DAY 2 CA FOUNDATION LAW MEGA MARATHON
COMPANIES ACT 2013 :
1) Tycoon Private Limited is the holding company of Glassware Private Limited. As per
the last profit and loss account for the year ending 31st March, 2023 of Glassware
Private Limited, its turnover was ` 1.80 crore and paid up share capital was ` 80 lakh.
The Board of Directors wants to avail the status of a small company. The Company
Secretary of the company advised the directors that Glassware Private Limited cannot
be categorized as a small company. In the light of the above facts and in accordance
with the provisions of the Companies Act, 2013, you are required to examine whether
the contenNon of Company Secretary is correct, explaining the relevant provisions of
the Act.
Answer
As per sec)on 2(85) of the Companies Act, 2013, Small Company means a company, other
than a public company:
• paid-up share capital of which does not exceed four crorerupees, and
• turnover of which as per profit and loss account for the immediately preceding financial year
does not exceed forty crore rupees:
Provided that nothing in this clause shall apply to—
• a holding company or a subsidiary company;
• a company registered under sec)on 8; or
• a company or body corporate governed by any special Act.
In the instant case, as per the last profit and loss account for the year ending 31st
March, 2023 of Glassware Private Limited, its turnover was to the extent of ` 1.80
crore, and paid-up share capital was 80 lakh. Though Glassware Private Limited, as
per the turnover and paid-up share capital norms, qualifies for the status ofa ‘small
company’ but it cannot be categorized as a ‘small company’ because it is the
subsidiary of another company (Tycoon Private Limited).
Hence, the contention of the Company Secretary is correct.
2) In the Flower Fans Private Limited, there are only 5 members. All of them go in a
boat on a pleasure trip into an open sea. The boat capsizes and all of them died
being drowned. Explain with reference to the provisions of Companies Act, 2013:
(A) Is Flower Fans Private Limited no longer in existence?
(B) Further is it correct to say that a company being an arNficial person
cannot own property and cannot sue or be sued?
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Answer
Perpetual Succession – A company on incorporation becomes a separate
legal entity. It is an artificial legal person and have perpetual succession which
means even if all the members of a company die, the company still continues
to exist. It has permanent existence.
The existence of a company is independent of the lives of its members. It has a
perpetual succession. In this problem, the company will continue as a legal
entity. The company's existence is in no way affected by the death of all its
members.
The statement given is incorrect. A company is an artificial person as it is
created by a process other than natural birth. Itis legal or judicial as it is created
by law. It is a person since itis clothed with all the rights of an individual. Further,
the company being a separate legal entity can own property, have banking
account, raise loans, incur liabilities and enter intocontracts. Even members can
contract with company, acquire right against it or incur liability to it. It can sue
and be sued inits own name. It can do everything which any natural person can
do except be sent to jail, take an oath, marry or practice a learned profession.
Hence, it is a legal person in its own sense.
3) Nolimit Private Company is incorporated as unlimited company having share capital of
` 10,00,000. One of its creditors, Mr. Samuel filed a suit against a shareholder Mr.
Innocent for recovery of his debt against Nolimit Private Company. Mr. Innocent has
given his plea in the court that he is not liable as he is just a shareholder. Explain
whether Mr. Samuel will be successful in recovering his dues from Mr. Innocent?
Answer:
Sec$on 2(92) of Companies Act, 2013, provides that an unlimited company means a
company not having any limit on the liability of its members. The liability of each
member extends to the whole amount of the company’s debts and liabili$es, buthe
will be en$tled to claim contribu$on from other members. In case the company has
share capital, the Ar$cles of Associa$on must state the amount of share capital and
the amount of each share.
So long as the company is a going concern the , liability on the shares is the only
liability which can be enforced by the company. The creditors can ins$tute
proceedings for winding up of the company for their claims.
The official liquidator may call the members for their contribu$on towards the
liabili$es and debtsof the company, which can be unlimited. On the basis of above, it
can be said that [Link] cannot directly claim his dues against the company from
Mr. Innocent, the shareholder of the company even the company is an unlimited
company. Mr. Innocentis liable upto his share capital. His unlimited liability will arise
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when official liquidator calls the members for their contribu$on towards the liabili$es
and debts of the company at the $me of winding up of company.
