Economic_Legislation_I_0704

Question Paper Economic Legislation I (161) – July 2004

• Answer all questions. • Marks are indicated against each question.

1. Which of the following is required to alter the objects clause of the memorandum of association?

(a) Passing of ordinary resolution (b) Passing of special resolution (c) Passing of ordinary resolution and confirmation of the National Company Law

Tribunal (d) Passing of special resolution and confirmation of the National Company Law Tribunal (e) Passing of ordinary resolution and confirmation of the Central Government.

(1 mark)

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2. Communication of acceptance made by post is complete as against the offeror when the letter of acceptance

(a) Reaches the offeror (b) Is posted to the offeror (c) Is in transit (d) Is signed by the offeree (e) Both (a) and (d) above.

(1 mark)

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3. Which of the following is a just and equitable ground for winding up of a company by Tribunal?

(a) Where there is a dead-lock in the management of a company (b) Where the number of members of the company falls below the statutory minimum and

the company carries its business more than six months (c) When the company is unable to pay its debts (d) When the company does not commence its business within a year of its incorporation (e) Where the dividend is declared but not paid for a period of more than thirty days.

(1 mark)

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4. Every company shall keep an index of members along with the register of members, if it has more than

(a) 50 members (b) 100 members (c) 125 members (d) 175 members (e) 150 members.

(1 mark)

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5. A person does not cease to be a member of a company even though,

(a) His share certificate is lost (b) His shares are converted into share warrant (c) His shares are forfeited for non-payment of calls (d) He rescinds the contract with the company on the grounds of fraud (e) Both (a) and (b) above.

(1 mark)

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6. The manager of a private sector bank has wrongfully dishonored the cheque of its customer, though the customer has sufficient funds/balance in his account. The customer can sue for

(a) General damages (b) Special damages (c) Exemplary damages (d) Nominal damages (e) All of the above.

(1 mark)

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7. An unstamped promissory note in a court of law as evidence is < Answer

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(a) Admissible (b) Inadmissible (c) Admissible by affixing twice the amount of value of stamps required (d) Admissible with a penalty of Rs.1,000 (e) Admissible with a penalty of Rs.2,000.

(1 mark)

8. No bonus issue shall be made out of

(a) Securities premium account (b) General reserve account (c) Re-valuation reserve account (d) Profit and loss account (e) Both (a) and (c) above.

(1 mark)

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9. An application to the National Company Law Tribunal to investigate into the affairs of a public company can be made by

(a) Any one hundred members or the members holding one-tenth of the total voting power therein

(b) Any two hundred members or the members holding one-tenth of the total voting power therein

(c) Not less than one third of the persons on the company’s register of members (d) Not less than one fourth of the persons on the company’s register of members (e) Both (a) and (c) above.

(1 mark)

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10. Section 197A of the Companies Act, 1956 provides for prohibition of simultaneous appointment of different categories of managerial personnel. Accordingly the category of persons are

(a) Manager and whole time director (b) Manager and managing director (c) Manager and a director (d) Managing director and a whole time director (e) Manager and a secretary.

(1 mark)

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11. Which of the following statements is/are true?

(a) A share warrant must be issued by public companies as well as private companies (b) A share warrant must be issued in respect of partly paid up shares (c) A share warrant must be transferred by transfer deed only (d) A share warrant holder’s name will be removed from the register of members (e) A share warrant holder’s name will not be removed from the register of members.

(1 mark)

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12. Under which of the following situations, a negotiable instrument is said to be dishonored by non-payment?

(a) When the maker of the note, acceptor of the bill, drawee of the cheque defaults in payment upon being duly required to pay the same

(b) When presentment for payment is excused (c) When overdue remains unpaid (d) Both (a), (b) above (e) All (a), (b) and (c) above.

(1 mark)

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13. Under which of the following situations, will a requisition (u/s169 for calling extraordinary meeting) sent by the members holding 1/10th of the capital carrying voting rights be considered invalid?

(a) Upon submission of a valid requisition, some of the members withdrew their consent (b) Upon submission of a valid requisition, some of the members have ceased to be the

members of the company (c) The requisition made by the persons holding shares, on which calls are due (d) Both (a) and (b) above (e) All (a), (b) and (c) above.

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(1 mark)

14. The rights of the members of a company can be classified into

(a) Statutory rights and moral rights (b) Moral rights and ownership rights (c) Ownership rights and statutory rights (d) Statutory rights and contractual rights (e) Contractual rights and ownership rights.

(1 mark)

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15. Under the Companies Act, 1956 the director’s report is to be adopted at a/an

(a) Annual general meeting (b) Board meeting (c) Extraordinary general meeting (d) Statutory meeting (e) Committee of Board of directors meeting.

(1 mark)

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16. An auditor appointed at the annual general meeting shall hold office

(a) Up to the next annual general meeting (b) For a period of five years (c) From the conclusion of that meeting to the conclusion of the next annual general

meeting (d) Up to the finalization of the accounts and submitting their report (e) Up to the date of extraordinary general meeting.

