter i.e. 10,400 = (50,000 x 20.80%)
(ii) As per Section 194 C, if any person made payment to Sub Contractor, liable to deduct T.D.S if single payment exceeds ₹ 30,000 OR Aggregate of payment in previous year exceeds ₹ 1,00,000.
In this case company liable to deduct tax @ 1 % i.e. 5200 (5,20,000 × 1%).

(iii) As per Section 194 B, if any person made payment for winning from lotteries, cross word, puzzles land game etc’.. to any person liable to deduct T.D.S @ 30% No. T.D.S if winning amount is up to ₹ 10,000.
T.D.S = 30,000 (1,00,000 x 30%).

(iv) As per Section 194 LA, ¡t any person pay compensation for compulsory acquisition of immovable property to any resident person, liable to deduct T.D.S @ 10%. No. T.D.S is deducted if consideration is upto ₹ 2,50,000. In this case amount is less than ₹ 2,50,000, then in this case no T.D.S required.

Question 13.
State the quantum of tax deductible at source in the following independent cases:
(i) Salary of Geral Manager (computed) ₹ 6,00,000 who has opted for section 11 5BAC.
(ii) Dividend declared by a company and a resident shareholder eligible for dividend of ₹ 60,000.
(iii) Interest paid by a partnership firm to HUF ₹ 15,000.
(iv) Interest paid ₹ 45,000 to a bank on housing loan by an individual engaged in business with turnover exceeding ₹ 200 lakhs every year.
(v) Payment made to contractor Mr.P by a company ₹ 90,000 out of which a single contract value was ₹ 37,000 and every other contract value was less than ₹ 10,000.
(vi) Commission paid to a brokerage firm by a company during the year of ₹ 11,000.
(vii) Rent paid ₹ 2,70,000 by Dr. Q engaged in profession with aggregate receipt of ₹ 21 lakhs for the financial yëar 2021-22.
(viii) Residential apartment acquired by a company for accommodation by its director for ₹ 55 lakhs. (Dec 2022, 8 marks)

Descriptive Question

Question 14.
Briefly sketch the responsibilities and liability of a person liable to collect tax at source under the Income-tax Act, 1961. (Dec 2008, 5 marks)
Answer:
Responsibility & Liability of Tax Collector

1. To obtain Tax Collection Account No. [Section 206CA(1)]
2. To quote TCS No. . in all returns, certificates and challans. [Section 206CA(1)]
3. To furnish quarterly returns in form No. 27EQ within stipulated time i.e., within fifteen days from the end of a quarter for the first three quarters and 30th April tor the last quarter.
4. Failure to Furnish TCS return: Penalty @ 100/- per day, during which default continues, but not exceeding the amount of TCS. [Sec. 272A(2)(g)]
5. Failure to deposit TCS in Government treasury may attract rigorous imprisonment for a term of not less than 3 months, but which may extend to 7 years, in addition to fine. [Section 276B & 276BB]

Automated Business Process – CA Inter EIS Question Bank is designed strictly as per the latest syllabus and exam pattern.

Automated Business Process – CA Inter EIS Question Bank

Question 1.
Briefly explain the principles to guide the design of measures and indicators to be included in EIS. (Nov 2007, 5 marks)
Answer:

Question 2.
Executive information systems (EIS) and its components.
Answer:
Executive Information Systems (EIS):
An Executive Information System (EIS) is the nature of Information System used by executives to access and administer the data they entail to make informed business decisions. In the hierarchical structure of information systems, the EIS is at the pinnacle and is designed to renovate all significant data (from project to process to budget) into aggregated information that makes sense and brings value to the by-and-large business strategy. EIS is able to link data from various sources both internal and external to provide the amount and kind of information executives find useful.

These systems are designed for top management easy to use present information in condensed view; access organization’s databases and data external to the organisation.

Components of an EIS

Components	Description
Hardware	Includes Input data-entry devices. CPU. Data Storage files and Output Devices.
Software	Includes Text base software, Database, and Graphic types such as time series charts, scatter diagrams, maps, motion graphics, sequence charts, and comparison- oriented graphs (i.e., bar charts) Model base.
User Interface	Includes hardware (physical) and software (logical) components by which people (users) interact with a machine. Several types of interlaces can be available to the EIS structure, such as scheduled reports, questions/answers, menu driven, command language, natural language and input/output.
Tele- communication	Involves transmitting data from one place to another in a reliable networked system.

Question 3.
What are the various key factors to be considered in implementing Business Process Management (BPM) in an enterprise? (Nov 2014, 4 marks)
Answer:
Various key factors to be considered in implementing Business Process Management (BPM) In an enterprise are as follows:

Factors	Key Considerations
Scope	A single process, a department, the entire company.
Goals	Process understanding, Process Improvement, Process Automation! Optimization arid Process re-engineering.
Methods to be used	Six Sigma, BPM Life Cycle Method, TQM, Informal methods.
Skills Required	Consultants, Train Employees, Formal Certification. Basic Education, Existing Skill sets.
Tools to be used	White-Boards, Sticky Notes, Software for Mapping, Documenting, Software for Simulation. Comprehensive BPMS.
Investments to Make	Training, Tools, Time.
Sponsorship/Buy-in Needed	Executive Level, Department Level, Process Owner Level, Employee Level.

Question 4.
What are the major reasons for failure of Business Process Management System (BPMS)? (Nov 2014, 4 marks)
Answer:
Reason for Failure of BPMS:
1. The consumer is often confronted with poor customer service due to broken processes, inefficient processes and manual processes- that is the customer is often confronted (challenged) with the silos of the organisation.

2. The same consumer is becoming more and more demanding with respect to delivery time and also demanding higher quality of the products or services.

3. The product or service is becoming more and more personalized supported by increased customer services.

4. Inadequate investment in ongoing training for involved personnel and deficient executive Involvement.

5. Breakdown in gap analysis due to deficient project management.

6. Inefficient corporate policy protecting the integrity of data in BPMS.

Question 5.
Write any two principles of Business Process Management. (May 2017, 2 marks)
Answer:
Principles of Business Process Management:

1. Principle of Context Awareness	BPM should light to the organizational context. It should be tailor-made and should not follow cookbook approach.
2. Principle of Continuity	BPM should be a continuous and permanent practice. It should not be a one-off project.

Question 6.
Define Business Process
Answer:
Business Process:
A Business Process Consists of a set of activities that are performed in coordination in an organizational and technical environment. These activities jointly realize a business goal. Each business process is enacted by a single organization, but It may interact with business processes performed by other organizations. To manage a process, the first task is to define it that involves defining the steps/ tasks in the process and mapping the tasks to the roles involved in the process.

Once the process is mapped and Implemented, performance measures are established. The last piece of the process management definitions describes the organizational setup that enables the standardization of and adherence to the process throughout the organization.

Question 7.
During a job interview, an interviewer asked Mr. A to list out all the risks and their controls associated with Order-To-Cash (O2C) business process. Prepare an appropriate draft reply.
Answer:
Risks and Controls related to the Order to Cash (O2C) business process are follows:

Risks	Controls
1. The Customer master file might not be maintained property and the Information might not be accurate.	The Customer master file is maintained properly and the information is accurate.
2. Invalid changes are made to the customer master file.	Only Valid changes are made to the customer master file.
3. All Valid changes to the customer master file are not processed.	All Valid changes to the customer master file are processed.
4. Changes to the customer master tile might not be accurate.	Changes to the customer master file are made accurate.
Changes to the customer master file are not processed in a timely manner.	Changes to the customer master file are processed in a timely manner.
5. Customer master file data might not be up-to-date and relevant	Customer master file data is up-to-date and relevant.

Question 8.
What are the objectives of business process automation? (2014- Nov 2 marks)
Answer:
The success of any business process automation shall only be achieved when BPA ensures

Confidentiality	To ensure that data is only available to persons who have right to see the same;
Integrity	To ensure that only authorized amendments can be made in the data;
Availability	To ensure that data is available when asked for; and
Timelines	To ensure that data Is made available at the right time. To ensure that all the above parameters are met, BPA needs to have appropriate internal controls put in place.

Question 9.
Mention the challenges in implementing ‘Business Process Automation’. (Nov 2015, 2 marks)
Answer:
Challenges In Implementing Business Process Automation

1. Planning	It requires determining the goals, of the information system function and the means of achieving these goals.
2. Organizing	it involves gathering, allocating, and coordinating the resources needed to accomplish the goals.
3. Leading	In involves motivating, guiding, and communicating with personnel.
4. Controlling	Comparing actual performance with planned performance as a basis for taking any corrective actions that are needed.
5. Increase In Number of Interface with Customers	Since the number of interlace with customers is growing for e.g. phone, e-mail, SMS, Whatsapp, etc. It becomes difficult to handle.
6. High Cost	It plays heavily on the budget of the company.

Question 10.
What is meant by ‘controls in BPA? What are their major objectives? (Nov 2015, 4 marks)
Answer:

Question 11.
What are the generic reasons for going for Business Process Automation? (May 2017, 4 marks)
Answer:
Business Process Automation
Meaning
BPA is the basic component of an enterprise-wide automation and management scheme for both business and PT workflow. It refers to removing the human element from existing
business processes by automating the repetitive or standardized process components. It ranges from automating a simple data-entry manipulation task to building complex, automated financial management processes using existinq applications.

Need of BPA
1. Fast Service to customers	This was not the initial reason for adaption of BPA but gradually business managers realized that automation could help them to serve their customers faster and better.
2. To Remain Competitive and enhancing goodwill	To provide the level of products and services as offered by competition and thus enhancing goodwill.
3. Cost Saving	Automation leads to saving In time and labour costs.
4. Error-free	To provide error-free services to the customer.
5. Focus on key areas	Freeing people from routine and volume, and allow management to do what they are best at make decisions, analyze data Implications and trends and focus on providing better customer service.

Question 12.
State the required characteristics of goals to be achieved by implementing Business Proc3ss Automation (BPA). (Nov 2018, 2 marks)
Answer:
The characteristics of goals to be achieved by Implementing Business Process Automation (BPA), being:
S-Specific
M – Measurable
A – Attainable
R – Relevant
T-Timely

Question 13.
A business organization is planning to increase the accuracy of information transferred and certifies the repeatability of the value-added task performed by the automation of business. Being a management consultant, identify any four major benefits that the organization can achieve through the automation of a business process. (May 2019, 4 marks)
OR
Briefly discuss the benefits of Business Process Automation.
Answer: ‘
Major benefits that the organisation can achieve through the automation of a business process.

Question 14.
Using the automation technique in modem era of business, the business gets well developed with a great customer satisfaction of their services and products in which the customer-oriented supply chain plays a major role. List down the name of all the benefits of Automating Business processes by explaining any four benefits. (Jan 2021, 6 marks)

Question 15.
Discuss the steps in implementing Business Process Automation.
Answer:
The steps in Implementing Business Process Automation are:
Step 1: Define why we plan to implement a BPA?
The primary purpose for which an enterprise implements automation may vary from enterprise to enterprise. A list of generic reasons for going for BPA may include any or combination of the following:

• Errors in manual processes leading to higher costs.
• Payment processes not streamlined, due to duplicate or late payments, missing early pay discounts and losing revenue.
• Paying for goods and services not received.
• Poor debtor management leading to high invoice aging and poor cash flow.
• Not being able to find documents quickly during an audit or lawsuit or not being able to find all documents.
• A lengthy or incomplete new employee or new account onboarding.
• Unable to recruit and train new employees, but where employees are urgently required.
• Lack of management understanding of business processes.
• Poor customer service.

Step 2: Understand the rules regulations under which enterprise needs to comply with? One of the most important steps in automating any business process is to understand the rules of engagement, which include following the rules, adhering to regulations, and following document retention requirements. This governance is established by a combination of internal corporate policies, external industry regulations, and local, state, and central laws.

Regardless of the source. it is important to be aware of their existence and how they affect the documents that drive the processes. it is important to understand that laws may require documents to be retained for specified number of years and in a specified format. Entity needs to ensure that any BPA adheres to the requirements of law.

Step 3: Document the Process, we wish to automate At this step, all the documents that are currently being used need to be documented. The following aspects need to be kept in mind while documenting the present process:

• What documents need to be captured?
• Where do they come from?
• What format are they in Paper, Fax, email. PDF etc.?
• Who is involved in processing of the documents?
• What is the impact of regulations on processing of these documents?
• Can there be a better way to do the same job?
• How are exceptions In the process handled?
• The benefit of the above process for user and entities being that It provides clarity on the process, helps to determine the sources of inefficiency, bottlenecks, and problems, and allows tore design the process to focus on the desired result with workflow automation.

Step 4: Define the objectives! goals to be achieved by implementing BPA
Once the above steps have been completed, entity needs to determine the key objectives of the process improvement activities – SMART (Specific Clearly defined, Measurable: Easily quantifiable in monetary terms, Attainable: Achievable through best efforts, Relevant: Entity must be in need of these and Timely: Achieved within a given time frame.)

Step 5: Engage the business process consultant This is again a critical step to achieve BPA. To decide as to which company consultant to partner with depends upon the following:
Objectivity of consultant in understanding! evaluating entity situation.

• Does the consultant have experience with entity business process?
• Is the consultant experienced in resolving critical business issues?
• Whether the consultant is capable of recommending and implementing a combination of hardware, software, and services as appropriate to meeting enterprise BPA requirements?
• Does the consultant have the required expertise to dearly articulate the business value of every aspect of the proposed solution?

Step 6: Calculate the Return on Investment (ROI) for project:
The right stakeholders need to be engaged and involved to ensure that the benefits of BPA are dearly communicated and implementation becomes successful. Hence, the required business process owners have to be convinced so as to justify the benefits of BPA and get approval from senior management. Some of the methods for justification of a BPA proposal may include cost savings in terms of eliminating fines to be paid by entity due to delays, cost of audits and lawsuits and reduced cost of space regained from paper, tile cabinets; reduction in required manpower leading to no new recruits; ensuring complete documentation for all new accounts; taking advantage of early payment discounts and eliminating duplicate payments;

ensuring complete documentation for all new discounts; ensuring complete documentation for all new accounts; building business by providing superior levels of Customer service and charging for Instant access to records etc.

Step 7: Developing the BPA
Once the requirements have been documented, ROI has been computed and top management approval to go ahead has been received the consultant develops the requisite BPA. The developed BPA needs to meet the objectives for which the same is being developed.

Step 8: Testing the BPA
Once developed, it is important to test the new process to determine how well it works and identify where additional exception processing” steps need to be included. The process of testing is an iterative process, the objective being to remove all problems during this phase.

Testing allows room for improvements prior to the official launch of the new process, increases user adoption, and decreases resistance to change. Documenting the final version of the process will help to capture all of this hard work, thinking, and experience which can be used to train new people.

Question 16.
Enterprise Risk Management (ERM) does not create a risk-free environment; rather ¡t enables management to operate more effectively in environments filled with risks. In view of this statement, explain the various benefits, which Board of Directors and Management of an entity seek to achieve by implementing the ERM process within the entity. (Nov 2018, 6 marks)
Answer:
Enterprise Risk Management (ERM) does not create a risk-free environment, rather it enables management to operate more effectively in environments filled with risks. The Board of Directors and Management achieve the following benefits by implementing the ERM process within the entity:

1. Align risk appetite and strategy	Risk appetite is the degree of risk, on a broad-based level that an enterprise (any type of entity) is willing to accept in pursuit of its goals. Management considers the entity’s risk appetite First in evaluating strategic alternatives, then it setting objectives aligned with the selected strategy and in developing mechanisms to manage the related risks.
2. Link growth, risk, and return	Entities accept risk as part of value creation and preservation and they expect return commensurate with the risk. ERM provides an enhanced ability to identify and assess risks and establish acceptable levels of risk relative to growth and return objectives.
3. Enhance risk response decision	ERM provides the rigor to identify and select among alternative risk- responses risk avoidance, reduction, sharing, and acceptance. ERM provides methodologies and techniques for making these decisions.
4. Minimize operational surprises and losses	Entities have enhanced capability to identify potential events, assess risk and establish responses, thereby reducing the occurrence surprises and related costs or losses.
5. identify and manage cross-enterprise risks	Every entity faces a myriad of risks affecting different parts of the enterprise. Management needs to not only manage individual risks but also understand interrelated impacts.
6. Provide Integrated responses to multiple risks	Business processes carry many inherent risks, and ERM enables integrated solutions for managing the risks.
7. Seize opportunities	Management considers potential events, rather than just risks, and by considering a full range of events, management gains an understanding of how certain events represent opportunities.
8. Rationalize capital	More robust information on an entity’s total risk allows management to more effectively assess overall capital needs and improve capital allocation.

Question 17.
Enterprise Risk Management (ERM) framework consists of integrated components that are derived from the way management runs a business and are Integrated with the management process. Define any six components of ERM framework. (Nov 2020, 6 marks)

Question 18.
Risks involved in Implementing Business Process Automation. (Nov 2017, 2 marks)
Answer:
Risks involved In Implementing Business Process Automation

1. Risk to Jobs	Jobs that were earlier performed manually by several employees would post-automation would be mechanized, thereby posing a threat to jobs.
2. False Sense of Security	Automating poor processes will not gain better business practices.

Question 19.
How the inherent risks involved in BPA can be classified? Discuss any four. (Nov 2019, 2 marks)
Answer:
The inherent risks involved in BPA are classified below

1. Input & Access	All input transaction data may not be accurate, complete and authorized.
2. File & Data Transmission	All files and data transmitted may not be processed accurately and completely, due to network error.
3. Processing	Valid input data may not have been processed accurately and completely due to program errors or bugs.
4. Output	Is not complete and accurate due to program errors or bugs and is distributed to unauthorised personnel due to weak access control.

Question 20.
After defining risk appetite, strategies are set to manage risks. Explain any four risk management strategies. (Nov 2020, 4 marks)

Question 21.
Explain the following in brief:
Risk Assessment (May 2018, 2 marks)
Answer:
Risk Assessment
Risk may be defined as the possibility that an event will occur and adversely affect the achievement of objectives. Risk assessment involves a dynamic and interactive process for identifying and assessing risk to the achievement of objectives. Risks to the achievement of these objectives from across the entity are considered relative to established risk tolerances.

Thus, risk assessment forms the basis for determining how risks will be managed. A precondition to risk assessment is the establishment of objectives, linked at different levels of the entity. Management specifics objectives within categories of operations, reporting, and compliance with sufficient clarity to be able to identify and assess risks to those objectives. Risk assessment also requires management to consider the impact of possible changes in the external environment and within Its own business model that may render internal control ineffective.

