CA Final Group I : Corporate and Allied Laws - June 2009

CA Final - Group I • Corporate and Allied Laws • June 2009

This Paper has 24 answerable questions with 0 answered.

Roll No………
Total No. of Questions — 14]	[Total No. of Printed Pages — 3
Time Allowed : 3 Hours	Maximum Marks : 100

Sectoin — A
Question Nos. 1, is compulsory. Out of remaining questions in Section A, Answer any six questions.
Marks

Answer any two of the following:

(a)

Examine the validity of the following with reference to the provisions of the Companies Act, 1956:

(i)	The Balance Sheet and Profit and Loss Account of TXN Ltd. for the year ended 31st March, 2009 was signed by one of its Directors and the Secretary.
(ii)	Mr. Prakash, a Chartered Accountant in full time practice was appointed as the auditor of ABC Ltd., a company which is a subsidiary of DGH Ltd. and DGH Ltd. has another subsidiary called PKM Ltd. Mr. Prakash had taken a loan of Rs.25,000 from PKM Ltd. and the loan is outstanding as on the date of his appointment as auditor of ABC Ltd.

(0)

(b)

Board of Directors of M/s. RPP Ltd. in its meeting held on 29th May, 2009 declared an interim dividend payable on paid up Equity Share Capital of the Company. In the Board Meeting scheduled for 10th June, 2009, the Board wants to revoke the said declaration. You are required to state with reference to the provisions of the Companies Act, 1956 whether the Board of Directors can do so.

(0)

(c)

Chairman of Board of Directors of ABC Ltd. came across a matter, which required the approval by way of a board resolution. In the prevailing circumstances, it is not possible to convene and hold a Board Meeting. The Chairman approaches you to advise him of the way and the relevant procedure to obtain such approval without holding the Board Meeting. You are required to advise him on the matter as per the provisions of the Companies Act, 1956.

(0)

(a)

ABC Ltd. has 12 directors on its Board and has the following clause in its Articles of Association:

"The questions arising at any meeting of the Board of Directors or any Committee thereof shall be decided by a majority of votes, except in cases where the Companies Act, 1956 expressly provides otherwise."

In one of the meetings of the Board of Directors of ABC Ltd., 8 directors were present. After completion of discussion on a matter, voting was done. 3 directors voted in favour of the motion, 2 directors voted against the motion while 3 directors abstained from voting.

You are required to state with reference to the provisions of the Companies Act, 1956 whether the motion was carried or not. It is clarified that the motion being voted upon was not concerning a matter which requires consent of all the directors present in the meeting.

(0)

(b)

The Articles of Association of MKP Limited incorporated with an Authorised Share Capital of Rs.50 crores divided into 5 crores Equity Shares of Rs.10 each contained the following clause:

"The qualification of a director shall be the holding of at least 1,000 Equity shares in the Company and such a director if not already so qualified shall have to obtain his qualification within a period of 30 days from the date of his appointment as director."

Examine the validity of the above clause in the light of the provisions of the Companies Act, 1956.

(0)

(a)

(i)

Examine the validity of the following with reference to the relevant provisions of the Companies Act, 1956 and/or decided case laws:

The Articles of Association of Big Limited provide that a meeting of the Board of Directors of the company shall be held at 11.00 A.M. on the last day of every quarter ending 31st March, 30th June, 30th September and 31st December. Relying on such a clause in the Articles, the company did not send notices to the directors in respect of the board meeting held on 30th September, 2008. Some of the directors have questioned the validity of the board meeting on the ground that individual notices have not been sent to the directors.

(ii)

A Producer Company wants to issue bonus shares. You are required to state the relevant provisions of the Companies Act, 1956 in this regard.

(0)

(b)

What do you understand by the term "Director Identification Number" (DIN)? Describe the procedure to obtain the same as enumerated under the Companies Act, 1956 read with the relevant Rules.

(0)

(a)

(i)

Mr. KMP is director of XLS Ltd. He intends to construct a residential building for his own use. The cost of construction is estimated at Rs.1.50 Crores, which Mr. KMP proposes to finance partly from his own sources to the tune of Rs.60 lacs and the balance Rs.90 lacs from housing loan to be obtained from a housing finance company. For the purpose of obtaining the loan, he has approached the housing finance company which has in principle agreed to grant the loan, but has put a condition. The condition put by the housing finance company is that the Company XLS Ltd. of which Mr. KMP is a director should provide the guarantee for repayment of the loan and interest as per the terms of the proposed agreement for granting the loan to Mr. KMP. You are required to advise Mr. KMP on the matter with reference to the provisions of the Companies Act, 1956.