(1 mark)

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17. The annual financial statements of a company should be signed on behalf of the Board of directors by

(a) Manager or secretary of the company if any (b) Not less than two directors of the company one of whom shall be managing director if

the company has (c) Chairman of the company (d) Both (a) and (b) above (e) Both (b) and (c) above.

(1 mark)

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18. Additional directors of a company are appointed by

(a) Board of directors (b) Members of the company (c) Central Government (d) Preferential shareholders (e) Financial institution.

(1 mark)

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19. When a promissory note or bill of exchange has been dishonored by non-acceptance or non-payment, the holder may, within a reasonable time cause such dishonor to be noted and certified by a notary public. Such certificate is called

(a) Protest (b) Noting (c) Endorsement (d) Estoppel (e) Allonge.

(1 mark)

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20. In which of the following cases an agency is terminated other than by operation of Law?

(a) On performance of the contract (b) By mutual agreement (c) On the insolvency of principal (d) On the destruction of subject matter (e) On termination of sub-agents authority.

(1 mark)

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21. ABC Ltd. company has 3 directors (the company also has managing director), who are neither in the whole time employment of the company nor managerial personnel, how much remuneration may be paid to them under the Companies Act, 1956?

(a) Three per cent of the net profits of the company

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(b) One per cent of the net profits of the company (c) Five per cent of the net profits of the company (d) Eleven per cent of the net profits of the company (e) Two per cent of the net profits of the company.

(1 mark)

22. No company shall purchase its own shares or other specified securities, unless

(a) The buy-back is or less than 25% of the total paid up capital and free reserves of the company

(b) The buy-back is or more than 25% of the total paid up capital and free reserves of the company

(c) The buy-back of equity shares in any financial year shall not exceed 25% of the total paid-up equity capital in that financial year

(d) Both (b) and (c) above (e) Both (a) and (c) above.

(1 mark)

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23. Which of the following is an example of general crossing of cheques?

(a) Bank of India (b) A/c payee (c) & Company (d) Bank of India - not negotiable (e) A/c Payee – not negotiable.

(1 mark)

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24. Contracts executed by a public company after the incorporation and before obtaining the certificate of commencement of business are called as

(a) Pre-incorporation contracts (b) Provisional contracts (c) Quasi contracts (d) Contingent contracts (e) Uberrimae Fidei contracts.

(1 mark)

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25. Which of the following matters require passing of special resolution?

(a) Alteration of capital clause of a company (b) Appointment of managing director (c) Reduction of share capital (d) Issue of shares at discount (e) Both (a) and (c) above.

(1 mark)

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26. On what date, the resignation of a managing director is effective?

(a) On the day, when the intention to resign is made clear (b) On the day the Registrar Of Companies gives permission (c) On the day Central government approved for resignation (d) On the day the resignation is accepted by the Board of directors (e) On the day E-mail reaches the company about his resignation.

(1 mark)

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27. A company can close its register of members for an aggregate period not exceeding

(a) 15 days in a year (b) 30 days in a year (c) 45 days in a year (d) 60 days in a year (e) 90 days in a year.

(1 mark)

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28. As a general principle, the Board of directors can exercise unlimited powers. Under which of the following cases the Board of directors cannot exercise their powers?

(a) When there is dead lock in the management (b) When the Board is incompetent (c) When the directors act with malafide intention

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(d) When the acts of the directors are in violation of the Companies Act (e) Either of (a), (b), (c) and (d) above.

(1 mark)

29. Which of the following statements is true?

(a) All pre incorporation contracts are void under the Companies Act, 1956 (b) Members and company are one and same (c) Provisional contracts are void (d) Central Government will appoint the first auditors of the company (e) Company can exercise all rights that are applicable to citizens of India.

(1 mark)

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30. An agent, who in consideration for an extra-commission, guarantees his principal that the persons with whom he enters into a contract on behalf of the principal, shall perform their obligations, is called

(a) Special agent (b) General agent (c) Universal agent (d) Commission agent (e) Del-credere agent.

(1 mark)

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31. Which of the following matters require prior approval of the Central Government?

(a) Change of name of the public company under section 21 of the Companies Act (b) Alteration of articles of association for converting public company into private

company (c) Appointing a relative of a detector for a salary of Rs.25,000 per month (d) Change of registered office of the public company from one state to another (e) Making any loan/giving any guarantee or providing any security to the directors of a

public company. (1 mark)

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32. Can the agenda items of the meeting be jumbled at a Board meeting?

(a) Agenda items cannot be jumbled at the board even if all the members and chairman of the Board demand

(b) Agenda items can be jumbled with the permission of the chairman (c) Agenda items can be jumbled with the permission of the interested directors (d) Agenda items can be jumbled with the permission of the non-executive directors (e) Agenda items can be jumbled only with the permission of the managing

director/manager /whole time director. (1 mark)

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33. Who can become director of a company?