Question 22.
An electric supply company charges the following rates from its consumers:

If the consumer pay his bill within 15 days from the bill date. 10% discount is given. If he makes the payment after 15 days from the bill date, 5% surcharge is levied. Draw a Flow chart to calculate the net amount of the bill for each consumer and print it. (Nov 2007, 10 marks)
Answer:

Question 23.
A Book publisher offers discounts to customers on the basis of customer type and number of copies ordered as shown below:

Customer type	Number of Copies Ordered	% of Discount
Book Seller	More than 10	25
	Less than of equal to 10	15
	More than 5	20
Library	Less than or equal to 5	10

Customer number, name, type, book number, number of copies ordered, and unit price are given as input. Draw a flow chart to calculate the net amount of the bill for each customer and print it. The above is to be carried out for 50 customers. (2008 Nov, 10 marks)
Answer:
Please see answer on next page

Question 24.
Frame the problem for which the given Flowchart has been drawn. See the Abbreviations defined below:

Cust. : Customer,
Prod: Product,
Amt: Amount,
Disc: Discount,
TV: Television,
FR: Fndge,
MS: Music System,
ST: Student (May 2009, 10 marks)
Answer:
The problem relates to the ‘Discount Policy’ of a company engaged in selling electronic items.

irrespective of order value
subject to order value being more than ₹ 1 lakh.

Question 25.
Write the output sequence (at least first five numbers) for the given flow chart, if N = 0 is selected as the value for N as Input.

(Nov 2009,5 Marks)
Answer:
If N = 0 then the output sequence will be:
0 1 4 25 676

Question 26.
If the statement N. = N * N In the computation box of the flowchart is modified as N = N * (N – 1)ⁿ. Write the output sequence (at least first five numbers) for the flowchart with N = 0 as the input value for N.

(Nov 2009, 5 Marks)
Answer:

Question 27.
The Income-tax for the employees of an organization is calculated on the basis of their Gross Income and the Investments made by them, under Section 80G. The taxable income is calculated according to the following rules:
Taxable Income = Gross Income – Investments provided investments a less than 1.5 lac. Otherwise
Taxable Income = Gross Income – 1.50,000
Following rules are applied to calculate the Income-tax, on the Taxable Income:

Also, an educational cess of 4% of Income-tax is levied on all the employees, irrespective of the income. Employee number, Name, Gross Income, Investment amount is given as input. Draw a flow chart to calculate the Income-tax payable by each employee. (May 2010, 10 marks)
Answer:
Please see answer on next page

Terms used:
ENO = Employee Number
ENAME = Employee Name
GROSS = Gross Income
INV = Investment made
TINC = Taxable Income

IT = Income Tax
ECESS = Education Cess
ITPAY = Total Income Tax payable
CAWL = Clear All Working Locations

Question 28.
What do you mean by term flow chart? Draw a program flow chart to find the sum of first 50 odd numbers. (Nov 2010, 2 +6 =8 marks)
Answer:
Flow Chart:
Flow chart is a diagram that shows sequence of steps required to solve a particular problem.
It is a logical flow of steps which shows sequence of operations of a program by using symbols and interconnectivity lines. It is like a blueprint that shows the general plan and essential details of the proposed structure. It allows the programmer to compare different approaches and alternatives on paper and often shows inter-relationships that are not immediately apparent.

The required flowchart to find the sum of first 50 odd numbers is drawn below:

Question 29.
What is Program debugging? Explain it briefly. (Nov 2010, 2 marks)
OR
Write short note on Program Debugging (May 2013, 2 marks)
Answer
Program Debugging:
It is a process of finding errors in program and rectifying them by using diagnostic routine before putting the program into use. There is a real necessity to debug a program, i.e. to cleanse it from errors. For this purpose the programmers device a set of test data transactions to test the various alternative branches in the program. The results got from the computer are
compared with one derived manually prior to computer processing. When the results do not match for any reason, the programmer then verifies the flowchart and coding sheet to hunt for the bugs. This process is called program debugging.

Question 30.
For computing custom duty, the imported items are classified into 4 categories. The rate of duty to be levied on each category of items is given below:

Category	Class of goods	% customs duty on the (K) value of goods (V)
1	Food and beverages	10
2	Textile and leather goods	15
3	Heavy machinery	20
4	Luxury items	40

Draw a flowchart to compute the custom duty. (May 2011, 4 marks)
Answer:
Please see answer on next page

Question 31.
A housing society having 400 members pay electricity bills at the following rates:
No. of units consumed Charges/unit (₹)
For the first 200 units 2.65
For the next 300 unIts 3.90
Over 500 units 4.75
Surcharge @ 5% of the bill Is to be added to the charges.
Draw a flow chart which will read the house number and the number of units consumed. Print the total charges with the house number and the units consumed. (Nov 2011, 8 marks)
Answer:
Abbreviations used:
House No. – House Number
Units – No. of units consumed
Amt – Amount
Chrg – Charges

Question 32.
For the flow chart given below:
(a) Print the output displayed for using the given two sets of data:

	X	Y
1st Set:	15	20
2nd Set:	35	30

(May 2012, 4 marks)
(b) What interpretation do you make from the instructions given in the flow chart? (May 2012, 3 marks)
(c) Comment about the storage of the variables used in the instructions of the flow chart. (May 2012,1 mark)

Answer:

Answer:
(b) The given set of instructions in the flow chart is the steps for swapping/interchanging the values of two variables without involving the third variable. As clearly interpreted from the output, the values of X and Y in the both the value sets have got interchanged.
Note: The interpretation involves two important factors:
(i) Interchange of values of two variables X and Y.
(ii) Without involving the third or temporary storage/variable.
Answer:
(c) The comments about the storage of the variables used In the instructions of the flow chart are as follows
X = X + Y // The value of X has been assigned the value of (X+Y) …………………… (i)
Y = X – Y // The value of Y has been assigned the value of (X-Y) …………………… (ii)
X = X – Y //The value of X has again been assigned the value of (X-Y), where the value of X and Y are calculated from the statement (i) and (ii)

Question 33.
Draw a flow chart to print the square of odd numbers between 10 to 50 and also print the sum of their square. (Nov 2012, 8 marks)
Answer:
The required flowchart is as follows:

I: Stores the value of odd number between 10 to 50 at each step.
SQ: Stores the calculated value of square of each odd number at each step.
SUM: Stores the sum of the squares of all the odd numbers till that step.

Question 34.
Describe briefly System Flow Chart (Nov 2012, 2 marks)
Answer:
System Flowchart:

• System flowchart depicts the electronic flow of data and processing steps in Information systems.
• It is used by System Analysts to describe the data flow and operations for a data processing cycle.
• It defines the broad processing in the organizations.
• It shows the origin of data, filing structure, processing to be performed, output that is to be generated and necessity of any offline operation.

Question 35.
Top town Municipality, is levying annual House Tax, as per following rules:

Size of House in Sq. Metre	House tax rate per Square Metre
Less than 100	Nil
Up to Next 400	₹10
Up to Next 500	₹ 20
More than 1000	₹ 25

There is a surcharge of 5% of the value of House Tax. Taking into account the above factors, draw a flow chart to compute appropriate total House Tax including surcharge for any one house. (May 2013, 6 marks)
Answer:
Please see answer on next page

Question 36.
A book publisher of Information Technology offers discounts to its customers on the basis of customer type as detailed below:

Customer Type	Discount
Book Seller	30%
Library	20%
Student	10%

Further, If number of copies purchased is more than 20. then additional discount of 5% is allowed Irrespective of customer type. Number of books, unit price of each book, and customer type are given as input. Draw a flow chart to calculate the net amount after all discounts and print customer type, number of copies, and net amount. (Nov 2013, 8 marks)
Answer:
Please see answer on next page

Question 37.
ABC Limited is a software development company, which appointed 50 software engineers in August 2014 at a monthly salary of ₹ 30,000. All these engineers shall be entitled for an increment in their monthly salary after six months. The increment on present monthly salary shall be based on their performance to be evaluated on a 100 marks scale as per details
given below:
– Performance Marks <70. then increment shall be 10% of present salary.
– 70 Performance marks < 80, then increment shall be 20% of present salary.
– Performance Marks 80. then increment shall be 30% of present salary.
Draw a Flow-Chart to enable to print the details like Name of the engineer. performance marks, monthly increment amount and revised monthly salary for each of these 50 engineers. (May 2015, 8 marks)
Answer:
Let us define the variables first
PM: Performance Marks
RESAL: Revised Monthly Salary.
INCAMT: Increment Amount,
NAME: Name of Engineer.
N: Pointer to track number of Engineers,
INCREMENT = 0

Question 38.
An E-Commerce site has the following cash back otters.
(i) If the purchase mode is via website, an Initial discount of 10% is given on the bill amount.
(ii) If the purchase mode is via phone app, an Initial discount of 20% is given on the bill amount.
(iii) It done via any other purchase mode, the customer is not eligible for any discount. Every purchase eligible to discount is given 10 reward points.
(a) If the reward points are between 100 and 200 points, the customer is eligible for a further 30% discount on the bill amount after initial discount.

(b) If the reward points exceed 200 points, the customer is eligible for a further 40% discount on the bill amount after Initial discount. Taking purchase mode, bill amount, and number of purchases as Input, draw a flowchart to calculate and display the total reward points and total bill amount payable by the customer after all the discount calculations. (Nov 2015, 8 marks)
Answer:
Let us define the variables first:
PM: Purchase Mode BA: Bill Amount TBA: Total Bill Amount
NOP: Number of Purchases TAP: Total Reward Points
IN DISC: Initial Discount
ET- DISC: Extra Discount on purchases eligible to Initial Discount
N: Counter (to track the number of purchases)

Question 39.
Draw a Flowchart for the following process:
Leebay is a new e-commerce website that is setting up business in India. Leebay and their partner bank Paxis have come up with a joint promotion plan for which the following offers are proposed. Customers can either log in through a mobile app or directly from the website:
(1) If the payment mode chosen is ‘Paxis Credit’, then a 20% discount is given to the user.
(2) If the payment mode chosen is ‘Paxis Debit’, then a 10% discount is given to the user.
(3) If other payment modes are used, then no discount is given.
Also, to promote the downloads of its new smartphone app, the company has decided to give the following offer:
1. If the purchase mode is ‘Mobile App’, then no surcharge is levied on the user.
2. If any other purchase mode is used, then additional 5% surcharge is levied on the user. This surcharge is applied on the bill after all necessary discounts have been applied. With bill amount, payment mode, and purchase mode as inputs, draw a flowchart for the billing procedure for Leebay. (Nov 2018, 1 x 8 = 8 marks)
Answer:
Please see answer on next page

Question 40.
What is a Data Flow Diagram. Explain the four major components of a Data Flow Diagram. (Nov 2016, 4 marks)
Answer:
Type of Data Flow Diagrams (DFDs)
There are two types of Data Flow Diagrams:
1. Logical Data Flow Diagram.
2. Physical Data Flow Diagram.

Logical Data	Flow Diagram
1. Logical Data flow Diagram	A logical DFD focuses on the business and how the business operates. It describes the business events that take place and the data required and produced each event. The logical model reflects the business.
2. Physical Data Flow Diagram	A physical DFD shows how the system will be implemented. The physical model depicts the system.

Major Component of DFD
Data Flow Diagrams
1. Concept of Data Flow Diagram (DFD):
A Data flow diagram graphically describes the flow of data within an organization. It is used to document existing systems and to plan and design new ones. There is no ideal way to develop a DFD; different problems call for different methods. A DFD Is composed of four basic elements: data sources and destinations, data flows, transformation processes, and data stores. Each is represented on a DFD by one of the symbols shown in figure given below.

Question 41.
A company is selling three types of products, namely, A, B, and C to two different types of customers viz, dealers and retailers. To promote the sales, the company is offering the following discounts:
(i) 10% discount Is allowed on Product A, irrespective of the category of customers and the value of order.
(ii) On product B, 8% discount Is allowed to retailers and 12% discount to dealers, irrespective of the value of order.
(iii) On product C, 15% discount Is allowed to retailers irrespective of the value of order and 20% discount to dealers If the value of order is minimum of ₹ 10,000. Draw a flowchart to calculate the discount for the above policy.(May 2017, 8 marks)
Answer:
Please see answer on next page

Question 42.
(a) Draw a flow chart to incorporate for the following steps:
L1N=1 .
L2 PRINT N
L3 N = N x (N + 1)
L4 STOP when N exceeds 100
L5 GOTO L2
Note that In step L3, ‘x’ denotes the multiplication sign. (Nov 2017, 4 marks)
(b) List the output for the above program. (Nov 2017, 2 marks)
(c) List the output If the above program Is modified in the step L1 as N’ = 0.
(Nov 2017, 2 marks)
Answer:

(b) Output=1,2,6,42
(c) Output = O (it will continue as the loop doesn’t end)

2. Effective Analysis	The flow chart becomes a blueprint of a system that can be broken down into detailed parts for study. Problems may be identified and new approaches may be suggested by flowcharts.
3. Communication	Flow charts and In communicating the facts of a business problem to those whose skills are needed for arriving at the solution.
4. Documentation	Flow charts serve as a good documentation which and greatly in future program conversions. In the event of staff changes, they serve as a training function by helping new employees in understanding the existing programs.
5. Efficient Coding	Flow charts act as a guide during the system analysis and program preparation phase. Instructions, coded in a programming language may be checked against the flowchart to ensure that no steps are omitted.
6. Program Debugging	Flowcharts serve as an important tool during program debugging. They help in detecting, locating, and removing mistakes.

Question 43.
The Goods and Service Tax (GST) rate in India for various goods and services is divided broadly under 4 categories, draw a flow chart to compute Goods and Service Tax for the goods manufactured as per table below.

Category (K)	Rate
A	5%
B	12%
C	18%
D	28%

(Jan 2021, 6 marks)

Question 44.
Distinguish Between Data flow of DFD and Datastore of DFD.
Answer:
Data Flow of DFD: Data Flow is the movement of data between the entity, the process and the data store. Data flow portrays the interface between the components of the DFD. The flow of data in a DFD Is named to reflect the nature of the data used (these names should also be unique within a specific DFD). Data flow ¡s represented by an arrow, where the arrow Is annotated with the data name.

Data Store of DRD: A Datastore is where a process stores data between processes for later retrieval by that same processor another one. Files and tables are considered data stores. Data store names (plural) are simple but meaningful, such as customers, orders and products. Data stores are usually drawn as a rectangle with the right-hand side missing and labeled by the name of the data storage area it represents, though different notations do exist.

Question 45.
Discuss advantages arid limitations of using Data Flow Diagram.
Answer:
Advantages of using Data Flow Diagram (DFD)

1. It aids in describing the boundaries of the system.
2. It is beneficial for communicating existing system knowledge to the users.
3. A straightforward graphical technique which is easy to recognize.
4. DFDs can provide a detailed representation of system components.
5. it is used as the part of system documentation file.
6. DFDs are easier to understand by technical and non-technical audiences
7. It supports the logic behind the data flow within the system.

Limitations of using Data Flow Diagram

1. it makes the programmers little confusing concerning the system
2. The biggest drawback of the DFD is that It simply takes a long time to create, so long that the analyst may not receive support from management to complete it.
3. Physical considerations are left out.

Question 46.
A bicycle shop in a city provides rental facility to its customers at different rates for different models as given below:

Model No.	Hire Ratio per day
Model No.1	₹ 10
Model  No.2	₹ 9
Model No.3	₹ 8
Model No.4	₹ 7

To attract customers, the shopkeeper gives a discount of 15 percent to all those customers, who hire a bicycLe for more than one-week period. Further to attract women customer, he gives additional discount of 10 percent irrespective of hire period. For every bicycle hired, a security deposit of 25 must be paid. Draw a flow chart to print out the details of each customer such as name of customer, bicycle model number, number of days a bicycle is hired for, hire charges, disc’ount and total charges including deposits.
Answer:
Abbreviations used are as follows:
HCHG: Hire Charges
DAYS: No. of days a bicycle Is hired for
NAME: Name of Customer
TCHG: Total Charges
MODEL: Bicycle Model No.
TDISC: Total Discount
SEX: Gender of the Customer
The flowchart Is available on the next page.

Question 47.
Give two examples of the Risks and Control objectives for Human Resource Process at configuration level. (Nov 2018, 2 marks)
Answer:
Example of Risks and control objectives for Human Resource Process at configuration level
Risks objectives for Human Resource Process at configuration level:
Employees who have left the company continue to have system access.
Employees have system access in excess of their job requirements.

Control objectives for Humen Resource Process at configuration level:
System access to be Immediately removed when employees leave the company. Employees should be given system access based on a need to know’ basis and to perlorm their job function.

Question 48.
Corporate governance Is the framework of rules and practices, by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders. List out the rules and procedures that constitute corporate governance framework. (May 2019, 3 marks)
Answer:
Corporate Governance Is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a Company’s relationship with its all stakeholders (financiers, customers, management, employees, government, and the community). The corporate governance framework constitutes the following rules and procedures:

1. Contract	Explicit and Implicit contracts between the company and the stakeholders for distribution of responsibilities, rights and rewards.
2. Reconciling	Procedures for reconciling the sometimes-conflicting interests of stakeholders in accordance with their duties, privileges and roles, and
3. Supervision and Control	Procedures for proper supervision, control and information flows to serve as a system of checks and balances.

Question 49.
Write short note on the following:
Objectives of Information Technology Act, 2000. (Nov 2007, 5 marks)
Answer:

Question 50.
Explain the following In brief:
Cyber Crime (May 2018, 2 marks)
Answer:
Cyber Crimes: Cyber Crimes also known as Computer Crime is a crime that involves use of a computer and a network. Is the reputation of the victim or cause physical or mental harm, or loss, to the victim directly or indirectly using modem telecommunication networks such as Internet (chat rooms, email, notice boards, and groups) and mobile phones.

Question 51.
Explain the positive aspects contained In the IT Act 2000 and its provisions, from the perspective of e-commerce in India. (May 2018, 4 marks)
Answer:
From the perspective of e-commerce In India, the IT Act, 2000 and Its provisions contain many positive aspects which are as follows:

• The implications for the e-businesses would be that email would now be a valid and legal form of communication in India that can be duly produced and approved in a Court of Law.
• Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act.
  Digital signatures have been given legal validity and sanction in the Act.
• The Act throws open the doors for the entry of corporate companies in the business of being Certifying Authorities for issuing Digital Signatures Certificates.
• The Act now allows Government to issue notifications on the web thus. heralding e-governance.
• The Act enables the companies to file any form, application oc any other document with any office, authority, body or agency owned or controlled by the appropriate Government in electronic form by means of such electronic form as may be prescribed by the appropriate Government.
• The IT Act also addresses the important issues of security, which are so critical to the success of electronic transactions.
• The Act has given a legal definition to the concept of secure digital signatures that would be required to have been passed through a system of a security procedure, as stipulated by the Government at a later date.