(ii)

Draft a Board Resolution of XLS Ltd. For providing guarantee for Rs. 90.00 lacs in respect of a Loan to be obtained by Mr. KMP, a director thereof from a Housing Finance Company for construction of a residential house for his own use.

(0)

(b)

Big Ben Ltd., a reputed public company, had advanced certain sum of money to one of its Directors, namely, Mr. Tanmay on certain terms and conditions and fixing the time limit for repayment thereof. Now, Mr. Tanmay has approached the Company with a request to extend the time limit for repayment of balance of loan amounting to Rs.12.00 lacs by another six months.

You are required to state with reference to the provisions of the Companies Act, 1956, the answer to the following:

(i)	Who is authorized to grant the extension as requested by Mr. Tanmay?
(ii)	Draft an appropriate notice for the meeting where such extension may be granted.

(0)

(a)

A group of share holders has approached you for advice regarding the affairs of LPM Paper Mills Ltd. According to them, the management of the company is not carrying out its functions in accordance with the prudent commercial practice and if the affairs of the company are allowed to run in future in the same manner, the company’s solvency would be in danger. They want that a Special Audit under the Companies Act, 1956 be conducted to find out the actual nature of the transactions. You are required to draft an application to be submitted to the appropriate authority in this respect.

(0)

(b)

A company incorporated in Singapore has established its place of business at Chennai. State the documents which are required to be furnished on such establishment of business in India under the Companies Act, 1956 and the authorities to whom such documents are to be furnished.

(0)

(a)

A company wants to include the following clause in its Articles of Association:

"Each director shall be entitled to be paid out of the funds of the company for attending meetings of the Board or a Committee thereof including adjourned meeting such sum as sitting fees as shall be determined from time to time by the Directors but not exceeding a sum of Rs.30,000 for each such meeting to be attended by the Director."

You are required to advise the company as to the validity of such a clause and the correct legal position under the provisions of the Companies Act, 1956.

(0)

(b)

State the conditions which must be satisfied before filing a petition under Section 397 of the Companies Act, 1956 for prevention of oppression.

(0)

(a)

Draft a board resolution for appointment of Mr. Paul as the Managing Director for 5 years with effect from 1st July, 2009 of DBM Limited passed in the board meeting of the said company held on 6th June, 2009.

(0)

(b)

Amar Textiles Ltd. is a company engaged in manufacture of fabrics. The Company has investments in shares of other bodies corporate including 70% shares in Amar Cotton Co. Ltd. and it has also advanced loans to other bodies corporate. The aggregate of all the investments made and loans granted by Amar Textiles Ltd. exceeds 60% of its paid up share capital and fee reserves and also exceeds 100% of its free reserves. In course of its business requirements, Amar Textiles Ltd. has obtained a term loan from Industrial Development Bank of India and the said loan is still subsisting. Now the company to increase its holding from 70% to 80% of the equity share capital in Amar Cotton Co. Ltd. by purchase of additional 10% shares from other existing shareholders.

State the legal requirements to be complied with by Amar Textiles Ltd. under the provisions of the Companies Act, 1956 to give effect to the above proposal.

(0)

(a)

LMB Ltd., Kolkata is a multiproduct manufacturing company having paid up capital of Rs. 5.00 crores. In order to increase the product portfolio, the said company intends to procure certain machines and equipments worth Rs.1.00 crore from a partnership firm, namely, M/s. MLPK, in which the son of managing director of LMB Ltd. is a partner. The contract for purchase of said machines and equipments is to be placed the Board of Directors of the company for its consideration.

In view of above facts, you are required to explain briefly the procedure under the provisions of the Companies Act, 1956 to be followed by LMB Ltd. to enter into the said contract.

(0)

(b)

Explain, how the provisions of the Companies Act, 1956 relating to Audit Committee will help in achieving some of the objectives of Corporate Governance.

(0)

Sectoin – B

Question No. 9 is compulsory. Out or remaining questions in Section B,
answer any four questions.

Answer any one of the following:

(a)

Following information is available from the Records of Star Chemicals & Engineering Ltd.:

(i)	The company is a closely held unlisted company.
(ii)	The paid up share capital of the company since 1st April, 1999 is Rs.3.00 crores and its net worth as at 31st March,2008 was Rs.5.00 crores as per audited Balance Sheet.
(iii)	The Net Tangible Assets of the company as per last 3(three) audited Balance Sheets as at 31st March, 2005, 2006 and 2007 were Rs.4.00 crores, 4.50 crores and 5.00 crores respectively, out of which monetary assets were less than Rs. 50 lacs in each of the three years.
(iv)	The company was incorporated in 1996 and commenced its business on 1st April, 1996 and since then it has earned good profits and it has not incurred any loss in any year in past.
(v)	The company has not declared any dividend so far, but according to the profits earned so far, the management could have declared the dividend in each of the last five years.
(vi)	The name of the company was changed from Star Engineering Ltd. to its present name with effect from 1st January, 2007
(vii)	The company’s turnover in the years ended 31st March, 2006, 2007 and 2008 was Rs.20 crores, 30 crores and 35 crores respectively.