(a) A company (b) A firm (c) A corporation (d) An individual (e) A Hindu undivided family.

(1 mark)

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34. Which of the following is not the content of articles of association of a company?

(a) Buy-back of securities (b) Reduction of share capital (c) Maximum number of directors (d) Borrowing powers of the company (e) Liability of members of the company.

(1 mark)

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35. Under the Companies Act, 1956,which of the following acts is held as oppressive?

(a) That the majority shareholders alone appointed all directors (b) That the management is inefficient (c) Failure to comply with the formalities of giving notice for general meetings (d) Refusal to declare more than moderate rate of dividend, where the profits of the

company justify a higher rate

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(e) A person, who thus had no authority at all, usurps the office of a director and managing director.

(1 mark)

36. Under which of the following occasions, does the allotment of shares become void?

(a) When any of the stock exchanges mentioned in the prospectus refuses to grant permission

(b) When the minimum subscription is not received (c) When the money received on application is less than 5% of the nominal value of each

share (d) When the statement in lieu of prospectus is not filed with the Registrar of Companies (e) When the application money is not deposited with a scheduled bank.

(1 mark)

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37. Prospectus issued by a company is

(a) An acceptance (b) An agreement (c) An offer (d) An invitation to offer (e) A promise.

(1 mark)

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38. A private company, which is a subsidiary of a public company, has 5 directors. The number of directors retire by rotation is

(a) Two (b) Three (c) Four (d) Five (e) Nil.

(1 mark)

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39. Assignment of contract may take place by the (a) Act of parties (b) Operation of law (c) Order of the court only (d) Both (a) and (b) above (e) Both (b) and (c) above.

(1 mark)

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40. Which of the following circumstances will lead to a discharge of surety’s liability?

(a) When the creditor compounds with the principle debtor (b) When the creditor agrees to give time to the principle debtor (c) When the creditor agrees not to sue the principle debtor (d) Both (a) and (b) above (e) Either of (a), (b) and (c) above.

(1 mark)

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41. Mr. X who is the Director of ABC Ltd. tenders his resignation letter to the company. The articles of association of the company are silent with regard to resignation by a director. In this regard, the Board of directors of ABC Ltd. is unable to decide, from which date onwards the resignation will be effective. As a consultant of the company advise, which of the following statements is true?

(a) The resignation once made will take effect immediately when the intention to resign is made clear

(b) The resignation made by the director will come into effect, only after the annual general meeting is concluded

(c) The resignation comes into effect only on the day his tenure as director is complete (d) The resignation comes into effect only when another director is appointed in the place

of resigning director (e) The resignation is not effective, unless the Registrar of Companies approves it.

(2 marks)

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42. Mr. X, a shareholder holding one tenth of the paid up capital of XYZ Ltd., sent a requisitionto the company to conduct an extraordinary general meeting. The directors of the companyalleged that the requisitionist has not sent the explanatory statement along with hisrequisition. Hence, they don’t want to conduct the meeting. With regard to the submission of

< Answer >

the explanatory statement of the requisitionist, which of the following statements is/are true?

(a) The requisitionist is liable to send the explanatory statement along with his requisition (b) The requisitionist is not required to send the explanatory statement along with the

requisition (c) The requisitionist is required to submit the explanatory statement on the demand made

by the Board of directors (d) The Board of directors is responsible to give explanatory statement to all the members

along with the notice of the extraordinary general meeting (e) Both (b) and (d) above.

(2 marks)

43. A selection committee of a university interviewed Mr. A, a candidate for the post of a lecturer. Selection committee passed a resolution selecting Mr. A for the post. One of the committee members, acting in his individual capacity, informed Mr. A, about the favorable response by the selection committee by way of a resolution passed in its meeting. But Mr. A received no information from the university as regards his selection. Subsequently, the resolution was cancelled and Mr. A was not appointed for the post. In the above situation which of the following is true?

(a) Mr. A can sue the committee member for the wrong information given by him and claim exemplary damages

(b) Mr. A has no remedy for his grievance (c) Mr. A can sue the university for breach of contract and claim damages and

compensation (d) Mr. A can demand for appointing him for any post in that university (e) Both (a) and (c) above.

(2 marks)

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44. Lakshmi, one of the directors of XYZ Company Ltd., did not attend the Board of directors’meetings, from January 1st to March 31st, 2003, without obtaining leave of absence from the Board, though the company had sent her notice for the meetings .Two meetings were held between January 1st and 31st March 2003. There were five meetings of the Board of directors, held during the calendar year 2002, out of which Lakshmi had attended three meetings. The last meeting attended by her was on 1st December; 2002.There were no further meetings of the Board of directors in December 2002. After the commencement of the new financial year 2003, the company convened a meeting of the Board of directors on 1-5-2003, for which no notice was sent to Lakshmi, on the ground that she had ceased to be a director under the Companies Act. The meeting was held as scheduled, and certain important decisions were taken thereat. Lakshmi, on coming to know of the meeting of 1-5-2003, challenges the company’s convening of the Board of directors’ meeting and decisions taken thereat, on the ground of omission of sending notice to her. In the above context, which of the following statements is true?