4) A Company registered under Section 8 of the Companies Act, 2013, has been
consistently making profits for the past 5 years after a major change in the
management structure. Few members contented that they are entitled to
receive dividends. Can the company distribute dividend? If yes, what is
the maximum percentage of dividend that can be distributed as per provisions
of the Companies Act, 2013? Also, to discuss this along with other regular
matters, the company held a general meeting by giving only 14 days’
[Link] this valid?
Answer
A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members. Hence in
the given case, the contention of the members to distribute dividend from
the profits earned is wrong. Also, Section 8 company is allowed to call a
general meeting by giving 14 days instead of 21 days
5) MNP Private Ltd. is a company registered under the Companies Act, 2013 with Paid
Up Share Capital of ` 5 crores and turnover of ` 35 crores. Explain the meaning of
the "Small Company" and examine the following in accordance withthe provisions
of the Companies Act, 2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ` 45 crores?
Answer
Small Company: According to Sec$on 2(85) of the Companies Act, 2013, Small Company
means a company, other than a public company,—
paid-up share capital of which does not exceed fiSy lakh rupees or such higher amount as
may be prescribed which shall not be more than four crore rupees; and turnover of which as
per its last profit and loss account does not exceed two crore rupees or such higher amount
as may be prescribed which shall not be more than forty crore rupees
Nothing in this clause shall apply to—
• a holding company or a subsidiary company;
• a company registered under sec$on 8; or
• a company or body corporate governed by any special Act.
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In the present case, MNP Private Ltd., a company registered under the Companies
Act, 2013 with a paid up share capital of ` 5 crores and having turnover of ` 35 crore.
Since only one criteria of turnover of ` 35 crores is met, but the paid up share capital
exceeds ` 4 crores and the provisions require both the criteria to be met in order to
avail the status of a small company, MNP Ltd. cannot avail the status of small
company.
If the turnover of the company is ` 45 crore, then both the criteria are not fulfilled
andMNP Ltd. cannot avail the status of small company in this case also.
6) Mr. Samyak was appointed as an employee of Moonlight Timber Private Limited
on the condition that if he was to leave his employment, he will not solicit
customers of the company. After some time, he was @ired from the company. He
set up his own business under proprietorship and undercut Moonlight Timber
Private Limited’s prices. On the legal advice from his legal consultant and to
refrain from the provisions of breach of contract, he formed a new company under
the name Nine Stars Timbers Private Limited. In this company, his wife and a
friend of Mr. Samyak were the sole shareholders and directors. They took over
Samyak’s business and continued it. Moonlight Timber Private Limited @iles a suit
against Nine Stars Timbers Private Limited for violation of contract. Nine Stars
Timbers Private Limited argued that the contract was entered into between Mr.
Samyak and Moonlight Timber Private Limited and as the company has separate
legal entity, Nine Stars Timbers Private Limited has not violated the terms of
agreement. Explain with reasons, whether separate legal entity between Mr.
Samyak and Nine Stars Timbers Private Limited will be disregarded?
Answer
it was decided by the court in the case of Gilford Motor Co. Vs. Horne, that if the company
is formed simply as a mere device to evade legal obligations, though this is only in limited
and discrete circumstances, courts can pierce the corporate veil. In other words, if the
company is a mere sham or cloak, the separate legal entity can be disregarded.
On considering the decision taken in Gilford Motor Co. Vs. Horne and facts of the problem
given, it is very much clear that Nine Stars Timbers Private Limited was formed just to
evade legal obligations of the agreement between Mr. Samyak and Moonlight Timber
Private Limited. Hence, Nine Stars Timbers Private Limited is just a sham or cloak and the
separate legal entity between Mr. Samyak and Nine Stars Timbers Private Limited should
be disregarded.
7) Paci@ic Motors Limited is a government company. Rama Auto Private Limited is a
private company having share capital of ten crores in the form of ten lacs shares
of ` 100 each. Paci@ic Motors Limited is holding @ive lacs @ive thousand shares in
Rama Auto Private Limited. Rama Auto Private Limited claimed the status of
Government Company. Advise as legal advisor, whether Rama Auto Private
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Limited is government company under the provisions of Companies Act, 2013?
According to the provisions of Section 2(45) of Companies Act, 2013, Government
Company means any company in which not less than 51% of the paid-up share
capital is held by-
• the Central Government, or
• by any State Government or Governments, or
• Partly by the Central Government and partly by one or more State
Governments, and the section includes a company which is a subsidiary
company of such a Government company.
According to Section 2(87), “subsidiary company” in relation to any other company
(that is to say the holding company), means a company in which the holding
exercises or controls more than one half of the total voting power either at its own
or together with one or more of its subsidiary companies.