Multiple Choice Questions
Question 1.
……………….. may be defined as any kind of information system which improves the functions of an enterprise business process by Integration.
(a) Management Information System
(b) Enterprise Information System
(c) Enterpreneur Information System
(d) Corporate Information System
Answer:
(b) Enterprise Information System

Question 2.
Enterprise Information System p4ovide a technology platform that enable organizations to Integrate and co-ordinate their business processes on a ……………….. .
(a) Robotic System
(b) Robotic foundation
(c) Robust foundation
(d) Robust management system
Answer:
(c) Robust foundation

Question 3.
An Enterprise Information System can be used to
(a) increase business productivity
(b) reduce service cycle
(c) reduction In product development cycle and marketing life cycles
(d) All of them.
Answer:
(d) All of them.

Question 4.
Business Processes has been categorized
(a) Operational and Supporting Processes
(b) Management processes
(c) Only (a) not (b)
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 5.
Operational processes deal with the core business and value chain, which deliver value to the customer by helping to produce a product or service. It is also known as ………………. .
(a) Primary Processes
(b) Secondary Processes
(c) Tertiary Processes
(d) Supporting Processes
Answer:
(a) Primary Processes

Question 6.
Secondary processes is a back core processes and functions within an organisation, is also known as ……………… .
(a) Management Processes
(b) Operational Processes
(c) Supporting Processes
(d) Helping Processes
Answer:
(c) Supporting Processes

Question 7.
Processes measure, monitor and control activities related to business procedures and system, is known as …………………… .
(a) Operational Processes
(b) Supporting Processes
(c) Management Processes
(d) Controlling Processes
Answer:
(c) Management Processes

Question 8.
Management Processes do not provide value directly to the customer but has a direct impact on ……………….. .
(a) operation of the enterprise
(b) efficiency of the management
(c) efficiency of the enterprise
(d) effectiveness of the enterprise
Answer:
(c) efficiency of the enterprise

Question 9.
……………………. is the technology-enabled automation of activities that accomplish a specific function and can be implemented for many different functions of company activities including sales, management, operations, HA etc.
(a) Business Processes
(b) Business Processes Technology
(c) Business Process Automation
(d) Automated Business Technology
Answer:
(c) Business Process Automation

Question 10.
Business Process Automation is a process of ………………….. and then automating business processes.
(a) analyzing
(b) documenting
(c) optimizing
(d) All of the above
Answer:
(d) All of the above

Question 11.
Success of any Business Process Automation (BPA) shall only be achieved when BPA ensures the
(a) Confidentiality
(b) Integrity and Availability
(c) Timeliness
(d) All of the above
Answer:
(d) All of the above

Question 12.
The ………………. is the flow of information, customized by value-added tasks, that begins with the primary contact with a potential customer and continues through deliverance of a finished product.
(a) Business Process
(b) Business Information Process
(c) Business Process Automation
(d) Automated Business Control
Answer:
(a) Business Process

Question 13.
………………. may be defined as a process, effected by an entity’s BOD, management, and other personnel, applied In strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.
(a) Information Risk Management
(b) Align Risk Appetite and Strategy
(c) Entitys Risk Management
(d) Enterprise Risk Management
Answer:
(d) Enterprise Risk Management

Question 14.
Enterprise Risk Management provides a framework for management to ……………….. .
(a) effectively deal with uncertainty
(b) associated risk and opportunity
(c) enhance Its capacity to build value
(d) All of the above
Answer:
(d) All of the above

Question 15.
Enterprise Risk Management consists of ………………….. interrelated components. Such components are derived from the way management runs a business, arid are integrated with the management process.
(a) Four
(b) Five
(c) Seven
(d) Eight
Answer:
(d) Eight

Question 16.
Which of the following is not a component of Enterprise Risk Management?
(a) Internal Management
(b) Event Identification
(c) Organ Isatlonal Ctart
(d) Objective Setting.
Answer:
(c) Organ Isatlonal Ctart

Question 17.
Risk is any event that may result in a significant deviation from a …………………………. resulting in an unwanted negative consequence.
(a) Planned Objective
(b) Unplanned Objective
(c) Planned Consequences
(d) None of the above
Answer:
(a) Planned Objective

Question 18.
………………….. is defined as policies, procedures, practices and organisation structure that are designed to provide reasonable assurance that business objectives are achieved and undesired events are prevented or detected and corrected.
(a) Risk Assessments
(b) Monitoring
(c) Operation
(d) Control
Answer:
(d) Control

Question 19.
…………….. defines the system of internal control as the plan of enterprise arid all the methods and procedures adopted by the management of an entity to assist achieving management’s objective of ensuring, as far as practicable, the orderly and efficient conduct of Its business.
(a) SA-310
(b) SA-315
(c) SA-320
(d) SA-700
Answer:
(b) SA-315

Question 20.
An Internal Control System:
(a) Facilitate the effectiveness and efficiency of operations.
(b) Assists compliance with applicable laws and regulations.
(c) Helps safe guarding the assets of the entity.
(d) All of the above.
Answer:
(d) All of the above.

Question 21.
Which one of the following ¡s not an objective of Internal Control?
(a) Compliance with applicable laws and regulations
(b) Meeting Sales Target
(c) Effectiveness and efficiency of operations
(d) Reliability of reporting.
Answer:
(b) Meeting Sales Target

Question 22.
The extent and nature of the risks to internal control vary depending on the nature and characteristics of the ……………….. .
(a) entity’s Information system
(b) entity’s control system
(c) entity’s management system
(d) entity’s risk control system
Answer:
(a) entity’s Information system

Question 23.
According to ………………. explains tine components of any internal control as they relate to a financial statement audit.
(a) SA-300
(b) SA – 305
(c) SA- 310
(d) SA- 315
Answer:
(d) SA- 315

Question 24.
Flowcharts are used in designing and documenting simple processes or ……………… .
(a) Progress
(b) Production
(c) Procedures
(d) Programs
Answer:
(d) Programs

Question 25.
Most common type of boxes used in a flow chart.
(a) A decision, usually denoted as a diamond
(b) A processing step, usually called activity, and denoted as a rectangular box
(c) A control step, usually denoted as circular box.
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 26.
A flowchart is described as ……………… when the page is divided Into different swim lanes describing the control of different organizatioial units.
(a) Activity function
(b) Mutual-functional
(c) Cross-functional
(d) None of the above
Answer:
(c) Cross-functional

Question 27.
Data Flow Diagrams (DFD) show the flow of data or information from
(a) beginning to the end
(b) one place to another
(c) establishment to customer
(d) None of the above.
Answer:
(b) one place to another

Question 28.
…………………. is the methodical process of defining options that are provided. When any software is installed, value for various parameters should be set up as per policies and business process workflow and business process rules of the enterprise
(a) Master
(b) Transactions
(c) Control Objectives
(d) Configuration
Answer:
(d) Configuration

Question 29.
…………………………. refer to the actual transactions entered through menus and functions in the application software, through which all transactions for specific modules are initiated, authorised or approved.
(a) Master
(b) Transactions
(c) Control Objectives
(d) Configuration.
Answer:
(b) Transactions

Question 30.
A process of obtaining and managing the raw materials needed for manufacturing a product or providing a servce. is known as …………….. .
(a) Purchase to Pay P2P,
(b) Order to Cash or O2C
(c) Master O2C
(d) Transactions O2C
Answer:
(a) Purchase to Pay P2P,

Question 31.
A set of business processes that involve receiving and fulfilling customer requests for goods or services, is called.
(a) Purchase to pay or P2P
(b) Order to cash or 02C
(c) Master O2C
(d) Transaction O2C.
Answer:
(d) Transaction O2C.

Question 32.
A process of accurately trackIng the on-hand inventory levels for an enteyprise,is known as ………………… .
(a) Inventory Control
(b) Stock Process and Control
(c) inventory Cycle
(d) Masters-Inventory
Answer:
(c) inventory Cycle

Question 33.
…………………….. process refers to the process of recording the transactions In the system t finally generating the reports from financial transactions in the system.
(a) Inventory Cycle
(b) General Ledger
(c) Fixed Asset Cycle
(d) Master-General Ledger
Answer:
(b) General Ledger

Question 34.
Which one of the following Is not defined as Sensitive Personal Information?
(a) Home address
(b) Financial information
(c) Biometric information
(d) Password
Answer:
(a) Home address

Question 35.
Which one of the following deals with Section 143 of the Companies Act, 2013?
(a) Powers and duties at auditors and auditing standards
(b) Acquisition and Mergers
(c) Powers and duties of Board of Directors
(d) Penalties due to non-compliance.
Answer:
(a) Powers and duties at auditors and auditing standards

Question 36.
……………………. is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its all stakeholders.
(a) Management’s Framework
(b Privacy Policy
(c) Risk Monitoring
(d) Corporate Governance
Answer:
(d) Corporate Governance

The Companies (Amendment) Act, 2020 – CA Inter Law Question Bank is designed strictly as per the latest syllabus and exam pattern.

The Companies (Amendment) Act, 2020 – CA Inter Law Question Bank

BE it enacted by Parliament in the Seventy-fIrst Year of the Republic of India as follows:

short title and commencement
1. (1) This Act may be called the Companies (Amendment) Act. 2020.
(2) It shall come into force on such date as the Central Government may, by notification in the
Official Gazette, appoint:

Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Amendment of section 2 18 of 2013
2. In the Companies Act, 2013 (hereinafter referred to as the principal Act), in section 2, in clause (52), the following proviso shall be inserted, namely:-
“Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.”

Amendment of Section 8
3. In section 8 of the principal Act, in sub-section (11),-
(a) the words with imprisonment for a term which may extend to three years or shall be omitted;
(b) for the words twenty-five lakh rupees, or with both, the words ‘twenty-five lakh rupees” shall be substituted.
(c) after sub-section (10), the following sub-section shall be inserted, namely:- “(11) The Central Government may, by notification exempt any classes class or classes of persons from complying with any of the requirements of this section, except sub-section (10), if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.

Amendment of section 90
19. In section 90 of the Principal Act,-
(a) for sub-section (10), title following sub-seCtic.fl shall be substituted, namely:-
“(10) If any person tails to make a declaration as required under subsection (1), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.”;

(b) for sub-section (11), the following sub-section shall be substituted, namely:-
”(11) If a company required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one Lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the during which such failure continues, such a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and ¡n case of continuing failure, with
a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees.”.

Amendment of section 92
20. In section 92 of the principal Act,-
(a) in sub-section (5),-

• for the words “fifty thousand rupees”, the words “ten thousand rupees” shall be substituted;
• for the words “five lakh rupees”, the words “two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default” shall be substituted;

(b) in sub-section (6), for the words ‘punishable with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees”, the words “liable to a penalty of
two lakh rupees” shall be substituted.

Amendment of section 105
21. In section 105 of the principal Act, in sub-section (5) –
(a) for the words ‘who knowingly issues the invitations as aforesaid or wilfully authorises or permits their issue shall be punishable with fine which may extend to one lakh rupees”, the words “who issues the invitation as aforesaid or authorises or permits their issue, shall be liable to a penalty of fifty thousand rupees’ shall be substituted;

(b) in the proviso, for the word punishable”. the word ‘liable” shall be substituted.

Amendment of section 117
22. In section 117 of the principal Act,—
(i) for sub-section (2), the following sub-section shall be substituted, namely:—
“(2) If any company fails to file the resolution or the agreement under sub-section (1)before the expiry of the period specified therein, such company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum
of two lakh rupees and every officer of the company who is in default including liquidator of the company, it any, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.”;

(ii) in sub-section (3), in clause (g), for the second proviso, the following proviso shall be substituted, namely:—

“Provided further that nothing contained in this clause shall apply in respect of a resolution passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course of its business by, —
(a) a banking company;
(b) any class of non-banking financial company registered under

2 of 1934
Chapter IIIB of the Reserve Bank of India Act. 1934, as may be prescribed in consultation with the Reserve Bank of India;

53 of 1987
(c) any class of housing finance company registered under the National Housing Bank Act, 1987, as may be prescribed in consultation with the National Housing Bank: and”.

Amendment of In section 124
23. of the principal Act, for sub-section section 124 (7), the following sub-section shall be substituted, namely:—

“(7) If a company fails to comply with any of the requirements of this section, such company shall be liable to a penalty of one Iakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of ten Iakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.’

Amendment of section 128
24. In section 128 of the principal Act, in sub-section (6),—
(a) the words “with imprisonment for a term which may extend to one year or” shall be omitted;
(b) the words “or with both” shall be omitted.

Insert on of new section 129A Periodical financial results.
25. After section 129 of the principal Act, the following section shall be inserted, namely:-
“129A. The Central Government may, require such class or classes of unlisted companies, as may be prescribed,-
(a) to prepare the financial results of the company on such periodical basis and in such form as may be prescribed;

(b) to obtain approval of the Board of Directors and complete audit or limited review of such periodical financial results in such manner as may be prescribed; and

(c) file a copy with the Registrar within a period of thirty days of completion of the relevant period with such feos as may be prescribed.

Amendment of section 134
26. In section 134 of the principal Act, for sub-section (8), the following sub-section shall be substituted, namely:—
“(8) If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.

Amendment of section 135
27. In section 135 of the principal Act,—
(a) In sub-section (5), after the second proviso, the following proviso shall be inserted. namely:-
“Provided also that it the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.;

(b) for sub-section (7), the following sub-section shall be substituted, namely:-
‘(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, which ever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII. or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.”:

(c) after sub-section (8) the following sub-section shall be inserted, namely:-
“(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for the constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.”

Amendment of section 135
28. In section 137 of the principal Act, in sub-section (3),—
(a) for the words “one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees”, the words “ten thousand rupees, and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two Iakh rupees,” shall be substituted:

(b) for the words “one lakh rupees”, the words “ten thousand rupees” shall be substituted;
(c) for the words “five Iakh rupees, the Words “fifty thousand rupees” shall be substituted.

Amendment of section 140
29. In section 140 of the principal Act, in sub-section (3), for the words “five lakh rupees, the words “two lakh rupees” shall be substituted.

Amendment of section 143
30. In section 143 of the principal Act, for sub-section (15), the following sub-section shall be substituted, namely:-
“(15) If any auditor, cost accountant, or company secretary in practice does not comply with the provisions of sub-section (12), he shall,-
(a) in case of a listed company, be liable to a penalty of five Lakh rupees; and
(b) in case of any other company, be liable to a penalty of one lakh rupees.”.

Amendment of section 147
31. In section 147 of the Principal Act,-
(a) in sub-section (1),-
(i) the words “with imprisonment for a term which may extend to one year or” shall be omitted;
(ii) for the words one Iakh rupees, or with both”, the words “one lakh rupees shall be substituted:

(b) in sub-section (2), the word and figures, “section 143” shall be omitted.

Amendment of section 149
32. In section 149 of the principal Act, in sub-section (9), the following proviso shall be inserted, namely:-
‘Provided that if a company has no profits or its profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions of Schedule V.”.

Amendment of section 165
33. In section 165 of the principal Act, for sub-section (6), the following sub-section shall be substituted, namely:-
“(6) If a person accepts an appointment as a director in violation of this section. he shall be liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject to a maximum of two lakh rupees.”.

Amendment of section 167
34. In section 167 of the principal Act, in sub-section (2),-
(a) the words “with imprisonment for a term which may extend to one year or shall be omitted;
(b) for the words “five lakh rupees, or with both” the words “five . latch rupees” shall be substituted.

Amendment of section 172
35. For section 1 72 of the principal Act, the following section shall be substituted, namely:-
172. If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of titty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.’

Amendment of section 178
36. In section 178 of the principal Act, in sub-section (8), for the words “punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both”, the words “liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees” shall be substituted.

Amendment of section 184
37. In section 184 of the principal Act, in sub-section (4), for the words “punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees, or with both”, the words “liable to a penalty of one lakh rupees shall be substituted.

Amendment of section 187
38. In section 187 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:-
“(4) 11 a company is in default in complying with the provisions of this section. the company shall be liable to a penalty of five lakh rupees and every officer of the company who s in default shall be liable to a penalty of fifty thousand rupees.

Amend ment of section 188
39. In section 188 of the Principal Act. In subsection (5),-
(a) in clause (i), for the words “punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both”, the words “liable to a penalty of twenty-five Lakh rupees” shall be substituted;

(b) in clause (ii), for the words “punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees”, the words “liable to a penalty of five lakh rupees shall be substituted.

Amendment of section 197
40. In section 197 of the principal Act, In sub-section (3), after the words “whole-time director or manager,”, the words “or any other non-executive director, including an independent director” shall be inserted.

Amendment of section 204
41. In section 204 of the principal Act, in sub-section (4), for the words punishable with tine which shall not be less than one lakh rupees but which may extend to five lakh rupees”, the words “liable to a penalty of two lakh rupees” shall be substituted.

Amendment of section 232
42. In section 232 of the principal Act, for sub-section (8), the following sub-section shall be substituted, namely:-
“(8) It a company fails to comply with sub-section (5), the company arid every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees, and where the failure is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.’

Amendment of section 242
43. In section 242 of We Principal Act, in sub-section (8),-
(a) the words “with imprisonment for a term which may extend to six months or” shall be omitted;
(b) for the words one lakh rupees, or with both”, the words “one lakh rupees shall, be substituted.

Amendment of section 243
44. In section 243 of the principal Act, in sub-section (2) –
(a) the words “with imprisonment for a term which may extend to six months or” shall be omitted;
(b) for the words live lakh rupees, or with both”, the words “five lakh rupees” shall be substituted.

Amendment of section 247
45. I section 247 of the Principal Act, in sub-section (3), for the words “punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one Iakh rupees”, the words ‘liable to a penalty of fifty thousand rupees” shall be substituted.

Amendment of section 284
46. In section 284 of the principal Act, for sub-section (2), the following sub-sections shall be substituted, namely:-
“(2) If any person required to assist or cooperate with the Company Liquidator under sub-section (1) does not assist or cooperate, the Company Liquidator may make an application to the Tribunal for necessary directions.
(3) On receiving an application under sub-section
(2), the Tribunal shall, by an order, direct the person required to assist or cooperate with the Company Liquidator to comply with the instructions of the Company Liquidator and to cooperate with him in discharging his functions and duties.

Amendment of section 302
47. In section 302 of the Principal Act,-
(a) for sub-section (3), the following sub-section shall be substituted, namely:-
“(3) The Tribunal shall, within a period of thirty days from the date of the order,-
(a) forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company; and

(b) direct the Company Liquidator to forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company.” (b) sub-section (4) shall be omitted.

Amendment of section 342
48. In section 342 of the principal Act, sub-section (6) shall be omitted.

Amendment of section 347
49. In section 347 of the principal Act, in sub-section (4),-
(a) the words “with imprisonment for a term which may extend to six months or” shall be omitted;
(b) for the words “fifty thousand rupees, or with both, the words fifty thousand rupees shall be substituted.