(a) Meeting is invalid, and the resolutions passed at such meeting are inoperative (b) Meeting is valid, and also the resolutions passed are valid (c) Meeting is valid but the resolutions passed are invalid (d) Lakshmi has no right to allege on the resolutions passed at the Board meeting (e) Directors cannot question on the omission of notice of the board meetings.

(2 marks)

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45. Pinky Ltd. (a listed company), which is engaged in the manufacture of paper and boards,wants to dispose off one of its undertakings (i.e. manufacturing glass), consequent upon itsdecision to stick to its core business. State, which of the following provisions of theCompanies Act 1956, have to be complied with?

(a) Company has to take consent of members, under section 293(1)(a) of the Companies Act

(b) The company has to comply with the listing formalities (c) Board of directors of Pinky Ltd. has to alter the objects clause of the memorandum of

association (d) Company must obtain the prior approval of the Central Government

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(e) Both (a) and (b) above. (2 marks)

46. Modern Ltd. proposes to appoint Mr. Khalid, a relative of one of the directors of the company, as general manager marketing on a monthly remuneration of Rs.40, 000. In this context, which of the following provisions of the Companies Act are to be complied with?

(a) Passing of a Board resolution alone is sufficient (b) Passing of a special resolution is required (c) Passing of an ordinary resolution and Central Government’s permission are required (d) Prior consent of the company by a special resolution and the approval of the Central

Government is required (e) No resolution is required to be passed, but Central Government’s permission is

compulsory. (2 marks)

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47. The shareholders of Star Ltd. decide to remove the auditor and appoint Roam & Roam, a firm of chartered accountants. The company’s articles are silent in removal of the present auditors, before their tenure and appointment of other auditors in the place of the outgoing auditors. With reference to the present matter, which of the following courses of action is/are available to the shareholders of Star Ltd.?

(a) The shareholders must wait up to the next annual general meeting (b) The shareholders can remove the present auditor and appoint other auditors (c) Removing the auditors before the expiry of their tenure should be permitted by the

Central Government (d) The share holders have authority to remove the present auditor but cannot fill the

casual vacancy by appointing another auditor (e) Both (b) and (c) above.

(2 marks)

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48. Konica Ltd., having a paid up capital of Rs.80 Lakhs, entered into a contract with Moony Ltd. in which, director Ram was holding 10% shares. At the time of approval of the contract, in the meeting of the Board of directors of Konica Ltd., Ram did not disclose his interest in Moony Ltd. How would you deal with this situation?

(a) The director Ram has to vacate his office and pay penalty (b) The officer in default is held responsible for the non-disclosure of nature of interest by

the director (c) The director Ram has not violated any of the provisions of the Companies Act, and

hence cannot be held liable (d) Failure to disclose interest renders the contract voidable at the option of the Board (e) Both (a) and (d) above.

(2 marks)

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49. Board of directors of ABC Ltd. decided to conduct annual general meeting on 02-7-2004,forwhich the Board authorized the company secretary to issue notice of annual general meetingto all the members who are entitled to receive the notice of the general meetings. But thecompany secretary did not send the notice to all the directors including the managingdirector. Majority of the directors attended in such meeting, objected the meeting and itsproceedings. In fact, that the company’s articles do not provide a provision of qualificationshares, hence no director including the managing director do not hold shares in ABC Ltd.,and none of them are subscribers to memorandum of association .In the above context,which of the following persons are entitled to receive the notice of the general meetings ofthe company?

(a) Present members of the company whose names are borne in the register of members (b) Legal representatives/heirs of the deceased members and Official assignees of the

insolvent members and the auditor(s) (c) Directors and managing director of the company, including the chairman of the Board

meetings (d) Both (a) and (b) above (e) All (a), (b) and (c) above.

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(2 marks)

50. ABC Ltd. company has twelve directors, who are scattered all over the country. Every time whenever there is a Board meeting, all twelve directors are attending the meetings thereby, the cost of sitting fees is unreasonably high and also the directors are given trouble to attend to all the Board meetings. They sought the advise of the company secretary on this matter, ‘how they can conduct Board meetings without violating the provisions of the Companies Act. The company secretary advised the Board of directors ‘to form into committees so that, all twelve directors need not attend for routine meetings, since respective committees will take the decisions on behalf of the Board of directors, so that their time and money will not be wasted’. Taking the above advise into account, Which of the following matters can be delegated to committee of Board of directors:

I. Power to issue debentures II. Power to invest funds of the company subject to sec. 293 and sec. 372A of the

Companies Act III. Power to make loans subject to sec. 295 and sec. 372A of the Companies Act IV. Power to make calls on share holders in respect of money unpaid on their shares V. Power to borrow money otherwise on debentures.