By virtue of provisions of Section 2(87) of Companies Act, 2013, Rama Auto
Private Limited is a subsidiary company of PaciYic Motors Limited because PaciYic
Motors Limited is holding more than one-half of the total voting power in Rama
Auto Private Limited. Further as per Section 2(45), a subsidiary company of
Government Company is also termed as Government Company. Hence, Rama Auto
Private Limited, being a subsidiary of PaciYic Motors Limited will also be
considered as Government Company
8) ABC Limited has alloMed equity shares with vo)ng rights to XYZ Limited worth ` 15
Crores during the Financial Year 2023-24. ATer that the total Paid-up Equity Share
Capital of ABC Limited is ` 100 Crores. Define the Meaning of Associate Company and
comment on whether ABC Limited and XYZ Limited would be called Associate Company
as per the provisions of the Companies Act, 2013?
Answer
• As per Sec)on 2(6) of the Companies Act, 2013, an Associate Company in rela)on to
another company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company having such influence
and includes a joint venture company.
• The term “significant influence” means control of at least 20% of total vo)ng power, or
control of or par)cipa)on in business decisions under an agreement.
• In the given case, ABC Ltd. has alloMed equity shares with vo)ng rights to XYZ Limited
of ` 15 crore, which is less than requisite control of 20% of total share capital (i.e. ` 100
crore) to have a significant influence of XYZ Ltd.
• Since the said requirement is not complied therefore ABC Ltd. and XYZ Ltd. are not
associate companies as per the Companies Act, 2013.
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9) on 5th January 2022. The company did not start its business Nll 31s July 2024. IdenNfy
under which category MTK Private Limited company is classified. Explain the definiNon
of the category of the company in detail.
ANSWER
“Inac1ve company” means a company which has not been carrying on any business or
opera)on or has not made any significant accoun)ng transac)on during the last two
financial years or has not filed financial statements and annual returns during the last two
financial years. [Explana)on (i) to Sec)on 455 of the Companies Act, 2013]
Significant accoun)ng transac)on” means any transac)on other than—
• payment of fees by a company to the Registrar;
• payments made by it to fulfil the requirements of this Act or any other law;
• allotment of shares to fulfil the requirements of this Act; and
• payments for maintenance of its office and records
[Explana)on (ii) to Sec)on 455 of the Companies Act, 2013]
In the instant case, MTK Private Limited was registered on 5th January 2022 and did not start
its business )ll 31st July 2024. Since the Company has not started its business and a period of
more than two years has already elapsed, it will be treated as an inac)ve company.
10) Mr. Sooraj sold his business of coXon producNon to a coXon producNon company, CPL
Private Limited, in which he held all the shares except one which was held by his wife.
He is also the creditor in the company for a certain amount. He also got the insurance
of the stock of coXon of CPL Private Limited in his own name and not in the name of the
company. AZer one month, all the stocks of the coXon of CPL Private Limited were
destroyed by fire. Mr. Sooraj filed the claim for such loss with the Insurance company.
State with reasons that whether the insurance company is liable to pay the claim? (4
Marks)
According to the decision taken in the case of Salomon Vs. Salomon & Co. Ltd., a company has
a separate legal en)ty. A company is different from its members. Further, according to the
decision taken in the case of Macaura Vs. Northern Assurance Co. Ltd., a member or creditor
does not have any insurable interest in the property of the company.
Members or creditors of the company cannot claim ownership in the property of company.
On the basis of the above provisions and facts, it can be said that Mr. Sooraj and CPL Private
Limited are separate en))es. Mr. Sooraj cannot have any insurable interest in the property of
CPL Private Limited neither as member nor as creditor. Hence, the insurance company is not
liable to pay to Mr. Sooraj for the claim for the loss of stock by fire.
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11) Alfa school is a secNon 8 company which started imparNng educaNon on 1.4.2015, with
the sole objecNve of providing educaNon to children of weaker society either free of cost
or at a very nominal fee depending upon the financial condiNon of their parents.
However, on 31st March 2023, it came to the knowledge of the Central Government that
the said school was operaNng by violaNng the objects of its objecNve clause due to
which it was granted the status of a secNon 8 company under the Companies Act, 2013.