Amendment of section 348
50. In section 348 of the principal Act,-
(a) for sub-section (6), the following sub-section shall be substituted, namely:-
“(6) Where a Company Liquidator, who is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016 is in default in complying with the provisions of this section, then such default shall be deemed to be a contravention of the provisions of the said Code, and the rules and regulations made thereunder for the purposes of proceedings under Chapter VI of Part IV of that Code.; (b) sub-section (7) shall be omitted.

Amendment of section 356
51. In section 356 of the Principal Act, for sub-section (2), the following sub-section shall be substituted, namely:-
“(2) The Tribunal shall—
(a) forward a copy of the order, within thirty days from the date there of, to the Registrar who shall record the same; and
(b) direct the Company Liquidator or the person on whose application the order was made, to file a certified copy of the order, within thirty days from the date thereof or such further period as allowed by the Tribunal, with the Registrar who shall record the same.”

Insertion of new Chapter XXIA.
52. After section 378 of the Principal Act, the following
Chapter shall be inserted, namely:-
Chapter XXIA
Producer Companies
Part I
Preliminary

Definitions
378A. In this Chapter, unless the context otherwise requires,-
(a) ‘Active Member” means a Member who fulfills the quantum and period of patronage of the Producer Company as may be required by the articles;
(b) “Chief Executive means an individual appointed as such under sub-section (1) of section 378W;

39 of 2002
(c) “inter-State co-operative society” means a multi-State co-operative society as defined in clause (p) of section 3 of the Multi-State Co-operative Societies Act, 2002, and includes any cooperative society registered under any other law for the time being In force, which has, subsequent to its formation, extended any of its objects to more than one State by enlisting the participation of persons or by extending any of its activities outside the State, whether directly or indirectly or through an institution of which it is a constituent;

(d) “limited return” means the maximum dividend as may be specified by the articles;
(e) Member means a person or Producer Institution (whether incorporated or not) admitted as a Member of a Producer Company and who retains the qualifications necessary for continuance as such;
(f) mutual assistance principles means the principles set out in subsection (2) of section 378G;
(g) “officer” includes any director or Chief Executive or Secretary or any person in accordance with whose directions or instructions part or whole of the business of the Producer Company is carried on;
(h) “patronage” means the use of services offered by the Producer Company to its Members by participation in its business activities;
(i) “patronage bonus” means payments made by a Producer Company oui of its surplus income to the Members in proportion to their respective patronage;
(j). “primary produce” means –
(k) produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers; or

(ii) produce of persons engaged in handloom, handicraft, and other cottage industries; or
(iii) any product resulting from any of the above activities, including by-products of such products; or
(iv) any product resulting from an ancillary activity that may assist or promote any of, the aforesaid activities or anything ancillary thereto; or
(v) any activity which is intended to increase the production of anything referred to in sub-clauses (i) to (iv) or improve the quality thereof;

(k) producer means any person engaged in any activity connected with or relatable to any primary produce;
(l) Producer Company means a body corporate having objects or activities specified in section 378B and registered as Producer Company under this Act or under the Companies Act, 1956;

1 of 1956
(m) Producer lnstitutiòn means a Producer Company or any other institution having only producer or producers or Producer Company or Producer Companies as its member whether incorporated or not having any of the objects referred to n section 378B and which agrees to make use of the services of the Producer Company or Producer Companies as provided in its articles;

(n) withheld price” means part of the price due and payable for goods supplied by any Member to the Producer Company; and as withheld by the Producer Company for payment on a subsequent date.

Objects of Producer Company
Part II Incorporation of Producer Companies and Other Matters
378B. (1) The objects of the Producer Company shall relate to all or any of the following matters, namely:—
“(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit: Provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institutions;
(b) processing including preserving, drying. distilling, brewing, venting, canning, and packaging of produce of its Members;
(c) manufacture sale or supply of machinery, equipment, or consumables mainly to its Members;
(d) providing education on the mutual assistance principles to its Members and others;
(e) rendering technical services, consultancy services, training, research and development, and all other activities for the promotion of the interests of its Members;
(f) generation, transmission, and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce;
(g) insurance of producers or their primary produce;
(h) promoting techniques of mutuality and mutual assistance;
(I) welfare measures or facilities for the benefit of Members as may be decided by the Board;
(J) any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner;
(k) financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.”.

2. Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of Its objects specified in this section.

Formation of Producer Company and its registration.
378C.
1. Any ten or more individuals, each of them being a producer or any two or more Producer
Institutions, or a combination of ten or more individuals and Producer Institutions, desirous of forming a Producer Company having its objects specified in section 378B and otherwise complying with the requirements of this Chapter and the provisions of this Act in respect of registration, may form an incorporated company as a Producer Company under this Act.

2. If the Registrar is satisfied that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, he shall, within thirty days of the receipt of the documents required for registration, register the memorandum, the articles, and other documents, if any, and issue a certificate of incorporation under this Act.

3. A Producer Company so formed shall have the liability of its Members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them and be termed a company limited by shares.

4. The Producer Company may reimburse to its promoters all other direct costs associated with the promotion and registration of the company including registration, legal fees, printing of a memorandum and articles and the payment thereof shall be subject to the approval at its first general meeting of the Members.

5. On registration under sub-section (2), the Producer Company shall become a body corporate as if it is a private limited company to shall not, under any circumstance, become or be deemed to become a whats ever, public limited company under this Act.

Membership and voting rights of Members of Producer Company
378D.
1.
(a) In a case where the membership consists solely of individual Members, the voting rights shall be based on a single vote for every Member, irrespective of his shareholding or patronage of the Producer Company.

(b) In a case where the membership consists of Producer Institutions only, the voting rights of such Producer Institutions shall be determined on the basis of their participation In the business of the Producer Company in the previous year, as may be specified by articles: Provided that during the first year of registration of a Producer Company, the voting rights shall be determined on the basis of the shareholding by such Producer Institutions.

(c) In a case where the membership consists of individuals and Producer Institutions, the
voting rights shall be computed on the basis of a single vote for every Member.

2. The articles of any Producer Company may provide for the conditions, subject to which a Member may continue to retain his membership, and the manner in which voting rights shall be exercised by the Members.

3. Not with standing anything contained in sub-section

• or sub-section
• any Producer Company may. if so authorized by its articles, restrict the voting rights to active Members, in any special or general meeting.

4. No person, who has any business interest which is in conflict with business of the Producer Company, shall become a Member of that Company.

5. A Member, who acquires any business interest which is in conflict with the business of the Producer Company shall cease to be a Member of that Company and be removed as a Member in accordance with the articles.

Benefits to Members
378E.
1. Subject to the provisions made in articles, every Member shall initially receive only such value for the produce or products pooled and supplied as the Board of Producer Company may determine, and the withheld price may be disbursed later in cash or in kind or by allotment of equity shares, in proportion to the produce supplied to the Producer Company during the financial year to such extent and in such manner and subject to such conditions as may be decided by the Board.

2. Every Member shall, on the share capital contributed, receive only a limited return: Provided that every such Member may be allotted bonus shares in accordance with the provisions contained in section 378ZJ.

3. The surplus if any, remaining alter making provision for payment of limited return and reserves referred to in section 378J, may be disbursed as patronage bonus, amongst the Members, in proportion to their participation in the business of the Producer Company, either in cash or by way of allotment of equity shares, or both, as may be decided by the Members at the general meeting.

Memorandum of Producer Company
378F. The memorandum of association of every Producer Company shall state-
(a) the name of the company with “Producer Company Limited as the last words of the name of such Company;
(b) the State in which the registered office of the Producer Company is to situate;
(c) the main objects of the Producer Company shall be one or more of the objects specified in section 378B;
(d) the names and addresses of the persons who have subscribed to the memorandum;
(e) the amount of share capital with which the Producer Company is to be registered and division thereof into shares of a fixed amount;
(f) the names, addresses and occupations of the subscribers being producers, who shall act as the first directors in accordance with sub-section (2) of section 378J;
(g) that the liability of its members is limited;
(h) against the subscriber’s name, the number of shares each subscriber takes: Provided that no subscriber shall take less than one share;
(i) that in case the objects of the Producer Company are not confined to one State, the States to whose territories the objects extend.

Articles of association
378G
1. There shall be presented, for registration to the Registrar of the State to which the registered office of the Producer Company is, stated by the memorandum of association, to be situated-

• memorandum of the Producer Company;
• its articles duly signed by the subscribers to the memorandum.

(2) The articles shall contain the following mutual assistance principles, namely:—
(a) the membership shall be voluntary and available, to all eligible persons who can participate or avail of the facilities or services of the Producer Company, and are willing to accept the duties of membership;

(b) each Member shall save as otherwise provided in this Chapter. have only a single vote irrespective of the shareholding;

(c) the Producer Company shall be administered by a Board consisting of persons elected or
appointed as directors In the manner consistent with the provisions of this Chapter and the Board shall be accountable to the Members;

(d) particulars on limited return on share capital;

(e) the surplus arising out of the operations of the Producer Company shall be distributed in an equitable manner by-

• providing for the development of the business of the Producer Company;
• providing for common facilities; and
• distributing amongst the Members, as may be admissible in proportion to their respective participation in the business;

(f) provision for the education of Members, employees, and others, on the principles of mutuality and techniques of mutual assistance;

(g) the Producer Company shall actively cooperate with other Producer Companies (and other organizations following similar principles) at Local, national or international level so as to best serve the interest of their Members and the communities it purports to serve.

3. Without prejudice to the generality of the foregoing provisions of sub-sections (1) and (2), the articles shall contain the following provisions, namely:—
(a) the qualifications for membership, the conditions for continuance or cancellation of membership and the terms, conditions, and procedure for transfer of shares;

(b) the manner of ascertaining the patronage and voting right based on patronage;

(c) subject to the provisions contained in sub-section (1) of section 378N, the manner of constitution of the Board, its powers and duties, the minimum and maximum number of directors, manner of election and appointment of directors, and retirement by rotation, qualifications for being elected or continuance as such and the terms of office of the said directors, their powers and duties, conditions for election or co-option of directors, method of removal of directors and the filling up of vacancies on the Board, and the manner and the terms of appointment of the Chief Executive;

(d) the election of the Chairman, term of office of directors and the Chairman, manner of voting at the general or special meetings of Members, procedure for voting, by directors at meetings of the Board, powers of the Chairman, and the circumstances under which the Chairman may exercise a casting vote;

(e) the circumstances under which, and the manner in which, the withheld price is to be determined and distributed;

(f) the manner of disbursement of patronage bonus in cash or by issue of equity shares, or both:

(g) the contribution to be shared and related matters referred to in sub-section (2) of section 378ZI;

(h) the matters relating to issue of bonus shares out of general reserves as set out in section 378ZJ;

(i) the basis and manner of allotment of equity shares of the Producer Company in lieu of the whole or part of the sale proceeds of produce or products supplied by the Members;

(j) the amount of reserves, sources from which funds may be raised, limitation on raising of funds, restriction on the use of such funds and the extent of debt that may be contracted and the conditions thereof;

(k) the credit, loans or advances which may be granted to a Member and the conditions for the grant of the same;

(l) the right of any Member to obtain information relating to general business of the company;

(m) the basis and manner of distribution and disposal of funds available after meeting liabilities in the event of dissolution or liquidation of the Producer Company;

(n) the authorization for division, amalgamation, merger creation of subsidiaries and the entering into joint ventures and other matters connected therewith;

(o) laying of the memorandum and articles of the Producer Company before a special general meeting to be held within ninety days of its registration;

(p) any other provision, which the Members may, by special resolution recommend to be included in the articles.

Amendment of memorandum
378H.
1. A Producer Company shall not alter the conditions contained in its memorandum except in the cases. by the mode and to the extent for which express provision is made in this Act.

2. A Producer Company may, by special resolution, not inconsistent with section 378B, alter its objects specified in its memorandum.

3. A copy of the amended memorandum, together with a copy of the special resolution duly certified by two directors, shall be filed with the Registrar within thirty days from the date of adoption of any resolution referred to in subsection (2):

Provided that in the case of transfer of the registered office of a Producer Company from the jurisdiction of and Registrar to another, certified copies of the special resolution certified by two directors shall be filed with both the Registrars within thirty days, and each Registrar shall record the same, and thereupon the Registrar from whose jurisdiction the office is transferred, shall forthwith forward to the other Registrar all documents relating to the Producer Company.

(4) The alteration of the provisions of memorandum relating to the change of the place of its registered office from one State to another shall not take effect unless it is approved by the Central Government on an application in such form and manner as may be prescribed.

Amendment of articles
378-I
1. Any amendment of the articles shall be proposed by not less than two-thirds of the elected directors or by not less than one-third of the Members of the Producer Company, and adopted by the Members by a special resolution.

2. A copy of the amended articles together with the copy of the special resolution, both duly certified by two directors, shall be filed with the Registrar within fifteen days from the date of its adoption.

Option to Inter-State co-operative societies to become Producer Companies.
378J.
1. Notwithstanding anything contained in sub-section (1) of section 378C, any inter-State co-operative society with objects not confined to one State may make an application to the Registrar for registration as Producer Company under this Chapter.
2. Every application under sub-section (1) shall be accompanied by-
(a) a copy of the special resolution, of not less than two-thirds of total members of inter-State cooperative society, for its incorporation as a Producer Company under this Act;

(b) a statement showing—

• names and addresses or the occupation of the directors and the Chief Executive. If any, by whatever name called, of such co-operative; and
• list of members of such inter-State co-operative society;

(c) a statement indicating that the inter-State co-operative society is engaged in any one or more of the objects specified in section 378B;

(d) a declaration by two or more directors of the inter-State co-operative society certifying that particulars given in clauses (a) to (c) are correct.

3. When an inter-State co-operative society is registered as a Producer Company, the words Producer Company Limited’ shall form part of its name with any word or expression to show its identity preceding it.

4. On compliance with the requirements of sub-sections (1) to (3). the Registrar shall, within a period of thirty days of the receipt of application, certify under his hand that the inter-State cooperative society applying for registrations registered and thereby incorporated as a Producer Company under this Chapter.

5. A cooperative society formed by producers. by federation or union of co-operative societies of producers or co-operatives of producers, registered under any law for the time being in force which has extended its objects outside the State, either directly or through a union or federation of co-operatives of which It is a constituent, as the case may be, and any federation or unions of such co-operatives, which has so extended any of its objects or activities outside the State. shall be eligible to make an application under sub-section (1) and to obtain registration as a Producer Company under this Chapter.

6. The inter-State co-operative society shall, upon registration under sub-section (1), stand transformed into a Producer Company, and thereafter shall be governed by the provisions of this Chapter to the exclusion of the law by which It was earlier governed, save in so far as anything done or omitted to be done before its registration as a Producer Company, and notwithstanding anything contained in any other law for the time being in force, no person shall have any claim against the co-operative institution or the company by reason of such conversion or transformation.

7. Upon registration as a Producer Company, the Registrar of Companies who registers the company shall forthwith intimate the Registrar with whom the erstwhile inter-State co-operative society was earlier registered for deletion of the society from its register.

Effect of Incorporation of Producer Company
378K. Every shareholder of the inter-State co-operative society immediately before the date of registration of Producer Company (hereafter in this Chapter referred to as the date of transformation) shall be deemed to be registered on and from that date as a shareholder of the Producer Company to the extent of the face value of the shares held by such shareholder.

Vesting of undertaking in Producer Company
378L
1. All properties and assets, movable and immovable, of or belonging to, the inter-State co-operative society as on the date of transformation, shall vest in the Producer Company.
2. All the rights, debts, liabilities, interests, privileges and obligations of the inter-State co-operative society as on the date of transformation shall stand transferred to, and be the rights, debts liabilities, interests, privileges and obligations A, the Producer Company.

3. Without prejudice to ‘e provisions contained in sub-section (2), all debts, liabilities, and obligations incurred, all contracts entered into, and all matters and things engaged to be done by. with or for, The society as on the date of transformation for or in connection with their purposes, shall be deemed to have been incurred, entered into, or engaged to be done by, with or for, the Producer Company.

4. All sums of money due to the inter-State co-operative society immediately before the date of transformation, shall be deemed to be due to the Producer Company.

5. Every organization, WhiCh was being managed immediately before the date of transformation by the inter-State co-operaPve society shall be managed by the Producer Company for such period, to such extent and in such manner as the circumstances may require.

6. Every organization which was getting financial, managerial or technical assistance from the inter-State co-operative society, immediately before the date of transformation. may continue to be given financial, managerial or technical assistance, as the case may be, by the Producer Company, for such period, to such extent and in such manner as that company may deem fit.

7. The amount representing the capital of the erstwhile inter-State cooperative society shall form part of the capital of the Producer Company.

8. Any reference to the inter-State co-operative society in any law other than this Act or in any contract o other instrument, shall be deemed to be reference to the Producer Company.

9. If, on the date of transformation, there is pending any suit, arbitration, appeal or other legal proceedings of whatever nature by or against the inter-State co-operative society, the same shall not abate, be discontinued, or be in any way prejudicially affected by reason of the incorporation of the Producer Company under section 378C or transformation of the inter-State, cooperative society as a Producer Company under Section 378J, as the case may be, but the Suit, arbitration, appeal or other proceedings, may be continued, prosecuted and enforced by or against the Producer Company in the same manner and to the same extent as it would have, or may have been continued, prosecuted and enforced by or against the inter-State co-operative society as if the provisions contained in this Chapter had not come into force.

Concession. etc., to be deemed to have been granted to Producer Company
378M. With effect from the date of transformation, all fiscal and other concessions, licenses, benefits, privileges, and exemptions granted to the inter-State co-operative society in connection with the affairs and business of the inter-State co-operative society under any law for the time being ¡ri force shall be deemed to have been granted to the Producer Company.

Provisions In respect of officers and other employees of inter-State co-operative society.
378N. ‘
1. Notwithstanding anything contained in section 378-O, all the directors in the inter-State cooperative society before the incorporation of the Producer Company shall continue in office for a period of one year from the date of transformation and in accordance with the provisions of this Act.

2. Every officer or other employee of the inter-State co-operative society (except a director of the Board, Chairman or Managing Director) serving in its employment immediately before the date of transformation shall, in so far as such officer or other employee is employed in connection with the inter-State co-operative society which has vested in the Producer Company by virtue of this Act, become, as from the date of transformation, an officer or, as the case may be, other employees of the Producer Company and shall held his office or service therein by the same tenur‚ at the same remuneration, upon the same terms and conditions, with the same obligations and with the same rights and privileges as to leave, leave travel concession, welfare scheme, medical benefits scheme, insurance, provident fund, other funds, retirement, voluntary retirement, gratuity, and other benefits as he would have held under the erstwhile inter-State cooperative society if its undertaking had not vested in the Producer Company and shall continue to do so as an officer or, as the case may be, other employees of the Producer Company.