(a) Only (I) above (b) Both (I) and (II) above (c) (I), (II) and (III) above (d) All (I), (II), (III), (IV) and (V) above (e) (II), (III) and (V) above.

(2 marks)

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51. An extra-ordinary general meeting was held on 30-12-2003. There were 10 items of business to be transacted. After completion of the 7th item the meeting was adjourned till 15th February 2004. The Board of directors added two more items to the notice of the adjourned meeting. What is the legality of the meeting and the resolutions passed there at?

(a) In the adjourned extraordinary general meeting only ordinary business matters can be discussed if the two added matters are ordinary business matters resolutions on those matters are valid

(b) Adjourned meeting need not follow agenda items (c) In this adjourned meeting fresh items can be discussed and hence, resolution are valid (d) Both (a) and (b) above (e) Both (a) and (c) above.

(2 marks)

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52. The articles of association of a company state that, a director-cum- member shall not vote in a general meeting, in respect of contract in which he is interested .In a resolution put up for the approval of the shareholders, can a director exercise his voting right in favor of a contract in which he is interested? (a) No, he cannot vote since it is against the rule mentioned in the articles (b) No he cannot vote under section 297 of the Companies Act (c) No, he cannot vote under section 299 of the Companies Act (d) Yes, a statutory right cannot be curtailed by articles (e) Either of (a), (b) and (c) above.

(2 marks)

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53. Harischandra is a director in 20 companies as on 1st October 2003. The composition of hisdirectorships is as detailed below:

I. Alternative director in 5 public limited companies; II. Director in 9 public limited companies; III. Director in 5 private companies which are neither subsidiaries nor holding of

other public companies; and IV. Director in company registered as an association not carrying on business for

profit. Wise Ltd., a public limited company, wants to induct Harischandra as a director in itscompany. Whether Harischandra can be appointed as director in Wise Ltd. in terms ofSections 275 of the Companies Act, 1956?

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(a) Harischandra is disqualified to be appointed as directors of Wise limited as he is director in one company as alternative director

(b) Harischandra can be appointed as director in Wise limited, since he is with in the limits prescribed under the Companies Act

(c) Harischandra is already director in 20 companies (crossed the limits prescribed under section 275 of the Companies Act,) hence he cannot be appointed further in Wise limited

(d) Harischandra is already director more than 15 companies (crossed the limits prescribed under section 275 of the Companies Act,) hence he cannot be appointed further in Wise limited

(e) Harischandra cannot be appointed in Wise limited, as he is director in other companies.

(2 marks)

54. Mr. Kumar made an application to ABC Ltd. (a listed company) along with a duly executed transfer deed for transfer of certain shares of the company in his favor. But the Board of directors of the company rejected his application subsequent to passing of a resolution in Board meeting. Later it is noticed that there was no quorum for that meeting. What is the effect of such resolution passed by the board in their meeting?

(a) The meeting is properly convened and the resolution is valid (b) Ratification of the resolution by the National Company Law Tribunal is required since

the required quorum was not present (c) A refusal by a defectively constituted board is invalid hence the resolution is invalid (d) A listed company cannot refuse transfer of shares hence the resolution is not valid. (e) Both (c) and (d) above.

(2 marks)

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55. Ankit Ltd., a public company, is having paid up capital of Rs.200 crores and free reserves amounting to Rs.100 crores. The Board of directors made a loan of Rs.150 crores to another body corporate. (The company has not made any other loans and it does not propose any further loans) It is alleged by the shareholders of Ankit Ltd. that ‘the Board of directors violated the provisions of the Companies Act’. Considering the above statement, which of the following amounts can be given as loan to the other body corporate?

(a) Rs.100 crores (b) Rs.200 crores (c) Rs.180 crores (d) Rs.150 crores (e) Rs.50 crores.

(2 marks)

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56. Murugan of Chennai entered into a contract with Raghava Reddy of Tirupathi for supply of local made liquor since there was no prohibition on supply of liquor to Andhra Pradesh. Subsequently the Government of Andhra Pradesh imposed prohibition; consequently transportation of liquor to Andhra Pradesh was banned. Murugan failed to supply the liquor to Raghava Reddy of Tirupathi.

Raghava Reddy of Andhra Pradesh sued Murugan of Chennai for specific performance and damages. Murugan pleaded that the contract could not be performed due to the prohibition imposed by Government of Andhra Pradesh. Which of the following statements is/are true? (a) Raghava Reddy can demand performance of the contract (b) Raghava Reddy can sue for damages (c) Raghava Reddy cannot demand the performance of the contract, since the non-

performance is due to operation of law (d) Murugan has to pay damages for non-performance of the contact (e) Both (a) and (b) above.