Describe what powers can be exercised by the Central Government against the Alfa
School, in such a case? (3 Marks)
ANSWER
Sec)on 8 of the Companies Act, 2013 deals with the forma)on of companies which are formed
to promote the charitable objects of commerce, art, science, educa)on, sports etc. Such
company intends to apply its profit in promo)ng its objects. Sec)on 8 companies are
registered by the Registrar only when a license is issued by the Central Government to them.
Since, Alfa School was a Sec)on 8 company and it had started viola)ng the objects of its
objec)ve clause, hence
in such a situa)on the following powers can be exercised by the Central Government
• The Central Government may by order revoke the licence of the company where the
company contravenes any of the requirements or the condi)ons of this sec)ons
subject to which a licence is issued or where the affairs of the company are conducted
fraudulently, or viola)ve of the objects of the company or prejudicial to public interest,
and on revoca)on the Registrar shall put ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. But before such revoca)on, the Central Government
must give it a wriMen no)ce of its inten)on to revoke the licence and opportunity to
be heard in the maMer.
• Where a licence is revoked, the Central Government may, by order, if it is sa)sfied that
it is essen)al in the public interest, direct that the company be wound up under this
Act or amalgamated with another company registered under this sec)on.
• However, no such order shall be made unless the company is given a reasonable
opportunity of being heard.
• Where a licence is revoked and where the Central Government is sa)sfied that it is
essen)al in the public interest that the company registered under this sec)on should
be amalgamated with another company registered under this sec)on and having
similar objects, then, notwithstanding anything to the contrary contained in this Act,
the Central Government may, by order, provide for such amalgama)on to form a single
company with such cons)tu)on, proper)es, powers, rights, interest, authori)es and
privileges and with such liabili)es, du)es and obliga)ons as may be specified in the
order.
12) Powertech Limited was registered as a public company. There are 230 members in the
company as noted below:
(a) Directors and their relaNves 190
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(b) Employees 15
(c) Ex-Employees (Shares were alloXed when
they were employees) 10
(d) 5 couples holding shares jointly in the name of
husband and wife (5*2) 10
(e) Others 5
The Board of Directors of Powertech Limited proposes to convert it into a private
company. Also advise whether a reducNon in the number of members is necessary.
( DISCUSSED IN VIDEO ITSELF)
13) ATer incorpora)on of Unique Private Limited (the company) on 15th May, 2024 the
share cer)ficates were issued to Arnav, Sohail and Suman being subscribers to the
Memorandum of Associa)on of the company without affixing the common seal
thereon and under the signature of Arnav and Sohail, the directors of the company. The
company has yet to appoint a company secretary. On objec)on raised by Suman, a
director, about the validity of the share cer)ficate signed by other two directors, Arnav
and Sohail, clarified that since the company has opted not to have the common seal for
the company the share cer)ficates (i.e. the document) signed by two directors are valid.
Referring to the provisions of the Companies Act, 2013, examine the correctness of the
objec)on raised by one of the directors and in response, the clarifica)on offered by
other directors.
Would your answer be different, if the company had a company secretary?
Answer :
The documents which need to be authen)cated by a common seal will be required to be so
done, only if the company opts to have a common seal. In case a company does not have a
common seal, the authoriza)on shall be made by two directors or by a director and the
Company Secretary, wherever the company has appointed a Company Secretary.
In the instant case, the objec)on of Suman is not valid as the share cer)ficate was signed by
two directors Arnav and Sohail as the company secretary was not appointed.
If the company had a company secretary, then the share cer)ficate has to be signed by a
director and the Company secretary.
Hence, yes, the answer will be different
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14) The Articles of Association of XYZ Ltd. provides that Board of Directors has authority
to issue bonds provided such issue is authorized by the shareholders by a necessary
resolution in the general meeting of the company. The company was in dire need of
funds and therefore, it issued the bonds to Mr. X without passing any such resolution
in general meeting. Can Mr. X recover the money from the company? Decide referring
the relevant provisions of the Companies Act, 2013.
Answer:
PROVISION
• According to the Doctrine of Indoor Management, if an act is authorized by the
articles or memorandum, an outsider is entitled to assume that all the detailed
formalities for doing that act have been observed. In the case of the Royal British
Bank Vs Turquand the directors of R.B.B. Ltd. gave a bond to Turquand.
• The articles empowered the directors to issue such bonds under the authority of
a proper resolution. In fact, no such resolution was passed. Notwithstanding that,
it was held that Turquand could sue on the bonds on the ground that he was
entitled to assume that the resolution had been duly passed.
• This is the doctrine of indoor management, popularly known as Turquand Rule.