3. Where an officer or other employee of the inter-State co-operative society opts under sub-section (2) not to be in employment or service of the Producer Company, such officer or other employee shall be deemed to have resigned.

4. Not with standing anything contained in the 14 of 1947 Industrial Disputes Act, 1947 or in any other law for the time being in force, the transfer of the services of any officer or other employee of the inter-State co-operative society to the Producer Company shall not entitle such officer or other employees to any compensation under this Act or under any other law for the time being in force and no such claim shall be entertained by any court, tribunal or other authority.

5. The officers and other employees who have retired before the date of transformation from the service of the inter-State co-operative society and are entitled to any benefits, rights or privileges, shall be entitled to receive the same benefits, rights or privileges from the Producer Company.

6. The trusts of the provident fund or the gratuity fund of the inter-State co-operative society and any other bodies created for the welfare of officers or employees shall continue to discharge functions in the Producer Company as was being done hitherto in the inter-State co-operative society and any tax exemption granted to the provident fund or the gratuity fund would continue to be applied to the Producer Company.

7. Not withstanding anything contained in this Act or in any other law for the time being in force or in the regulations of the inter-State co-operative society, no director of the Board, Chairman, Managing Director or any other person entitled to manage the whole or substantial part of the business and affairs of the inter-State co-operative society shall be entitled to any compensation against the inter-State co-operative society or the Producer Company for the loss of office or for the premature termination of any contract of management entered into by him with the inter-State co-operative society.

Number of directors
Part III Management of Producer Company
378-O. Every Producer Company shall have at least five and not more than fifteen directors:
Provided that in the case of an inter-State co-operative society incorporated as a °roducer Company, such company may have more tian fifteen directors for a period of one year from the date of its incorporation as a Producer Company.

Appointment of directors
378P
1. Save as otherwise provided in section 378N, the Members who sign the memorandum and the articles may designate therein the Board of Directors, not less than five, who shall govern the affairs of the Producer Company until the directors are elected in accordance with the provisions of this section.

2. The election of directors shall be conducted within a period of ninety days of the registration of the Producer Company:
Provided that in the case of an inter-State co-operative society which has been registered as a Producer Company under sub-section (4) of section 378J in which at least five directors [including the directors continuing in office under sub-section (1) of section 378NJ hold office as such on the date of registration of such company, the provisions of this subsection shall have effect as it for the words ninety days, the words ‘three hundred and sixty-five days” had been substituted.

3. Every person shall hold office of a director for a period not less than one year but not exceeding five years as may be špecified in the articles.

4. Every director, who retires in accordance with the articles, shall be eligible for re-appointment as a director.

5. Save as otherwise provided in subsection (2) the directors of the Board shall be elected or appointed by the Members in the annual general meeting.

6. The Board may co-opt one or more expert directors or an additional director not exceeding one-fifth of the total number of directors or appoint any other person as additional director for such period as the Board may deem fit: Provided that the expert directors shall not have the right to vote in the election of the Chairman but shall be eligible to be elected as Chairman if so provided by its articles: Provided further that the maximum period, for which the expert director or the additional director holds office, shall not exceed such period as may be specified in the articles.

Vacation of office by directors
378Q
1. The office of the director of a Producer Company shall become vacant if,-
(a) he is convicted by a court of any offense involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months;
(b) the Producer Company, in which he is a director, has made a default in repayment of any advances or loans taken from any company or institution or any other person and such default continues for ninety days;
(c) he has made a default in repayment of any advances or loans taken from the Producer Company in which he is a director;

(d) the Producer Company. in which he is a director—

• has not filed the annual accounts and annual return for any continuous three financial years; or
• has failed to, repay its deposit or withheld price or patronage bonus or interest thereon on due date, or pay dividend and such failure continues for one year or more;

(e) default is made in holding an election for the office of director, in the Producer Company in which he is a director, in accordance with the provisions of this Act and articles;

(f) the annual general meeting or extraordinary general meeting of the Producer Company, In which he is a director, is not called in accordance with the provisions of this Act except due to natural calamity or such other reason.

2. The provisions of sub-section (1) shall, as far as may be, apply to the director of a Producer Institution which is a rember of a Producer Company.

Powers and Functions of Board
378R
1. Subject to the provisions of this Act and articles, the Board of Directors of a Producer Company shall exercise all such powers and to do all such acts and things, as that Company is authorised so to do.

2. In particular and without prejudice to the generality of the foregoing powers, such powers may include all or any of the following matters, namely:-
(a) determination of the dividend payable;
(b) determination of the quantum of withheld price and recommend patronage to be approved at general meeting;
(c) admission of new Members;
(d) pursue and formulate the organizational policy, objectives, establish specific long-term and annual objectives, and approve corporate strategies and financial plans:
(e) appointment of a Chief Executive and such other officers of the Producer Company, as may be specified in the articles;
(f) exercise superintendence, direction, and control over Chief Executive and other officers appointed by it;
(g) cause proper books of account to be maintained; prepare annual accounts to be placed before the annual general meeting with the report of the auditor and the replies on qualifications, if any, made by the auditors;
(h) acquisition or disposal of property of the Producer Company in its ordinary course of business;
(i) investment of the funds of the Producer Company in the ordinary course of its business;
(j) sanction any loan or advance, in connection with the business activities of the Producer Company to any Member, not being a director or his relative;
(k) take such other measures or do such other acts as may be required in the discharge of its functions or exercise of its powers.

(3) All the powers specified in sub-section (1) and (2) shall be exercised by the Board, by means of resolution passed at its meeting on behalf of the Producer Company.

Explanation.- For the removal of doubts, it is hereby declared that a director or a group of directors, who do not constitute the Board, shall not exercise any of the powers exercisable by it.

Matters to be 378S. The Board of Directors of a Producer Company transacted at shall exercise the following powers on behalf of that general Company, and it shall do so only by means of meeting resolutions passed at the annual general meeting of its Members, namely:-

• approval of budget and adoption of annual accounts of the Producer Company;
• approval of patronage bonus;
• issue of bonus shares;
• declaration of limited return and decision on the distribution of patronage;
• specify the conditions and limits of loans that may be given by the Board to any director; and
• approval of any transaction of the nature as is to be reserved in the articles for approval by the Members.

Liability of directors
378T,
1. When the directors vote for a resolution, or approve by any other means, anything done in contravention of the provisions of this Act or any other law for the time being in force or articles, they shall be jointly and severally liable to make good any loss or damage suffered by the Producer Company.

2. Without prejudice to the provisions contained in sub-section (1), the Producer Company shall have the right to recover from its director—
(a) where such director has made any profit as a result of the contravention specified in sub-section (1). an amount equal to the profit so made;
(b) where the Producer Company incurred a loss or damage as a result of the contravention specified in sub-sectIon (1), an amount equal to that loss or damage.

3. The liability imposed under this section shall be In addition to and not in derogation of a liability imposed on a director under this Act or any other law for the time being in force.

Committee of directors
378U
1. The Board may constitute such number of committees as it may deem fit for the purpose of assisting the Board in the efficient discharge of Its functions: Provided that the Board shall not delegate any of its powers or assign the powers of the Chief Executive, to any committee.

2. A committee constituted under sub-section (1) may, with the approval of the Board, co-opt such number of persons as it deems fit as members of the committee: Provided that the Chief Executive appointed under section 378W or a director of the Producer Company shall be a member of such committee.

3. Every such committee shall function under the general superintendence, direction, and control of the Board, for such duration, and in such manner as the Board may direct.

4. The fee and allowances to be paid to the members of the committee shall be such as may be determined by the Board.

5. The minutes of each meeting of the committee shall be placed before the Board at its next meeting.

Meetings of Board and Quorum
378V.
1. A meeting of the Board shall be held not less than once in every three months and at least four such meetings shall be held in every year.
2. Notice of every meeting of the Board of Directors shall be given ¡n writing to every director for the time being in India, and at his usual address in India to every other director.
3. The Chief Executive shall give notice as aforesaid not less than seven days prior to the date of the meeting of the Board and if he fails to do so, he shall be liable to a penalty of five thousand rupees: Provided that a meeting of the Board may be called at shorter notice and the reasons thereof shall be recorded in writing by the Board.

4. The quorum for a meeting of the Board shall be one-third of the total strength of directors, subject to a minimum of three.

5. Save as provided in the articles, directors including the co-opted director, may be paid such fees and allowances for attendance at the meetings of the Board, as may be decided by the Members in the general meeting.

Chief Executive and his functions
378W.
1. Every Producer Company shall have a full-time Chief Executive, by whatever name called, to be appointed by the Board from amongst persons other than Members.
2. The Chief Executive shall be ex officio director of the Board and such director shall not retire by rotation.
3. Save as otherwise provided in articles, the qualifications, experience, and the terms and conditions of service of the Chief Executive shall be such as may be determined by the Board.
4. The Chief Executive shall be entrusted with substantial powers of management as the Board may determine.
5. Without prejudice to the generality of subsection (4), the Chief Executive may exercise the powers and discharge the functions, namely:—
(a) do administrative acts of a routine nature including managing the day-to-day affairs of the Producer Company;
(b) operate bank accounts or authorise any person, subject to the general or special approval of the Board in this behalf, to operate the bank account;
(c) make arrangements for state custody of cash and other assets of the Producer Company;
(d) sign such documents as may be authorised by the Board, for and on behalf of the company;
(e) maintain proper books of account; prepare annual accounts and audit thereof; place the audited accounts before the Board and in the annual general meeting of the Members;
(f) furnish Members with periodic information to apprise them of the operation and functions of the Producer Company;
(g) make appointments to posts in accordance with the powers delegated to him by the Board;
(h) assist the Board in the formulation of goals, objectives, strategies, plans, and policies;
(i) Advise the Board with respect to legal and regulatory matters concerning the proposed and ongoing activities and take necessary action in respect thereof;
(j) exercise the powers as may be necessary in the ordinary course of business;
(k) discharge such other functions, and exercise such other powers, as may be delegated by the Board.

6. The Chief Executive shall manage the affairs of the Producer Company under the general superintendence, direction, and control of the Board and be accountable for the performance of the Producer Company.

Secretary of Producer Company
378X.
1. Every Producer Company having an average annual turnover exceeding five crore rupees or such other amount as may be prescribed in each of three consecutive financial years shall have a whole-time secretary.

56 of 1980
2. No individual shall be appointed as whole-time secretary unless he possesses membership of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980.

3. It a Producer Company fails to comply with the provisions of sub-section (1), the Company and every officer of the Company who is in default, shall be liable to a penalty of one hundred rupees for every day during which the default continues subject to a maximum of rupees one lakh:

Provided that in any proceedings against a person in respect of a default under this sub-section, no penalty shall be imposed if it is shown that all reasonable efforts to comply with the provisions of sub-section (1) were taken or that the financial position of the Company was such that it was beyond its capacity to engage a whole-time secretary. 378Y. Unless the articles require a larger number,

Quorum
one-fourth of the total membership shall constitute the quorum at a general meeting.

Voting rights
378Z. Save as otherwise provided in sub-sections (1) and (3) of section 3780, every Member shall have one vote and In the case of equality of votes, the Chairman or the person presiding shall have a casting vote except in the case of election of the Chairman.

Annual general meetings
Part IV General Meetings
378ZA.
1. Every Producer Company shall in each year, hold, in addition to any other meetings, a general meeting, as its annual general meeting and shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between the date of one annual general meeting of a Producer Company and that of the next:

Provided that the Registrar may, for any special reason, permit extension of the time for holding any annual general meeting (not being the first annual general meeting) by a period not exceeding three months.

2. A Producer Company shall hold its first annual general meeting within a period of ninety days from the date of its incorporation.

3. The Members shall adopt the articles of the Producer Company and appoint directors of its Board in the annual general meeting.

(4) The notice calling the annual general meeting shall be accompanied by the following documents, namely:—
(a) the agenda of the annual general meeting;
(b) the minutes of the previous annual general meeting or the extraordinary general meeting:
(c) the names of candidates for election, if any, to the office of director including a statement of
qualifications in respect of each candidate;
(d) the audited balance sheet and profit and loss accounts of the Producer Company and its subsidiary, if any, together with a report of the Board of Directors of such Company with respect to-

• the state of affairs of the Producer Company;
• the amount proposed to be carried to reserve;
• the amount to be paid as limited return on share capital;
• the amount proposed to be disbursed as patronage bonus;
• the material changes and commitments, if any, affecting the financial position of the Producer Company and its subsidiary, which have occurred in between the date of the annual accounts of the Producer Company to which the balance sheet relates and the date of the report of the Board:
• any other matter of importance relating to energy conservation, environmental protection, expenditure or earnings in foreign exchanges;
• any other matter which is required to be, or maybe, specified by the Board;

(e) the text of the draft resolution for appointment of auditors;

(f) the text of any draft resolution proposiny amendment to the memorandum or articles to be considered at the general meeting. along with the recommendations of the Board.

5. The Board of Directors shall, on the requisition made in writing, duly signed and setting out the matters for consideration, made by one-third of the Members entitled to vote in any general meeting, proceed to call an extraordinary general meeting in accordance with the relevant provisions contained in Chapter VII.

6. Every annual general meeting shall be called, for a time during business hours, on a day that is not a public holiday and shall be held at the registered office of the Producer Company or at some other place with is a the city, town or village in which the registered office of the Company is situated.

7. A general meeting of the Producer Company shall be called by giving not less than fourteen clays prior notice in writing.

8. The notice of the general meeting indicating the date, time and place of the meeting shall be sent to every Member and auditor of the Producer Company.

9. Unless the articles of the Producer Company provide for a Larger number, one-fourth of the total number of members of the Producer Company shall be the quorum for its annual general meeting.

10. The proceedings of every annual general meeting along with the report of the Board of Directors, the audited balance-sheet and the profit and loss account shall be filed with the Registrar within sixty days of the date on which the annual general meeting is held, with an annual return along with the filing fees as applicable under the Act.

11. ln the case where a Producer Company is formed by Producer Institutions, such Institutions shall be represented in the general body through The Chairman or the Chief Executive thereof who shall be competent to act on its behalf: Provided that a Producer Institution shall not be represented if such Institution is in default or failure referred to in clauses (d) to (f) of sub-section (1) of section 378Q.

Share capital
Part V
Share Capital and Members Rights 378ZB.
1. The share capital of a Producer Company shall consist of equity shares only.
2. The shares held by a Member in a Producer Company, shall as far as may be, be in proportion to the patronage of that company.

Special user rights
378ZC.
1. The producers, who are active Members may. if so provided in the articles, have special rights and the Producer Company may issue appropriate instruments to them In respect of such special rights.

2. The instruments of the Producer Company issued under sub-section (1) shall, after obtaining approval of the Board in that behalf, be transferable to any other active Member of that Producer Company.

Explanation.-For the purposes of this section, the expression ‘special right means any right relating to supply of additional products by the active Member or any other right relating to his produce which may be conferred upon him by the Board.

Transferability of shares and attendant rights
378ZD.

1. Save as otherwise provided In sub-sections (2) to (4), the shares of a Member of a Producer Company shall not be transferable.
2. A Member of a Producer Company may, after obtaining the previous approval of the Board, transfer the whole or part of his shares along with any special rights, to an active Member at par value.
3. Every Member shall, within three months of his becoming a Member in the Producer Company, nominate, in the manner specified in articles, a person to whom his shares in the Producer Company shall vest in the event of his death.

4. The nominee shall, on the death of the Member become entitled to all the rights In the shares of the Producer Company and the Board of that Company shall transfer the shares of the deceased Member to his nominee: Provided that in a case where such nominee is not a producer, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board.

5. Where the Board of a Producer Company is satisfied that-

• any Member has ceased to be a primary producer; or
• any Member has failed to retain his qualifications to be a Member as specified in articles, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board: Provided that the Board shall not direct such surrender of shares unless the Member has been served with a written notice and given an opportunity of being heard.

Books of account
Part VI
Finance, Accounts, and Audit
378ZE.
1. Every Producer Company shall keep at its registered office proper books of account with respect to-

• all sums of money received and expended by the Producer Company and the matters in respect of which the receipts and expenditures take place;
• all sales and purchase of goods by the Producer Company;
• the instruments of liability executed by or on behalf of the Producer Company;
• the assets and liabilities of the Producer Company;
• in case of a Producer Company engaged in production, processing, and manufacturing, the particulars relating to utilization of materials or labour or other items of costs.

2. The balance sheet and profit and loss accounts of the Producer Company shall be prepared, as far as may be, in accordance with the provisions contained in section 129.

Internal audit
378ZF. Every Producer Company shall have internal audit of its accounts carried out, at such interval and in such manner as may be specified in aides, by a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949.

38 of 1949 Duties of auditor under this Chapter
378ZG. Without prejudice to the provisions contained in section 143, the auditor shall report on the following additional matters relating to the Producer Company, namely:-

• the amount of debts due along with particulars of bad debts, if any;
• the verification of cash balance and securities;
• the details of assets and liabilities;
• all transactions which appear to be contrary to the provisions of this Chapter;
• the loans given by the Producer Company to the directors;
• the donations or subscriptions given by the Producer Company;
• any other matter as may be considered necessary by the auditor.

Donation or subscription by Producer Company
378ZH. A Producer Company may. by special resolution, make donation or subscription to any institution or individual for the purposes of-
(a) promoting the social and economic welfare of Producer Members or producers or general public; or
(b) promoting the mutual assistance principles: Provided that the aggregate amount of all such donations and subscriptions in any financial year shall not exceed three percent. of the net profit of the Producer Company in the financial year immediately preceding the financial year in which the donation or subscription was made: Provided further that Rio Producer Company shall make directly or indirectly to any political party or for any political purpose to any person any contribution or subscription or make available any facilities including personnel or material.

General and other reserves
378Z-I.
1. Every Producer Company shall maintain a general reserve in every financial year, in addition to any reserve maintained by it as may be specified in articles.

2. In a case where the Producer Company does not have sufficient funds in any financial year for transfer to maintain the reserves as may be specified in articles, the contribution to the reserve shall be shared amongst the Members in proportion to their patronage in the business of that Company in that year.

Issue of bonus shares
378ZJ. Any Producer Company may, upon recommendation of the Board and passing of resolution in the general meeting, issue bonus shares by capitalization of amounts from general reserves referred lo in section 378Z-I in proportion to the shares held by the Members on the date of the issue of such shares.

Loan, etc., to Members
Part VII
Loans to Members and Investments
378ZK. The Board may, subject to the provisions made in articles, provide financial assistance to the Members of the Producer Company by way of-
(a) credit facility, to any Member, in connection with the business of the Producer Company, for a period not exceeding six months;
(b) loans and advances, against security specified in articles to any Member, repayable within a period exceeding three months but not exceeding seven years from the date of disbursement of such loan or advances: Provided that any loan or advance to any director or his relative shall be granted only after the approval by the Members in general meetings.