(2 marks)

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57. ‘A’, ‘B’ and ‘C’ brothers are the joint owners of certain cattle. One cow is left in thepossession of ‘A’ by the other two brothers, i.e. ‘B’ and ‘C’. ‘A’ later sells the cow to ‘D’who purchases in good faith. With regard to the title of ‘D’, which of the followingstatements is/are true?

< Answer >

(a) ‘D’ will not acquire a valid title to the cow (b) ‘D’ acquires a valid title to the cow (c) If the other joint owners of the cow also agree for the sale, ‘D’ gets a valid title (d) Sale by a person in possession of cattle is by misrepresentation, hence voidable (e) Both (b) and (c) above.

(2 marks)

58. Mr. A, a member of XYZ Ltd. wants to inspect the minute’s book of Board of directors meetings of the company. Which of the following provisions are applicable in the present case?

(a) Mr. A can be allowed to inspect the minutes book of the meetings of the Board of directors

(b) The members are not allowed to inspect the minutes book of the Board of directors meeting

(c) The managing director can allow Mr. A to inspect the minutes book of meetings of the Board of directors

(d) Mr. A will be allowed to inspect the minutes book if he pays Rs.500 as inspection fees (e) The Registrar of Companies can permit Mr. A to inspect the minute’s book.

(2 marks)

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59. The Board of Directors of Swastik Industries Ltd., a Government company received a request from a political party for a contribution of Rs.10 lakhs. The company was established in 1999 and its profits in the years 2000, 2001 and 2002 were Rs.50 lakhs, Rs.100 lakhs and Rs.150 lakhs respectively. State whether the company can pay the contribution to the political party.

(a) The company can contribute Rs.2.50 lakhs only (b) The company can contribute Rs.5.00 lakhs only (c) The company can contribute Rs.7.50 lakhs only (d) The company can contribute Rs.10.00 lakhs (e) The company cannot contribute to the political party.

(2 marks)

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60. Naveen borrowed Rs.50, 000 from a moneylender on January 01, 2000 at 24% p.a. The moneylender could not file suit within the validity period of promissory note. On January 15, 2004 Naveen acknowledged on the reverse of the promissory note stating – “I accept this pronote and it is valid for next three years”. Now the moneylender proposes to file a suit to recover the loan with interest. Which of the following statements is/are correct?

(a) The acknowledgement of debt given by Naveen is not a valid promise to seek a legal remedy

(b) The acknowledgement of debt given by Naveen is valid to seek a legal remedy (c) Moneylender can file a suit against Naveen to recover the loan on the basis of original

promissory note (d) Naveen can be held liable to pay the loan with interest (e) Both (b) and (d) above.

(2 marks)

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61. Ram had 1000 shares of XYZ Ltd. He went to New York to see his son. Balu had stolen theshares of Ram and got the shares transferred in his favor by forging the signature of Ram.Balu sold the shares to Laxman at market price and Laxman got the shares transferred in hisfavor and received dividends. Ram, after his return from New York, observed that the shareswere stolen. State the consequences of sale and the status of the persons affected?

(a) The company can refuse to allow Ram as the shareholder, since the shares are transferred to Laxman

(b) Ram cannot claim the shares, as Laxman acquired the shares by paying adequate consideration to Balu

(c) Laxman can claim the ownership in shares as he purchased in good faith and for consideration

(d) Laxman is required to surrender the share certificate to the company and repay all the dividends

(e) Sale of shares by Balu is valid.

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(2 marks)

62. ABC Ltd purchased shares to the extent of 51.5% of XYZ Ltd on 1-4-2004.On 30-4-2004 ABC Ltd. company issued prospectus to the public and XYZ Ltd. intends to purchase to the extents of 10% of that issued capital. In the above situation, which of the following statements is true?

(a) A subsidiary company can be a member of its holding company without any restriction

(b) A subsidiary company cannot become member of its holding company (c) Permission to hold the shares must be obtained from the Registrar of companies. (d) A subsidiary company can hold shares in its holding company as a trustee with

beneficial interest in the trust (e) Both (b) and (d) above.

(2 marks)

< Answer >

63. The Board of directors of XYZ Ltd. Mumbai decided to conduct the annual general meeting of the company on 18th February and also issued notice to all the members of the company. In due course of time the Maharastra State Government declared 18th February as a public holiday under the Negotiable Instruments Act, 1881. The effect of declaration of holiday on conduct of the annual general meeting on 18th February is, that

(a) The company is not allowed to conduct the annual general meeting on 18th February

(b) The company can conduct the annual general meeting on 18th February because the government declared holiday only after the issue of notice to all the members of the company

(c) The permission from the National Company Law Tribunal is to be obtained for conduct of annual general meeting on 18th February

(d) Annual general meeting can be held at any time at any place and even on a public holiday

(e) Both (b) and (c) above. (2 marks)

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64. The Sarada Bio Tech Ltd. invented a medicine for the prevention of Hepatitis-A. The company advertised in several newspapers that a reward of Rs.1,00,000 would be given to any person who contracted Hepatitis-A after the use of the company’s medicine according to its printed directions. After this advertisement many people used the medicine of Sarada Bio Tech Ltd.