FACTS
In the above case the articles of XYZ Ltd. states that the Board was authorized to issue
bonds provided the company got the consent of the shareholders. The company was in
need of funds and so without the consent of the shareholders issued bonds to X but
without the consent of the shareholders.
CONCLUSION
In this case, as it was the matter of internal management, X was under no obligation to
check the internal management of the company. Thus, Mr. X can recover the money from
the company.
15) FAREB Limited was incorporated by acquisition of FAREB & Co., a partnership @irm,
which was earlier involved in many illegal activities. The promoters furnished some
false information and also suppressed some material facts at the time of
incorporation of the company. Some members of the public (not being directors or
promoters of the company) approached the National Company Law Tribunal (NCLT)
against the incorporation status of FAREB Limited. NCLT is about to pass the order by
directing that the liability of the members of the company shall be unlimited. Given
the above, advice on whether the above order will be legal and mention the
precaution to be taken by NCLT before passing order in respect of the above as per the
provisions of the Companies Act, 2013.
Answer:
PROVISION:
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As per section 7(7) of the Companies Act, 2013, where a company has been incorporated
by furnishing false or incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration Yiled or made for
incorporating such company or by any fraudulent action, the Tribunal may, on an
application made to it, on being satisYied that the situation so warrants, direct that liability
of the members shall be unlimited.
Before making any order: -
a) the company shall be given a reasonable opportunity of being heard in the matter;
and
b) the Tribunal shall take into consideration the transactions entered into by the
company, including the obligations, if any, contracted or payment of any liability.
FACTS:
In the above case FAREB ltd. was incorporated by the acquisition of FAREB & Co. a
partnership Yirm which was engaged in illegal activities. The promoters furnished wrong
incorporation and suppressed material facts at the time of incorporation. Some
members from the public approached the NCLT against the company and the NCLT is
about to pass orders to make the liability unlimited.
CONCLUSION
Hence, the order of NCLT is legal.
16) Mr. Raj formed a company with a capital of Rs.50,000. He sold his business to another
company for Rs 40,000. For the payment of sale, he accepted shares worth Rs 30,000
(3000 shares of Rs 1 each). The balance Rs.10,000 was considered as loan and Mr. Raj
secured the amount by issue of debentures. His wife and three daughters took one share
each. Owing to strike the company was wound up. The assets of the company were valued
at Rs.6000. The debts due to unsecured creditors were Rs.8000. Mr. Raj retained the entire
sum of Rs.6000 as part payment of loan. To this, the other creditors objected. Their
contention was that a man could not own any money to himself, and the entire sum of
Rs.6000 should be paid to them. Examine the rights of Mr. Raj and other creditors. Who
will succeed?
Answer:
PROVISIONS:
·Corporate Veil refers to legal concept which states company and members are different
Members are shielded from liability of the company, if company enjoys any debt,
members are not liable they are protected under this corporate insulation
·Famous case law “Saloman vs Saloman Company limited” explains the same.
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FACTS:
(Brief question summary)
CONCLUSION:
In this case, as Raj is secured creditor he is entitled for assets, and contention of other
creditors that Raj and company is same is incorrect.
17) XYZ is a company incorporated under the Companies Act, 2013.
The paid up share capital of the company is held by others as on 31.03.2024 in as under:
(1) Government of India 20%
(2) Life Insurance Corporation of India (Public Institution) 8%
(3) Government of Tamil Nadu 10%
(4) Government of Rajasthan 10%
(5) ABC Limited (owned by Government Company) 15%
As per above shareholding, state whether XYZ limited be called a government company under the
provisions of the Companies Act, 2013.
Answers
Under the Companies Act, 2013, a Government company is deSined in Section 2(45) as a company in
which not less than 51% of the paid-up share capital is held by:
• The Central Government, or
• Any State Government or Governments, or
• Partly by the Central Government and partly by one or more State Governments,
• And includes a company which is a subsidiary company of such a Government company.
In the instant case, total Government Shareholding is 40% [i.e. 20% (Government of India) + 10%
(Government of Tamil Nadu) + 10% (Government of Rajasthan)] = 40%
The holding of the Life Insurance Corporation of India i.e. 8% and ABC Limited i.e. 15%, total amounting to
23% cannot be taken into account while counting the prescribed limit of 51%.
Since the total shareholding held by the Central Government and State Governments combined is 40%,
which is less than 51%, XYZ Limited does not qualify to be a Government company under the provisions of
the Companies Act, 2013.
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