Investment in other companies, formation of subsidiaries, etc.
378ZL.
1. The general reserves of any Producer Company shall be invested to secure the highest returns available from approved securities, fixed deposits, units, bonds issued by the Government or cooperative or scheduled bank or in such other mode as may be prescribed.

2. Any Producer Company may, for promotion of its objectives acquire the shares of another Producer Company.

3. Any Producer Company may subscribe to the share capital of, or enter into any agreement or other arrangement whether by way of formation of its subsidiary company, joint venture or in any other manner with any body corporate, for the purpose of promoting the objects of the Producer Company by special resolution in this behalf.

4. Any Producer Company, either by itself or together with its subsidiaries, may invest, by way of subscription, purchase or otherwise, shares in any other company, other than a Producer Company, specified under sub-section (2), or subscription of capital under sub-section (3), for an amount not exceeding thirty percent. of the aggregate of its paid-up capital and free reserves: Provided that a Producer Company may, by special resolution passed in its general meeting and with prior approval of the Central Government, invest in excess of the limité specified in this section.

5. All investments by a Producer Company may be made if such investments are consistent with the objects of the Producer Company.

6. The Board of a Producer Company may, with the previous approval of Members by a special resolution, dispose of any of its investments referred to in sub-sections (3) and (4).

7. Every Producer Company shall maintain a register containing particulars of all the investments, showing the names of the companies in which shares have been acquired, number and value of shares; the date of acquisition; and the manner and price at which any of the shares have been subsequently disposed of.

8. The register referred to in subsection (7) shall be kept at the registered office of the Producer Company and the same shall be open to inspection by any Member who may take extracts therefrom.

Penalty for contravention
Part VIII Penalties
378ZM
1. If any person, other than a Producer Company registered under this Chapter, carries on business under any name which contains the words “Producer Company Limited, he shall be punishable with time which may extend to ten thousand rupees for every day during which such name has been used by him.

2. If a director or an officer of a Producer Company. who wilfully fails to furnish any information relating to the affairs of the Producer Company required by a Member or a person duly authorized in this behalf, he shall be liable to imprisonment for a term which may extend to six months and with fine equivalent to five percent. of the turnover of that The company during the preceding financial year.

3. If a director or officer of a Producer Company-

• fails to hand over the custody of books of account and other documents or property in his custody to the Producer Company of which he is a director or officer; or
• fails to convene annual general meeting or other general meetings, he shall be punishable with fine which may extend to one lakh rupees, and in the case of a continuing default or failure, with an additional tine which may extend to ten thousand rupees for every day during which such default or failure continues.

Amalgamation, merger or division, etc., to form new Producer Companies
Part IX
Amalgamation, Merger or Division
378ZN.
1. A Producer Company may, by a resolution passed at its general meeting,—

• decide to transfer its assets and liabilities, in whole or In part, to any other Producer The company, which agrees to such transfer by a resolution passed at its general meeting, for any of the objects specified in section 378B;
• divide Itself into two or more new Producer Companies.

2. Any two or more Producer Companies may, by a resolution passed at any general or special meetings of its Members, decide to-

• amalgamate and form a new Producer Company; or
• merge one Producer Company (hereafter in this Chapter referred to as “merging company’) with another Producer Company (hereafter in this Chapter referred to as “merged company).

3. Every resolution of a Producer Company under this section shall be passed at its general meeting by a majority of total Members, with right of vote not less than two-thirds of its Members present and voting and such resolution shall contain all particulars of the transfer of assets and liabilities, or division, amalgamation, or merger, as the case may be.

4. Before passing a resolution under this section, the Producer Company shall give notice thereof in writing together with a copy of the proposed resolution to all the Members and creditors who may give their consent.

5. Notwithstanding anything contained in articles or in any contract to the contrary, any Member, or any creditor not consenting to the resolution shall, during the period of one month of the date of service of the notice on him, have the option,-
(a) In the case of any such Member, to transfer his shares with the approval of the Board to any active Member thereby ceasing to continue as a Member of that Company; or
(b) in the case of a creditor, to withdraw his deposit or loan or advance, as the case may be.

6. Any Member or creditor, who does not exercise his option within the period specified in sub-section (5), shall be deemed to have consented to the resolution.

7. A resolution passed by a Producer Company under this section shall not take effect until the expiry of one month or until the assent thereto of all the Members and creditors has been obtained, which ever is earlier.

8. The resolution referred to in this section shall provide for-

• the regulation of conduct of the affairs of the Producer Company in future;
• the purchase of shares or interest of any Members of the Producer Company by other Members or by the Producer Company;
• the consequent reduction of its share capital, in case of purchase of shares of one Producer Company by another Producer Company;
• termination, setting aside or modification of any agreement, howsoever arrived between the company on the one hand and the directors, secretaries and manager on the other hand, a part from such terms and conditions as may, in the opinion of the majority of shareholders, be just and equitable in the circumstances of the case;
• termination, setting aside or modification of any agreement between the Producer Company and any person not referred to in clause (d): Provided that no such agreement shall be terminated, set aside or modified except after giving due notice to the party concerned: Provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;
• the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property, made or done by or against the Producer Company within three months before the date of passing of the resolution, which would if made or done against any individual, be deemed in his insolvency to be a fraudulent preference;
• the transfer to the merged company of the whole or any part of the undertaking, property or liability of the Producer Company;
• the allotment or appropriation by the merged company of any shares, debentures, policies, or other like interests in the merged company;
• the continuation by or against the merged company of any legal proceedings pending by or against any Producer Company;
• the dissolution, without winding up, of any Producer Company:
• the provision to be made for the Members or creditors who make dissent;
• the taxes, if any, to be paid by the Producer Company;
• such incidental, consequential and supplemental matters as are necessary to secure that the division, amalgamation or merger shall be fully and effectively carried out.

9. When a resolution passed by a Producer Company under this section takes effect, the resolution shall be a sufficient conveyance to vest the assets and liabilities in the transferee.

10. The Producer Company shalt make arrangements for meeting in full or otherwise satisfying all claims of the Members and the creditors who exercise the option, within the period specified in sub-section (4), not to continue as the Member or creditor, as the case may be.

11. Where the whole of the assets and liabilities of a Producer Company are transferred to another Producer Company in accordance with the provisions of sub-section (9), or where there is merger under sub-section (2), the registration of the first mentioned Company or the merging company, as the case may be, shalt stand cancelled and that Company shall be deemed of have been dissolved and shall cease to exist forth with as a corporate body.

12. Where two or more Producer Companies are amalgamated into a new Producer Company in accordance with the provisions of sub-section (2) and the Producer Company so formed is duly registered by the Registrar, the registration of each of the amalgamating companies shall stand cancelled forthwith on such registration and each of the Companies shall thereupon cease to exist as a corporate body.

13.  Where a Producer Company divides lise If into two or more Producer Companies in accordance with the provisions of clause (b) of sub-section (1) and the new Producer Companies are registered In accordance with the provisions of this Chapter, the registration of the erstwhile Producer Company shall stand cancelled forthwith and that Company shall be deemed to have been dissolved are ceased to exist as a corporate body.

14. The amalgamation, merger or division of companies under the ongoing sub-sections shall not in any manner whatsoever affect the pre-existing rights or obligations and any legal proceedings that might have been continued or commenced by or against any erstwhile company before the amalgamation, merger or division, may be continued or commenced by, or against, the concerned resulting company, or merged company, as the case may be.

15. The Registrar shall strike oft the names of every Producer Company deemed to have been dissolved under sub-sections (11) to (14).

16. Any member or creditor or employee aggrieved by the transfer of assets, division, amalgamation or merger may, within thirty days of the passing of the resolution, prefer an appeal to the Tribunal.

17. The Tribunal shall, after giving a reasonable opportunity to the person concerned, pass such orders thereon as it may deem fit.

18. Where an appeal has been filed under sub-section (16), the transferor assets, division, amalgamation or merger of the Producer Company shall be subject to the decision of the Tribunal.

Disputes
Part X Resolution of Disputes
378Z-O.
(1) Where any dispute relating to the formation, management or business of a Producer Company arises-
(a) amongst Members, former Members or persons claiming to be Members or nominees of deceased Members; or
(b) between a Member, former Member or a person claiming to be a Member or nominee
of deceased Member and the Producer Company, its Board of Directors, office-bearers, or liquidator, past or present; or

26 of 1996
(c) between the Producer Company or its Board. and any director, office-bearer or any former director, or the nominee, heir or legal representative of any deceased director of the Producer Company, such dispute shall be settled by conciliation or by arbitration as provided under the Arbitration and Conciliation Act, 1996 as it the parties to the dispute have consented in writing for determination of such disputes by conciliation or by arbitration and the provisions of the said Act shall apply accordingly.

Exploration.-For the purposes of this section, a dispute shall Include-
(a) a claim for any debt or other amount due;

(b) a daim by surety against the principal debtor, where the Producer Company has recovered from the surety amount in respect of any debtor or other amount due to it from the principal debtor as a result of the default of the principal debtor whether such debt or amount due be admitted or not;

(c) a claim by Producer Company against a Member for failure to supply produce as required of him;

(d) a claim by a Member against the Producer Company for not taking goods supplied by him.

2. If any question arises whether the dispute relates to the Formation, management or business of the Producer Company, the question shall be referred to the arbitrator, whose decision thereon shall be final.

Strike off name of Producer Company
Part Xl Miscellaneous Provisions
378ZP.
1. Where a Producer Company fails to comment. business within one year of its registration or ceases to transact business with the Members or if the Registrar is Datisfied, after making such inquiry as he thinks fit, that the Producer Company is no longer carrying on any of its objects specified in election 768, he shall make an order striking off the name of the Producer Compare, which shall thereupon cease to exist forthwith: Provided that no such order canceling the registration as aforesaid shall be passed until a notice to show cause has been given by the Registrar to the Producer Company with a copy to all its directors on the proposed action and reasonable opportunity to represent its case has been given.

2. Where the Registrar has reasonable cause to believe that a Producer Company is not maintaining any of the mutual assistance principles specified, he shall strike its name off the register in accordance with the provisions contained in section 248.

3. Any Member of a Producer Company, who is aggrieved by an order made under subsection (1), may appeal to the Tribunal within sixty days of the order.

4. Where an appeal is filed under sub-section (3), the order of striking off the name shall not take effect until the appeal is disposed of.

Provisions of this Chapter to override laws
378ZQ. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in this Act or any other for the time other laws being in force or any instrument having effect by virtue of any such law, but the provisions of any such Act or law or r.strument in so far as the same are not varied by, or are inconsistent with, the provisions of this Chapter shall apply to the Producer Company.

Application of provisions relating to private companies
378ZF
All the limitation restrictions and provisions of this Act, other than those specified in this chapter applicable to a private company shall as far as may be apply to a producer company as if it is a private limited company under this act in so far as they are not in conflict with the provisions of this chapter.

Re-conversion of Producer Company to Inter-State co-operative society,
PART XII
Re-Conversion of Producer Company to Inter-State Co-operative Society
378ZS.
1. Any Producer Company, being an erstwhile inter-State co-operative society, formed and registered under this Chapter, may make an application-
(a) after passing a resolution in the general meeting by not less than two-thirds ot its Members present and voting; or

(b) on request by itt creditors representing three-fourths value of its total creditors, to the Tribunal for its re-conversion to the inter-State co-operative society.

2. The Tribunal shall, on the application made under sub-section (1), direct holding meeting of its Members or such creditors, as the case may be, to be conducted in such manner as it may direct.

3. If a majority in number representing three-fourths in value of the creditors, or Members, as the case may be, present and voting In person at the meeting conducted in pursuance of the directions of the Tribunal under sub-section (2), agree for re-conversion, if sanctioned by the Tribunal, be binding on all the Members and all the creditors, as the case may be, and also on the company which is. being converted:

Provided that no order sanctioning re-conversion all be made by the Tribunal un!es the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest report of the auditor on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Chapter XIV, and the like.

4. An order made by the Tribunal under sub-section (3) shall have no effect until a certified copy of the order has been filed with the Registrar.

5. A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or ¡n the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

6. If default is made in compliance with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees, for each copy in respect of which default is made.

7. The Tribunal may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against” the company on such terms as the Tribunal thinks fit until the application is finally disposed of.

8. Every Producer Company, which has been sanctioned re-conversion by the Tribunal, shall 39 of 2002. make an application under the Multi-State Co-operative Societies Act, 2002 or any other law for the time being in force for its registration as a multi-State co-operative society or co-operative society, as the case may be, within six months of sanction by the Tribunal and file a report thereof to the Tribunal and the Registrar of Companies and to the Registrar of the Co-operative Societies under which it has been registered as a multi-State co-operative society or co-operative society, as the case may be.

Power to modify Act in Its application to Producer Companies
378ZT.
(1) The Central Government may, by notification, direct that any of the provisions of this Act (other than those contained in this Chapter) specified in the said notification—

• shall not apply to the Producer Companies or any dass or category thereof; or
• shall apply to the Producer Companies or any class or category thereof with such exception or adaptation as may be specified in the notification.

2. A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses.

Power to make rules
378ZU. The Central Government may make rules for carrying out the purposes of this Chapter.’

Amendment of section 379
53. In section 379 of the principal Act, in sub-section (1), the proviso shall be omitted.

Amendment of section 392
54. In section 392 of the principal Act –

• the words “with imprisonment for a term which may extend to six months or” shall be omitted;
• for the words “five Iakh rupees, or with both”, the words “five lakh rupees” shall be substituted.

Insertion of new section 393A Exemptions under this Chapter
55. After section 393 of the principal Act, the following section shall be inserted, namely:-
“393A. The Central Government may, by notification, exempt any class of-
(a) foreign companies;
(b) companies incorporated or to be Incorporated outside India. whether the company has of has not established, or when formed may or may not establish, a place of business in India, as may be specified in the notification, from any of the provisions of this Chapter and a copy of every such notification shall, as soon as may be after it is made, be laid before
both Houses of Parliament.”.

Amendment of section 403
56. In section 403 of the principal Act, in sub-section
(1), for the third proviso, the following proviso shall be substituted, namely:-
“Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of such document, fact or information, as may be prescribed, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of such higher additional fee, as may be prescribed.”

Amendment of section 405
57. In section 405 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:—
‘(4)11 any company fails to comply with an order made under subsection (1) or sub-section (3), or furnishes any information or statistics which is incorrect or incomplete in any material respect, the company and every officer of the company who in default shall be liable to a penalty of twenty thousand rupees and in case of continuing failure, I with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a aximum of three lakh rupees.’.

Amendment of section 410

58. In section 410 of the principal Act-

• In the opening portion, the words not exceeding eleven’ shall be omitted;
• In clause (b), for the word, figures and letter “section 53N”, the word. figures and letter “section 53A’ shall be substituted.

Insertion of new section 418 A Benches of Appellate Tribunal
59. After section 4180f the principal Act, the following section shall be inserted, namely:—
“41 8A.
1. The powers of the Appellate Tribunal may be exercised by the Benches thereof to be constituted by the Chairperson:
Provided that a Bench of the Appellate Tribunal shall have at least one Judicial Member and one Technical Member.
2. The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places as the Central Government may, in consultation with the Chairperson, notify:

12 of 2003.
1 of 1956.
31 of 2016.
Provided that the Central Government may, by notification, after consultation with the Chairperson, establish such number of Benches of the Appellate Tribunal, as it may consider necessary, to hear appeals against any direction, decision, or order referred to in section 53A of the Competition Act, 2002 and under section 61 of the Insolvency and Bankruptcy Code, 2016.”

Amendment of section 435
60. In section 435 of the principal Act, in sub-section
1. for the words “offenses under this Act, by notification”, the words and figures “offenses under this Act, except under section 452, by notification” shall be substituted.

Amendment of section 441
61. In section 441 of the principal Act, for sub-section (5), the following sub-section shall be substituted, namely:-
“(5) If any officer or other employee of the company who fails to comply with any order made by the Tribunal or the Regional Director or any officer authorised by the Central Government under sub-section (4), the maximum amount of fine for the offense proposed lo be compounded under this Section shall be twice the amount provided in the corresponding section in which punishment for such offense is provided.”

Substitution of new section for section 446B Lesser penalties for certain companies
62. For section 44GB of the principal Act, the following section shall be substituted, namely:-
‘446B. Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is h default or any other person, as the case may be.

Explanation.-For the purposes of this section,-
(a) ‘Producer Company” means a company as defined in clause (I) of section 378A;
1 of 1956
(b) “start-up company’ means a private company incorporated under this Act or under the Companies Act, 1956 and recognized as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.

Amendment of section 450.
63. In section 450 of the principal Act, for the words “punishable with fine which may extend to ten thousand species, and whore the contravention is continuing one. with a further fine which may extend to one the us and rupees for every day after the first during which the contravention continues”, the words ‘liable to a penalty of ten thousand rupees, and in
case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in caso of an officer who is in default or any other person shall be substituted.

Amendment of section 452
64. In section of the principal Act, in sub-section section 452 (2). the following proviso shall be inserted, namely:-
Provided that the imprisonment of such officer or employee, as the case may be, shall not be ordered for wrongful possession or withholding of 1923 a dwelling unit, if the court is satisfied that the company has not paid to that officer or employee. as the case may be, any amount relating to-

19 of 1923

• provident fund, pension fund, gratuity fund or any other fund for the welfare of its officers or employees, maintained by the company;
• compensation or liability for compensation under the Workmen’s Compensation Act, 1923 in respect of death or disablement.”

Amendment of section 454

65. In section 454 of the principal Act, in sub-section (3). the following proviso shall be inserted, namely:—
“Provided that in case the default relates to non-compliance of sub-section (4) of section 92 or sub-section (1) or sub-section (2) of section 137 and such default has been rectified either prior to or within thirty days of, the issue of the notice by the adjudicating officer, no penalty shall be imposed in this regard and all proceedings under this section in respect of such default shall be deemed to be concluded.”

Amendment of section 465
66. In section 465 of the principal Act, in sub-section (1),-

• the first proviso shall be omitted;
• In the second proviso, for the words ‘Provided further that”, the words “Provided that” shall be substituted;
• In the third proviso, for the words “Provided also that”, the words “Provided further that” shall be substituted.

Declaration and Payment of Dividend – CA Inter Law Question Bank is designed strictly as per the latest syllabus and exam pattern.

Declaration and Payment of Dividend – CA Inter Law Question Bank

Question 1.
Examine the validity of the resolution passed at the annual general meeting of a public company for payment of dividend at a rate higher than that recommended by the board of directors. Is it possible for the board of directors of the company to revoke the dividend declared at the annual general meeting? (Nov 2008, 5 marks)
Answer:
Payment of Dividend at a Higher Rate:
As per Regulation 80 of Table F of the Companies Act, 2013, a company in General meeting may declare dividends, but no dividend shall exceed the amount recommended by the Board of the company. The shareholders at an AGM may reduce the amount of dividend recommended by the Board, but they cannot increase it. Hence, the resolution passed at the AGM for payment of dividend at a rate higher than that recommended by the Board is not valid.