The company also patented the invention and was able to develop a good market for its product. Ms. Geeta used the medicine according to the directions of the company but contracted Hepatitis-A. She wants to claim the reward of Rs.1,00,000 as announced by the company. Which of the following statements is correct? (a) The company has to pay the reward of Rs.1,00,000 to Geeta (b) The company is liable to reimburse the cost of fresh medicine only (c) The company is not liable to pay any thing to Geeta because the medicine was

patented and proved to be successful in all cases except Geeta (d) The company is not liable to pay anything to Geeta because there is no offer from the

company (e) The company is not liable to pay anything to Geeta because there is no acceptance

given by her. (2 marks)

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65. Govind, aged 17 years, bought some goods on credit for Rs.10,000 from Vishal. Onattaining majority, he took a further sum of Rs.2,000 and executed a bond in favour ofVishal to pay the total amount of Rs.12,000. On being reminded of the repayment of thedebt, Govind maintains that the bond is not valid and enforceable since it amounts toratification of debt incurred during his minority. Which of the following statements iscorrect?

(a) Govind is liable to pay Rs.10,000 (b) Govind is liable to pay Rs.2,000 (c) Govind is liable to pay Rs.12,000 (d) Govind is not liable to pay any

< Answer >

amount (e) Vishal cannot sue Govind to recover the debt since the bond is not a valid one.

(2 marks)

66. Vinod Aggarwal, Finance Manager of Oswal Agro Industries Ltd., placed an indent with Quick Tech Solutions for the supply of 50 computers worth Rs.10 lakhs. After taking delivery of the computers he accepted a bill of exchange payable after 90 days informing the supplier that payment would be made by the company on the due date. In fact, as per the memorandum and articles of association, the finance manager has no power to sign. The finance manager disposed off the computers and used the monies for his personal needs. On the due date, the supplier could not get the payment. Can Quick Tech Solutions recover the amount?

(a) Quick Tech Solutions can recover Rs.10 lakhs from the company (b) Quick Tech Solutions cannot recover Rs.10 lakhs from the company (c) Quick Tech Solutions can attach the assets of the company and dispose these assets to

recover Rs.10 lakhs (d) The company and the managing director of Quick Tech Solutions are held liable for

Rs.10 lakhs (e) Both (a) and (c) above.

(2 marks)

< Answer >

67. Swastik Oil Mills Ltd. owes Rs.50 lakhs to a creditor for the supply of raw materials. The creditor came to know that the financial condition of the company is not sound. The creditor agreed to supply additional raw materials worth Rs.20 lakhs, if the company agrees create charge duly secured by the assets of the company for the total amount of Rs.70 lakhs. However the creditor could supply raw materials worth Rs.10 lakhs to the company on March 5, 2004 and a floating charge was registered for Rs.70 lakhs on April 1, 2004 with the Registrar of Companies. On June 15, 2004 an order for winding is passed. To what extent the creditor can enforce his charge?

(a) The creditor can enforce his charge for Rs.10 lakhs (b) The creditor can enforce his charge for Rs.20 lakhs (c) The creditor can enforce his charge for Rs.60 lakhs (d) The creditor can enforce his charge for Rs.70 lakhs (e) The creditor cannot enforce his charge.

(2 marks)

< Answer >

68. Ajay, Vijay, Vinod and Vinay jointly borrowed an amount of Rs.2,00,000 from Govind. Ajay and Vijay pleaded Govind to release them from the liability, as they have no means to pay. Govind agreed to release Ajay and Vijay and filed a suit against Vinod and Vinay for payment of the debt. Which of the following statements is/are correct?

(a) Vinod and Vinay also are not liable for Rs.2,00,000 as Govind released Ajay and Vijay

(b) Vinod and Vinay only are liable for Rs.1,00,000 only as Govind released Ajay and Vijay

(c) Vinod and Vinay cannot recover any contribution from Ajay and Vijay if Vinod and Vijay pay Rs.2,00,000 to Govind

(d) Vinod and Vinay are liable to pay Rs.2,00,000 as Govind released Ajay and Vijay (e) Govind cannot recover from Vinod and Vijay as he released Ajay and Vijay, without

the consent of Vinod and Vijay. (2 marks)

< Answer >

69. Venkat purchased a T.V. from Ankit Electronics Ltd. for Rs.25,000 and requested theshopkeeper to keep the T.V. in the very shop, since he is moving out of station and whilereturning he will take delivery of the T.V. The shopkeeper accepted the request andimmediately packed the T.V. in front of Venkat and kept aside. Two days later, the shopcaught with fire and all the goods including the T.V. of Venkat were burnt in the fire.Venkat demanded the shopkeeper for another T.V. or return the money paid by him. But theshopkeeper denied the demand of Venkat. Decide which of the following statements is/aretrue?