The company wants to make a public issue of shares to raise Rs. 20.00 crores by issuing equity shares at premium. For the purpose of including the information in the prospectus, the Company has prepared its accounts for 12 months ended 31st December, 2007 showing segmentwise revenue which reveals that revenue from chemical segment is more than the revenue from Engineering segment.

You are required to state the relevant guidelines issued by SEBI and your conclusion whether the Company can make the desired issue of equity shares based on the facts stated above.

(0)

(b)

Excel Ltd., a public limited company listed with the The Stock Exchange, Mumbai wants to issue equity shares on preferential basis pursuant to a scheme approved under Corporate Debt Restructuring framework specified by Reserve Bank of India, to various persons as may be selected by the Board of Directors of the Company. Following information relevant to the preferential issue is available:

Total No. of equity shares to be issued : 50 lac equity shares of Rs.10 each out of which 30 lac equity shares will be allotted shares will be allotted on 31st December, 2008 as fully paid up and balance 20 lac equity shares shall be allotted on the same date but paid up to Rs.5 each and balance Rs.5 shall be called upon at a later date and shall be paid up on 31st May, 2009.

(i)	Out of the proposed allottees some persons are holding their shares in Excel Ltd. in physical form and not in dematerialized form and some persons had sold their entire shareholding in Excel Ltd. in July, 2008.
(ii)	The meeting of general body of shareholders for approving the preferential issue was held on 15th October, 2008.
Based on the above information you are required to answer the following queries with reference to the SEBI (Disclosure and Investor Protection) Guidelines, 2000:
(i)	What would be that lock–in period for the shares allotted on preferential basis?
(ii)	Who are the persons not entitled for allotment of shares on preferential basis?

(0)

10.

Industrial Finance Corporation of India, established under the Industrial Finance Corporation Act, 1948 having its registered office at Mumbai issued 8% Redeemable Bonds redeemable after 7 years. These bonds were issued directly to the members of the public and not through mechanism of Stock exchanges.

You are required to state with reference to the provisions of Securities Contracts (Regulation) Act, 1956, whether such direct issue of bonds by the Industrial Finance Corporation of India is not violating the provisions of the said Act.

(0)

11.

(i)

Mr. Sekhar resided in India for a period of 150 days during the financial year 2007–2008 and thereafter went abroad. He came back to India on 1st April, 2008 as an employee of a business organization. What would be his residential status under Foreign Exchange Management Act, 1999 during the financial year 2008–2009?

(ii)

Mr. Atul, an Indian National desires to obtain Foreign Exchange for the Following purpose:

(a)	Remittance of US Dollars 10,000 for payment for goods purchased from a party situated in Nepal.
(b)	US Dollars 10,000 for remitting as commission to his agent in U.S.A for sale of Commercial plot situated near Bangalore, consideration in respect of which was received by Mr. Atul by way of foreign currency inward remittance amounting to US Dollars 1,00,000.

Advise him, if he can get the Foreign Exchange and under what conditions for making the above remittances.

(0)

12.

(i)

The promoters of a company to be registered under the Companies Act, 1956 having its main object of carrying on the business as manufacturers and stockists of Iron and Steel proposes that the name of the company is to be "ABC Steel Bank Limited". You are required to state with reference to the provisions of the Banking Regulation Act, 1949 whether the said company with the proposed name can be registered.

(ii)

Union Bank of India, a National Bank acquired on 1st January, 2002 a building, fully occupied by various tenants, from Mr. Rahul, the owner of the building , in discharge of a term loan advanced to Mr. Rahul, who had mortgaged the said building as security with the said Bank and failed to repay the loan. The said bank wants to keep the building permanently with it and earn the rent from tenants. You are required to state with reference to the provisions of the Banking Regulation Act, 1949 whether the said bank can do so.

(0)

13.

(i)	With reference the provisions of Insurance Act, 1938, what do you mean by "Life Insurance Business"?
(ii)	What are the provisions in the Insurance Act, 1938 regarding nomination by of Life Insurance Policy holder? Whether a minor can be a nominee in a Life Insurance Policy?

(0)

14.

Explain the principles of "Rule of Beneficial Interpretation".

(0)

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