Revocation of Declared Dividend:
Ordinarily, a dividend once declared at AGM, cannot be revoked, except, with the consent of the shareholders, for a declaration of dividend creates a debt to the shareholders in whose favour it is declared. If a dividend is declared and the amount is paid or credited to the shareholders as dividend, the character c the credit or payment as dividend cannot be altered by a subsequent resolution IKishancharid chellavam vs. CIT]

Exception: But where a dividend has been illegally declared due to events intervening- after the declaration, such as fire destroying the company’s property, or the outbreak of a war, or the imposition of new heavy tax burden or other causes diminishing the assets of the company makes it advisable to conserve the remaining assets the BOD will be justified in revoking the declaration of dividend as directed by the court.

Question 2.
The Board of Directors of MIs RPP Ltd. in a meeting held on 29 May, 2009 declared an interim dividend payable on the paid-up equity share capital of the company. In the board meeting scheduled for 10 June, 2009, the board wants to revoke the said declaration. State with reference to the provisions of the Companies Act, 2013 whether the board of directors can do so. (May 2009, May 2012, 5 marks)
Answer:
Revocation of Interim Dividend
Final dividend is paid only after it is approved in the AGM. Interim dividend is usually paid in the middle of the year if GOD find that the profitability of the company s good and is likely to be maintained for the balance part of the year, or there is adequate surplus profit and toss account.

Usually, interim dividend is announced when major part of current financial year (say at least 8-9 months or so) is over and trends in profitability are good. Board can declare Interim Dividend out of profits [Sec. 123(3) of the Companies (Amendment) Act, 2017.

The Board of Directors of a company may declare Interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding tho date of declaration of the interim dividend:

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years.

Subject to the provisions of Sec. 123 of the Companies Act, 2013, the Board may rom time to time pay to the members such interim dividends as appear to it to be justified by the profits of the company IClause 81 of Model Articles of company limited by shares as contained in Table-F of Schedule I of the 2013 Act].

Thus, BOD can declare dividend out of surplus in Statement of Profit and Loss Account at the beginning of the year or profit during the current financial year after following provision of Companies Act, 2013.

Legal Provisions Applicable to Interim Dividend According to Sec. 2(35) dividend includes Interim Dividend. All provisions relating to dividend equally apply to interim dividend also. Provisions regarding depositing amount in separate bank account, payment within thirty days. transfer of unpaid dividend to special account, interest for late payments, transfer to Investor Protection Fund after seven years, penalty for non-payment etc. will obviously apply to interim dividend also.

In case of listed companies, if shares are in demat form, fifteen days advance notice is required to be given to stock exchange for fixing ‘record date’. If shares are not in demat form, twenty-one days notice is required.

Present Case:
In view of the above Legal Provisions, the Board of RPP Ltd. must deposit the amount of interim dividend declared on 29th May 2009 into a separate Bank A/c on or before 3 June 2009, i.e., within five days from 29 May 2009 the day when interim dividend was declared. As stated above, the amount once deposited into a separate Bank A/c, can be used only for
payment of interim dividend.

As per the provisions of Companies Act, 2013, the Board of APP Ltd. has no power to revoke the interim dividend declared on 29th May, 2009 and shall not have any power to use the interim dividend amount transferred to a separate Bank A/c for any other purpose. In case if the interim dividend amount has not been transferred to a separate Bank A/c and is not paid within the time, the company and its directors will become liable to the applicable penal provisions of the said Act.

Question 3.
A Public Company has been declaring dividends at the rate of 20% on equity shares during the last 5 years. The Company has not made adequate profits during the year ended 31st’ March 2009, but it has got adequate reserves which can be utilized for maintaining the rate of dividend at 20%. Advise the Company as to how it should go about it wants to declare dividends at the rate of 20% for the year 2008-2009.

Would your answer be different if the company utilised only the profits made in the previous years and retained in the profit and loss account for the purpose of payment of dividends at the rate of 20% for the year 2008-2009? (Nov 2009, 5 marks)
OR
CBA Ltd. wants to declare dividend in the year 2013-14 though it will not earn any profit this year due to heavy losses. The company has been declaring dividend for the last 5 years. To maintain its reputation the company wants to declare dividend this year too out of accumulated past profits. Explain how the company can achieve the objective to declare dividend. (May 2014, 5 marks)
OR
PET Ltd., incurred loss in business up to current quarter of financial year 2017-18. The company has declared dividend at the rate of 12%, 15%, and 18% respectively in the immediate preceding three years. Inspite of the loss, the Board of Directors of the company have decided to declare interim dividend @ 15% for the current financial year. Examine the decision of PET Ltd. stating the provisions of declaration of interim dividend under the Companies Act, 2013. (May 2018, 4 marks)
Answer:
Declaration of Interim Dividend:
According to Set. 123(3) of the Companies (Amendment) Act, 2017, the Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend:

Provided that in case the company has incurred loss during the current financial year up the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years.”

Present Case:
Average rate of dividend of preceding three financial year = \(\frac{12+15+18}{3} \) = 15%
Thus, the decision of BOD to debate interim dividends at the rate of fifteen percent is as per the permissible limit. So, the BOD can do so.

Question 4.
X & Co. Ltd. made a loss of 20 Iakhs after providing for depreciation for the year ended 31st March. 2009 and as a result the company was not a position to declare any dividend for the said year out of profits. However, the Board of Directors of the company announced the declaration of dividend of 15% on the equity shares payable out of free reserves. The paid-up share capital of the company and its free reserves as on 31st March, 2009 are 2 crores and 10 crores respectively. The average
dividend declared by the Company in the last five years is 25%. Examine the validity of declaration of dividend. (May 2010, 5 marks)
Answer:
Declaration of Dividend out of Reserve
Please refer 2009 – Nov (1) (b) on page no. 334

Present Case
Rate of Dividend declared = 15%
Rate of Dividend declared in the last 3 years = 25%
Paid-up share capital + Free Reserve = 12 Cr.
Total amount that can be withdrawn from accumulated profit = \( \frac{1}{10}^{\text {th }}\) of 12 Cr. = 12 Cr.
Since 15% is less than 25% company can declare dividend of 15%.

Question 5.
The agenda for the meeting of the Board of Directors of M/s. Brilliant Enterprises Ltd. held on 20-3-2011 for adopting the annual accounts for the year ended 31-12-2010 included an item relating to payment of dividends. At the meeting, it became apparent that the profits made during the year ended 31-12-2010 were inadequate to declare dividend.

The Board was keen to maintain the rate of 20% dividend on the equity shares as declared in the previous years so as to maintain the image of the company. The company has some accumulated profits earned in previous years, which were transferred to reserves. Advise the company as to how it should go about to achi9ve the objective to pay dividend at the rate of 20% on the equity shares. (May 2011, 5 marks)
Answer:
Declaration of Dividend Out of Reserve
Please refer 2009 – Nov (1] (b) on page no. 334
Present Case
Rate of Dividend to be declared = 20%
Thus: Company can declare a dividend at the rate of twenty percent provided it has followed the provisions mentioned above.

Question 6.
The Board of Directors of Nimbahera Chemicals Limited proposes to transfer more than 10% of the profits of the company to the reserves fer the current year. Advise the Board of Directors of the said company explaining the relevant provisions of the Companies Ac, 2013 and the rules thereunder. (Nov 2012, 5 marks)
Answer:
Transfer to Reserves
As per 2d Proviso to Sec. 123(1) of Act, 2013, a company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company.

Therefore, the company may transfer such percentage of profit to reserves before declaration of dividend as it may consider necessary. Such transfer is not mandatory and the percentage to be transferred to reserves is to be decided at the discretion of the company.

Present case:
The Board of Directors of Nimbahera Chemicals Limited propose to transfer more than ten percent of the profits of the company to the reserves for the current year. Thus in light of above provisions the BOD of Nimbahera Chemicals may transfer more than ten percent of the profits of the company to the reserves for the current year provided they satisfy the applicable conditions mentioned above.

Question 7.
Referring to the provisions of the Companies Act, 2013, examine the validity of the following:
The Board of Directors of ABC Limited proposes to declare dividend at the rate of 20% to the equity shareholders, despite the fact that the company has defaulted in repayment of public deposits accepted before the commencement of this Act. (May 2015, 3 marks)
Answer:
Prohibition on Declaration of Dividend
Provision:
The Companies Act. 2013, by virtue of Sec. 123(6) specifically provides that a company which fails to comply with the provisions of Sec. 73 (Prohibition on acceptance of deposits from public) and Sec. 74 (Repayment of deposits etc.. accepted before the commencement of this Act) shall not, so long as such failure continues, declare any dividend on its equity shares.

Present Case:
In the given case, the BOD of ABC Limited proposes to declare dividend at the rate of twenty percent to the equity shareholders, despite the fact that the company has defaulted in repayment of public deposits accepted before the commencement of Companies Act, 2013. As per the above provision, the BOD of ABC Limited shall not declare any dividend on its equity shares. The declaration of dividend is thus not valid.

Question 8.
WL Limited s facing loss in business during the current financial year 2015-16. In the immediate preceding three financial years. the company had declared dividend at the rate of 8%, 10% and 12% respectively. To maintain the goodwill of the company, the Board of Directors has decided to declare 12% interim dividend tor the current financial year. Examine the applicable provisions of the Companies Act, 2013 and state whether the Board of Directors can do so? (May 2015, 3 marks)
Answer:
Declaration of Interim Dividend:
According to Section 123(3) of the Companies Amendment Act, 2017, the Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend;

Provided that in case the company has incurred loss during the current financial year up to the end of the quarter Immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividend declared by the company during immediately preceding three manual year. Declaration of dividend out of Accumulated Profit Please refer 2009 – Nov (1) (b) on page no. 334

Present Case:
As per the above provision, WL Limited can declare maximum interim dividend as follows:
Average rato of dividend of preceding three financial year
= \( \frac{8 \%+10 \%+12 \%}{3}\)
= 10%
The BOD has decided to declare twelve percent interim dividend for the current financial year which is more than maximum permissible limit. So, the BOD cannot do so.

Question 9.
The Directors of Some Limited proposed dividend at 12% on equity shares for the financial year 15-16. The same was approved in the annual general meeting of the company held on 20th September 2016. The Directors declared the recovered dividends. They seek your opinion on the following matter: Ms. Nini was the holder of 1000 equity shares On 31st March 2016, but she has transferred the shares to Mr. Raj, whose name has been registered on 20” May. 2016. Who will be entitled to the above dividend? (Nov 2016, 2 marks)
Provision:
As per Sec. 123(5), dividend shall be payable only to the registered shareholder of the share or to his order or to his banker. As per Sec. 126, where the shares has been transferred by the one holder to another holder then if share transferred before payment of dividend then it shall not be treated as pending transfer of shares and transferee would be entitled to receive the amount of dividend.

Present Case: In the present case, Ms. Nini who has transferred one thousand equity shares on 31st March 2016 to Mr. Raj but transfer has been registered on name of Mr. Raj as on 20th May. 2016. The dividend is declared by the company on 20th September 2016. So while declaration of dividend there is no transfer of shares pending against the company so that as on 20th September 2016, Mr. Raj is entitled to receive amount of dividend.

Question 10.
During the financial year 2016-17, Universal Limited declared an interim dividend for the second time. After declaration, the Board of Directors decided to revoke the second interim dividend as its financial position was poor, to accommodate the said interim dividend.
(i) Examine the validity of the Board’s decision under the provisions of the Companies Act, 2013. (Nov 2017, 2 marks)
Answer:
Provision:
As per Sec. 2(35), of the Companies Act, 2013, dividend includes any interim dividend. Therefore, all the provisions applicable to final dividend shall equally apply to interim dividend. Thus, interim dividend once declared, is able to company and cannot be revoked.

Present Case:
In this case, Univeral Limited declared interim dividend second time during the financial year 2016-17. After declaration BOO decided to revoke the second interim dividend as its financial position was poor, to accommodate the said interim dividend. But, as a general rule BOD of Universal Limited cannot revoke dividend after declaration. However, if it is proved that dividend was declared ultra virus as stated above the company may revoke declared dividend.

Question 11.
During the financial year 2016-17, Universal Limited declared an interim dividend for the second time. After declaration, the Board of Directors decided to revoke the second interim dividend as its financial position was poor, to accommodate the said interim dividend.
(ii) What will be your answer, if the Board proposes to transfer more than 10% of the profits ot the company to the reserves for the current year before the declaration of any dividend? (Nov 2017, 2 marks)
Answer:
Provision:
As per 2nd Proviso to Sec. 123(1), company at its own discretion may transfer certain amount or percentage of profit to reserves as it may deemed necessary.

Present Case:
So, here, BOD of Universal Limited can validly transfer more than 10% of the profits of the company to the reserves for the current year before the declaration of any dividend as per Sec. 123(1).

Question 12.
Alpha Ltd., A Section 8 company is planning to declare dividends in the Annual General Meeting for the Financial Year ended 31-03-2018. Mr. Chopra is holding 800 equity shares as on date. State whether the act of the company is according to the provisions of the Companies Act, 2013. (May 2018, 2 marks)
Answer:
Provision
According to Sec. 8(1)01 the Companies Act, 2013, Sec. 8 companies are prohibited from paying any dividend to its members. Their profits are intended to be applied only in promoting the objectives of the company.

Present Case:
Alpha Ltd., a Sec. 8 company is planning to declare dividend in AGM. Thus, as per Sec. 8(1), Alpha Ltd. cannot declare dividend.

Question 13.
YZ Ltd. is a manufacturing company and has proposed a dividend @ 10% for the year 201 7-18 out of the current year profits. The company has earned a profit of? 910 crores during 2017-18. YZ Ltd. does not intend to transfer any amount to the general reserves of the company out of current year profit. Is YZ Ltd. allowed to do so? Comment. (Nov 2018, 3 marks)
Answer:
Transfer to Reserve [Sec. 123]:
A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company. The amount to be transferred to reserves out of profits for a financial year has been left at the discretion of the company acting vide its Board of Directors.

The company is free to transfer any part of its profits to reserves as it deems fit. There is no restriction to transfer any specific amount (i.e. even no amount can be transferred) to the reserves before declaration of dividend.

Present Case:
YZ Limited has earned a profit of 910 crores for the financial year 2017-18. It has proposed a dividend @ 10%. However, it does not intend to transfer any amount to the reserves of the company out of current year profit. As per the provisions stated above, the amount to be transferred to reserves out of profits for a financial year is at the discretion of the YZ Ltd. acting vide its Board of Directors.

Question 14.
(i) Alex Limited is facing loss in business during the financial year 2018- 19. In the immediate preceding three financial years, the company had declared dividends at the rate of 7%, 11%, and 12% respectively. The Board of Directors has decided to declare 12% interim dividend for the current financial year at least to be in par with the immediately preceding year. Is the Act of the Board of Directors valid? (3 marks)

(ii) The Directors of East West Limited proposed dividend at 15% on equity shares for the financial year 2017-2018. The same was approved in the Annual general body meeting held on 24th October 2018. The Directors declared the approved dividends. Mr. Binoy was the holder of 2000 equity of shares on 31st March 2018, but he transferred the shares to Mr. Mohan, whose name has been registered on 18th June 2018. Who will be entitled to the above dividend? (May 2019,2 marks)
Answer:
(i) Provision:
According to Section 123(3) of the Companies Act, 2013, the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit & loss account and out of prots of the financial year in which such interim dividend is sought to be declared.

However, in case the company has incurred loss during the current financial year upto the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding 3 financial years.

Present Case:
In this case, Alex Ltd. which is facing loss in financial year 2018-19. The average rate of dividend for immediately 3 preceding financial yearis 10% (7+11 + 12/3 = 30/3).
Therefore, the decision of the Board of Directors to declare 12% interim dividend for the current financial year ¡s not tenable. They can declare a maximum 10% interim dividend.

(ii) According to Sec. 123(5), dividend shall be payable only to the registered shareholder of the share or to his order or to his banker.

Present Case:
Facts in the given case state that Mr. Binoy, the holder of equity shares transferred the snares to Mr. Mohan whose name has been registered on 18 June, 2018. Since he became the registered shareholder before the declaration of the dividend in the annual general meeting of he company held on 24th October, 2018, So Mr. Mohan will be entitled to the dividend.

According to Section 123(3), the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of the profits of the financial year in which such interim dividend is sought to be declared.

However, in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company dunny the immediately preceding 3 financial years.

Question 15.
Sun Light Limited was incorporated on 22 January 2019 with the objects of providing software services. The Company adopted its first financial year as from 22 January 2019 to 31st March 2020. The financial statement for the said period, after providing for depreciation in accordance with Schedule II of the Companies Act, 2013 revealed net profit. The Board of Directors declared 20% interim dividend at their meeting held on 7 July 2020, before holding its first Annual General Meeting. In the light of the provisions of the Companies Act, 2013 and Rules made thereunder:
(i) Whether the Company has complied due diligence in declaring interim dividend?
(ii) Whether the Company can declare dividend in case it was registered under Section 8 of the Companies Act, 2013?
(iii) What are the penal consequences in case of failure to pay the interim dividend? (Nov 2020, 4 marks)

Question 16.
AB Limited is a public company having its registered office in Coimbatore. The company has incurred a net loss of 20 lakhs in the Financial Year (FY) 201 9-20. The Board of Directors (BOD) wants to declare dividends for The FY 2019-20. The balances of the company as per the latest audited financial statement are as follows:
1. Equity Share Capital ( ₹ 10 each) – 100 lakhs
2. General Resérve – 150 lakhs
3. Debenture redemption Reserve – 50 lakhs

The company has not declared any dividend in the preceding three financial years. Decide whether AB Limited is allowed to declare dividend or not for the EV 2019-20 by explaining the relevant provisions of the Companies Act in this regard. if allowed to declare dividend then state the maximum amount of dividend that can be paid by AB Limited as per the Section 123 of Companies Act 2013. (Nov 2020, 2+2=4marks)

Question 17.
Supreme Ltd. declared dividend @ 10% on its lo lakhs equity shares of ₹ 10 each on 30th September 2016. The dividend warrants were despatched to all the shareholders except three shareholders, holding in total 50,000 shares, due to dispute regarding title over the shares pending in court. On ascertaining the position on 30th October, 2016, it was observed that dividend warrants for ₹ 1.50 lakhs were not encashed by the remaining shareholders. Explain, with reference to provisions of the Companies Act, 2013, the actions to be taken by the company to deal with the unpaid/unclaimed amount of dividend. Also state the consequences if default is done ¡n this matter. (May 2017, 8 marks)
Answer:
Unpaid Dividend Account [Sec. 124 of the Companies Act, 2013]
1. Where a dividend has been declared by a company but has not been paid or claimed within thirty deys from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.

2. The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.

3. It any default ¡s made in transferring the total amount referred to in sub-Section (1) or any part thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve percent. per annum and the interest accruing on such
amount shall enure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.

4. Any person claiming to be entitled to any money transferred under subsection (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.

5. Any money transferred to the Unpaid Dividend Account of a company in pursuance of this Section which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund established under sub-section (1) of Sec. 125 and the company shall send a statement in the prescribed form DIV 5 of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer.

6. All shares in respect of which dividend has not been paid or daimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed.

Provided that any dormant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as is prescribed under Rule 6 of Investor Education and Protection Fund Authority (Accounting, Audit. Transfer and Refund) Rules, 2016.

Explanation:
For the removal of doubts it is hereby clarified that in case any dividend is paid or claimed for any year during the said period of seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund.

7. If a company fails to comply with any of the requirements of this section. such company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum of ten lakh rupees and every officer of the company who is In default shall be liable lo a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.

Question 18.
Komal Ltd. declares a dividend for its shareholdèrs in its AGM held on 27th September 2018. Referring to provisions of the General Clauses Act, 1897 and Companies Act, 2013, advice:
(i) The dates during which Komal Ltd. is required to pay the dividend?
(ii) The dates during which Komal Ltd. is required to transfer the unpaid unclaimed dividend to unpaid dividend account? (Nov 2018, 4 marks)
Answer:
Provisions:
Unpaid Dividend Account [Sec. 124 of the Companies Act, 2013] Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.

As per Sec. 9 of the General Clauses Act, 1897, for computation of time, the section states that in any legislation or regulation, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time to use the word trom” and for the purpose of including the last in a series of days or any other period of time, to use the word to”.

Present Case:
Komal Ltd. declares a dividend for Is shareholders in its AGM held on 27th September 2018. Thus, as per provisions of the General Clauses Act, 1897, while calculating 30 days from the date of declaration of dividend, date on which AGM is held is excluded and last 30th day shall be Included.

As per above provisions of the Companies Act, 2013 & the General Clauses Act, 1897, Komal Ltd. shall be advised as follows:
(i) AGM of Komal Ltd. is held on 27th September 2018, in which it has declared dividend. The company is required to pay declared dividend within 30 days from date of declaration i.e. from 28th September 2018 to 27th October 2018. In this series of 30 days, 27th September 2018 will be excluded and last 30’ day i.e. 27th October, 2018 will be included. Accordingly, Komal Ltd. shall be required to pay dividends within 28th September 2018 and 27th October 2018 (both days inclusive)

(ii) if declared dividend remains unpaid or unclaimed for 30 days as above. it shall within 7 days from the date of expiry of said period of 30 days transferred to unpaid Dividend Account. So the amount of unpaid or unclaimed dividend shall be required to be transferred to Unpaid Dividend Account within 28 October 2018 to 3rd November 2018 (Both days inclusive).

Question 19.
Mr. R, holder of 1000 equity shares of lo each of AB Ltd. approached the Company in the last week of September 2019 with a claim for the payment of dividend of 2000 declared @ 20% by the Company at its Annual General Meeting held on 31.08.2011 with respect to the financial year 2010-11. The Company refused to accept the request of R and informed him that his shares on which dividend has not been claimed till date, have also been transferred to the Investor Education And Protection Fund. Examine, in the light of the provisions of the Companies Act, 2013, the validity of the decision of the Company and suggest the remedy, if available, to her for obtaining the unclaimed amount of dividend and re-transfer of corresponding shares in his name. (Jan 2021, 5 marks)

Question 20.
M/s. USA Industries Limited has constituted Investor Education and Protection Fund as required under the Companies Act, 1356 but solar no amounts have been deposited into the said account. Explain with reference to the above-said enactment, the amounts payable to the credit of the said account and the period within which the amounts shall be paid. (Nov 2011, 5 marks)
Answer:
As Per Sec. 125(1) of Companies Act. 2013 CentraI Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).
As per Sec. 125(2) There shall be credited to the Fund:
(a) the amount given by the Central Government by way of grants after due appropriation made by Parliament bylaw in this behalf for being utilised for the purposes of the Fund;
(b) donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;
(c) the amount in the Unpaid Dividend Account of companies transferred to the Fund under su-sectjon(5) of section 124;
(d) the amount in the general revenue account of the Central Government which had been transferred to that account under sub-section (5) of Section 205A of the Companies Act, 1956. as it stood immediately before the commencement of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the commencement of this Act;
(e) the amount tying in the Investor Education and Protection Fund under section 205C of the Companies Act. 1956;
(f) the interest or other income received out of investments made from the Fund;
(g) the amount received under sub.section (4) of Section 38;
(h) the application money received by companies for allotment of any securities and due for refund;
(i) matured deposits with companies other than banking companies;
(j) matured debentures with companies;
(k) interest accrued on the amounts referred to in clauses (h) to (j);
(l) sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more years;
(m) redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and
(n) such other amount as may be prescribed:
Provided that no such amount referred to in clause (h) to (j) shall term part of the Fund unless such amount has remained unclaimed and for period of seven years from the date it became clue for payment.

Question 21.
The Annual General Meeting of ABC Limited declared a dividend at the rate of 30 percent payable on paid-up equity share capital of the Company as recommended by Board of Directors on 30th April. 2013. But the Company was unable to post the dividend warrant. Mr. Ranjan, an equity shareholder of the Company, up to 30th June 2013. Mr. Ranjan filed a suit against the Company for the payment of dividends along with interest at the rate of 20 percent per annum for default period. Decide in the light of provisions of the Companies Act, 2013, whether Mr. Ranjan would succeed? Also state the directors’ liability in this regard under the Act. (Nov 2013, 5 marks)
Answer:
Provisions relating to Time Limit for payment of Dividend and Punishment for failure to distribute dividends According to Sec, 127 of the Companies Act, 2013, where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director o the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen percent per annum during the period for which such default continues.

However, the following ar the exceptions under which no offense shall be deemed to have been committed.
(a) Where the dividend could not be paid by reason of the operation of any raw.
(b) Where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him.
(c) Where there is a dispute regarding the right to receive the dividend.
(d) Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder. or
(e) Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not dueto any default on the part of the company.

Present Case:
Mr. Ranjan’s Right
The company was unable to post dividend warrant within thirty days of declaration. Thus as per Sec. 127 of the Companies Act, 2013, Mr. Ranjan can file a suit against the company for payment of dividend. But he would he entitled to dividend along with simple interest at the rate of eighteen percent and not twenty percent for the default period.

Directors Liability
Every director of the company, if he is knowingly a party to the default, punishable with imprisonment for term which may extend to two years and also to a fine of one thousand rupees for every day during which such default continues.

Question 22.
Star Ltd. declared and paid dividend in time to all its equity holders for the financial year 2014-15, except in the following case:
Mrs. Sheela, holding 250 shares had mandated the company to directly deposit the dividend amount In her bank account, The company accordingly remitted the dividend but the bank returned the payment on the ground that there was difference in surname of the payee in the bank records. The company, however, did not inform Mrs. Sheela about this discrepancy.
You are required to analyse this case with reference to provisions of the Companies Act, 2013 regarding failure to distribute dividends. (2015 – Nov 4 marks)
OR
PQ Ltd. declared and paid 10% dividend to all its shareholders except Mr. Kumar, holding 500 equity shares, who instructed the company to deposit the dividend amount directly In his bank account. The company accordingly remitted the dividend, but the bank returned the payment on the ground that the account number as given by Mr. Kumar doesn’t tally with the records of the bank. The company, however, did not inform Mr. Kumar about this discrepancy. Comment on this issue with reference to the provisions of the Companies Act, 2013 regarding failure to distribute dividend. (May 2019, 2 marks)
Answer:
Provision:
Sec. 127 of the Companies Act, 2013 provides for punishment for failure to distribute dividends on time. One of such situation is where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has not been communicated to her.

Present Case:
In the given case, the company has failed to communicate to the shareholders Mrs. Sheela about non-compliance of her direction regarding payment of dividends. Hence, the penal provisions under Section 127 will be applicable.

Question 23.
Star Ltd. declared and paid dividend in time to all its equity holders for the financial year 2014-15. except in the following case:
(ii) Dividend amount of 50.000 was not paid to Mr. Mohan, deceased, in view of court order restraining the payment due to family dispute about succession. You are required to analyse this case with reference to provisions of the Companies Act. 2013 regarding failure to distribute dividends. (Nov 2015, 4 marks)
Answer:
Provision:
Sec. 127, inter-alla, provides that no offence shall be deemed to have been committed where the dividend could not be paid by reason of operation of law as well as due to existence of dispute regarding the right to receive dividend.

Present Case:
In the present case, the dividend could not be paid because it was not allowed to be paid by the court until the matter was resolved about succession. Hence, there will not be any liability on the company and its Directors etc.

Question 24.
The Directors of Som Limited proposed dividend at 12% on equity shares for the financial year 2015-16. The same was approved in the annual general meeting of the company held on 20th September 2016. The Directors declared the approved dividends. They seek your opinion on the following matter:
Mr. Ashok, holding equity shares of face value of ₹ 10 lakhs has not paid an amount of ₹ 1 lakh towards call money on shares. Can the same be adjusted against the dividend amount payable to him? (Nov 2016, 2 marks)
Answer:
Proviskn:
As per Sec. 127 of the Companies Act, 2013, the dividend shall be paid within thirty days from the date of declaration. In case where the dividend warrant is posted by the company within thirty days of declaration of dividend, it is considered to be a sufficient compliance of Sec. 127. As per Sec. 127, where dividend is lawfully adjusted by the company against any sum due to it from the shareholder then no default is deemed to have been committed by the company.

Present Case:
The directors of Som Ltd. wants to adjust dividend declared at twelve percent on equity shares for the financial year 2015-16 in case of Mr. Ashok who has not paid an amount of one lakh rupees towards call on shares. So that as per Sec. 127 directors can validity adjust any sum due to it by shareholders from amount of dividend. Here, company can adjust the dividend amount payable to Mr. Ashok against his pending due.

Question 25.
Karan was holding 5000 equity shares of loo eact of M/s. Future Ltd. A final call of ₹ 10 per share was not paid by Karan. M/s. Future Ltd. declared dividend of 10%. Examine with reference to relevant provisions of the Companies Act, 2013, the amount of dividend Karan should receive. (Nov 2018, 3 marks)
Answer:
As per Sec. 127 of the Companies Act, 2013, where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years.

However, where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder, no offence shall be deemed to have been committed. [Provision to Sec. 127]

Present Case:
In this case, Karan, one of the shareholders of MIs. Future Ltd. has not paid a final call of ₹ 20 per share of ₹ 5,000 equity shares. The company has declared dividend of 10%. So, the dividend payable to Karan is ₹ 50,000 and call amount to be receivable from Karan is also ₹ 50,000. So as per above provisions, the company can lawfully adjust amount due from Karan and it is not deemed to be default. As per above provisions, Karan shall not receive any amount of dividend.

Multiple Choice Question

Question 1.
Section …………………….. of Companies Act, 2013, simply states that dividend” includes any interim dividend
(a) 2(35)
(b) 2(37)
(c) 2(25)
(d) 2(45)
Answer:
(a) 2(35)

Question 2.
The dividend declared between two annual general meetings is called as
(a) Final dividend
(b) Interim dividend
Answer:
(b) Interim dividend

Question 3.
According to which section of Companies Act, 2013, the preference shareholders are assured of a preferential dividend at a fixed rate during the life of the company.
(a) Section 41
(b) Section 42
(c) Section 43
(d) Section 47
Answer:
(c) Section 43

Question 4.
Which type of shareholders enjoy preferential dividends at a fixed rate during the life of the company?
(a) Equity shareholders
(b) Redeemable shareholders
(c) Preference shareholders
(d) None of the above
Answer:
(c) Preference shareholders

Question 5.
Dividend is payable to these preference shareholders even out of future profits if current year’s profits are insufficient Which type of preference shareholder is this?
(a) Redeemable preference shareholders
(b) Non-redeemable preference shareholders
(c) Cumulative Preference shareholders
(d) Noncumulative preference shareholders.
Answer:
(c) Cumulative Preference shareholders

Question 6.
Rate of dividend on equity shares is decided by:
(a) Board of Directors (B.O.D.)
(b) Chief Executive Officer (C.E.O.)
(c) Promoters
(d) Chief Financial Officer (C.F.O.)
Answer:
(a) Board of Directors (B.O.D.)

Question 7.
Section 123 of Companies Act, 2013 Includes
(a) Re-opening of accounts on court’s order
(b) Declaration of dividend
(c) Maintenance and inspection of documents in electronic form
(d) Unpaid dividend Account
Answer:
(b) Declaration of dividend

Question 8.
Declaration of dividend is stated under which section of Companies Act, 2013?
(a) Section 122
(b) Section 123
(c) Section 124
(d) Section 125
Answer:
(b) Section 123

Question 9.
Dividends shall be declared or paid by a company for any financial year only:
(a) out of profits of the company for that year. after providing for depreciation in accordance with provisions of Section 123(2).
(b) out of profits of the company for any previous financial year, after providing for depreciation in accordance with the provisions.
(c) out of money provided by Central Government or State Government
(d) out of a, b, and c, as the case may be
(e) None of the above.
Answer:
(d) out of a, b, and c, as the case may be

Question 10.
Before the declaration of any dividend in any financial year, a company may transfer some portion of its profits for that financial year to the ……………….. of the company.
(a) Reserves
(b) Capital fund
(c) Provisions
(d) Profit and Loss Account
Answer:
(a) Reserves

Question 11.
Transfer of some percent of the profits of a company to the reserve is mandatory
(a) True
(b) False
(c) Partly true
(d) None of the above
Answer:
(b) False

Question 12.
The provision of dividends out of accumulated profits shall not apply to a:
(a) Private Company
(b) Government company
(c) Both (a) and (b)
(d) None of the above.
Answer:
(b) Government company

Question 13.
If there is loss, Rate of interim Dividend ≤ \(\frac{R D_1+\mathrm{RD}_2+\mathrm{RD}_3}{3}\) Where, RD₁, RD₂, RD₃ are:
(a) the rates that the company is thinking of declaring
(b) the rates at which dividend was declared in any random 3 financial years.
(c) the rates at which dividend was declared by it in the 3 years immediately preceding the year of loss
(d) None of the above
Answer:
(c) the rates at which dividend was declared by it in the 3 years immediately preceding the year of loss

Question 14.
To declare any dividend on equity shares, the company shall comply with the provisions of
(a) Sections 120 and 121
(b) Section 130
(c) Section 124
(d) Sections 73 and 74
Answer:
(d) Sections 73 and 74

Question 15.
Companies having license under Section …………………….. of the act are prohibited from paying any dividend
(a) Section 2
(b) Section 8
(c) Section 12
(d) Section 18
Answer:
(b) Section 8

Question 16.
When the dividend is declared and not paid within 30 days from the date of declaration to any shareholder, then the company within 7 days, after 30 days, shall transfer total amount to:
(a) Scheduled Bank Account
(b) Unpaid Dividend Account
(c) Personal Account
(d) Capital Account
Answer:
(b) Unpaid Dividend Account

Question 17.
Statement of particulars of the unpaid dividend is prepared within a period of
(a) 30 days of declaration
(b) 7 days after expiry of 30 days of declaration
(c) 90 days of transfer of amount to unpaid dividend account
(d) 18 days.
Answer:
(c) 90 days of transfer of amount to unpaid dividend account

Question 18.
If the money transferred to Unpaid dividend account remains unpaid for a period of 7 years. it shall be transferred to:
(a) Invested Educational Protection, Fund
(b) Provident Fund
(c) Reserve
(d) Remain in unpaid dividend Account.
Answer:
(a) Invested Educational Protection, Fund

Question 19.
In case any dividend is paid or claimed for any year during the said period of 7 consecutive years, the share shall not be transferred to Investor Education and Protection Fund. Is this statement true?
(a) Yes
(b) No
(c) Note sure
(d) None of the above
Answer:
(a) Yes

Question 20.
In case of contravention, company shall be punishable with fine of :
(a) 1 lakh
(b) 1 Iakh to 5 lakhs
(c) 15 lakhs to 40 lakhs
(d) 10 Iakhs to 1 crore.
Answer:
(a) 1 lakh

Question 21.
Which fund is utilized for refund of unpaid and unclaimed amounts, promotion of investors’ awareness, and protection of the interests of investors?
(a) Protection Fund
(b) Investor Education and Protection Fund
(c) Specialty Funds
(d) Index fund
Answer:
(b) Investor Education and Protection Fund

Question 22.
Investor Education and Protection Fund is under section ……………….. .
(a) 122
(b) 140
(c) 128
(d) 125
Answer:
(d) 125

Question 23.
Who establishes IEP Fund?
(a) Board of Directors
(b) Promoters
(c) Central Government
(d) Provincial Government
Answer:
(c) Central Government

Question 24.
Authority for administration of fund constitutes:
(a) Chairperson, 7 members, 1 chief executive
(b) A chairperson, 8 members
(c) 1 chief executive, and a chairperson
(d) None of the above.
Answer:
(a) Chairperson, 7 members, 1 chief executive

Question 25.
Fund is audited by:
(a) Internal auditor
(b) Comptroller & Auditor-General of India
(c) External Auditor
(d) Not audited
Answer:
(b) Comptroller & Auditor-General of India

Question 26.
Section 126 of Companies Act, 2013 deals with:
(a) Punishment for failure to distribute dividends.
(b) Right of dividend
(c) Rights shares and bonus shares to be held in abeyance pending registration of transfer of shares.
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

Question 27.
Punishment for failure to distribute dividends on time are under section ……………….. of Companies Act, 2013.
(a) 125
(b) 126
(c) 127
(d) 128
Answer:
(c) 127

Question 28.
When the dividend has been declared but has not been paid or warrant in respect thereof has not been posted within 30 days from the date of declaration, every director, who is knowingly a party of default, of the company Thall be punishable with Imprisonment which may extend to
(a) 1 year
(b) 2 years
(c) 3 years
(d) 5 years
Answer:
(b) 2 years

Question 29.
If the company is not able to pay the default after 30 days of declaration, the company shall be liable to pay simple interest at the rate of ………………. .
(a) 12%p.a.
(b) 18%p.a.
(c) 18%
(d) 6%p.a.
Answer:
(b) 18%p.a.

Question 30.
Mr. Alok, holding equity shares of face value ₹ 10 lakhs has not paid an amount of ₹ 1 lakh towards call money on shares. Can the same be adjusted against the dividend amount payable to him?
(a) Yes
(b) No
Answer:
(a) Yes

Question 31.
Exceptions of punishment for failure to distribute dividends is under Section ……………………….. of Companies Act, 2013.
(a) 124
(b) 125
(c) 126
(d) 127
Answer:
(d) 127