(a) The shopkeeper is not responsible for the T.V. or returning the money to Venkat

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(b) The shopkeeper is liable to give another T.V. in the place of the one, which is burnt (c) The shopkeeper is liable to give back the money what is paid by Venkat (d) The shopkeeper in addition to a new T.V. should pay the damages for the mental

agony caused to Venkat (e) Both (b) and (d) above.

(2 marks)

70. Mr. Joy invited all his close friends for a dinner on the occasion of the successful completion of his research. He wanted to take good care of his friends and accordingly he arranged a very lavish dinner in a star hotel. On the day, to his shock and surprise the friends could not turn up to the dinner, consequently all the dishes and money were wasted. He was terribly disappointed. In the above situation which of the following remedies is/are available to Mr. Joy for the loss caused to him?

(a) Mr. Joy can file a suit against his friends for not attending to the dinner (b) Mr. Joy cannot have any remedy (c) Mr. Joy can recover the expenses incurred for the arrangements from his friends (d) Mr. Joy can file a suit for the special damages (e) Both (a) and (c) above.

(2 marks)

< Answer >

END OF

QUESTION PAPER

Suggested Answers Economic Legislation I (161) - July 2004

1. Answer : (b) Reason : Special resolution is to be passed to alter the objects clause of the Memorandum of Association.

Options in (a), (c), (d) and (e) are not correct.

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2. Answer : (b) Reason : Communication of acceptance made by post is complete as against the offeror when the letter of

acceptance is posted to him. Means once it is posted, it is sufficient to comply the provision of acceptance is reached.

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3. Answer : (a) Reason : A company may be wound up by court on ‘Just and Equitable ground’, when there is a dead lock in

the management of a company. The court may order winding up of a company under specified circumstances mentioned in (b), (c) and (d). These specified circumstances are not treated as ‘Just and Equitable grounds’.

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4. Answer : (a) Reason : Under section 151 of the Companies Act, Every company shall keep an index of members along

with the register of members, if it has more than 50 members

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5. Answer : (a) Reason : A person does not cease to be a member of a company when the share certificate is lost. If a

shareholder is share certificate is lost the Board of Directors will issue a Duplicate share certificate. But he will not loose his membership. A person ceases to be the member of a company if his share certificate is converted into share warrant or his shares are forfeited for non-payment of calls or he rescinds the contract with the company on the grounds of fraud.

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6. Answer : (c) Reason : If a manager of a private sector bank wrongfully dishonors the cheaque, he has to pay exemplary

damages to the customer.

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7. Answer: (b) Reason: An unstamped promissory note is not admissible as evidence in court of law.

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8. Answer: (c) Reason: As per the Companies Act, and SEBI guidelines, no bonus issue shall be made out of revaluation

asset account. But bonus issue can be made out of share premium account, General reserve account, and profit and loss account. Hence option © is correct and all other options are not correct.

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9. Answer : (b) Reason : Under Section 235 (2) (a) of the Companies Act. Any two hundred members or members holding

one tenth of the total voting power there in of a company can apply to the National Company Law Tribunal for investigation of affairs of the company. Then upon receipt of such order declaration made by tribunal the Central Government shall appoint one or more competent pernouses inspection to investigate the affairs of the company and to report to Central Government.

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10. Answer: (b) Reason: Under section 197A of the Companies Act, 1956, a company shall not appoint a manager u/s 2(24)

and a managing director u/s2 (26) simultaneously. But company can appoint a managing director and a whole time director, a managing director and a director, manager and a whole time director. Hence option (b) is the correct answer and all other options are not correct

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11. Answer : (d) Reason : Under Section 115 of the Companies Act, the company shall strike of share warrant holder’s name

from the register of members. Since option (d) is correct and All the options in (a), (b), (c), and (e) are false.

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12. Answer: (e) Reason: Under the following occasions an instrument is dishonored by non-payment:-

When the maker of the note, acceptor of the bill, drawee of the cheque makes default in payment upon being duly required to pay the same Under section 92 when presentment for payment is executed and when overdue remains unpaid U/s 76.

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13. Answer: (c) Reason: According to Section 169 (4) of the Companies Act, the number of members entitled to requisition a

meeting in regard to any matter shall be in case of a company having share capital, such number of them as hold at the date of the deposit of the requisition, not less than one-tenth of such of the paid-up capital of the company as at that date carries the right of voting in regard to that matter; The persons who made requisition-holding shares on which calls are due will not have voting rights and hence, any requisition made by them will be considered invalid.

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14. Answer: (d) Reason: The rights of a shareholder can be classified into Statutory rights and Contractual rights. The

Statutory rights are available under the Companies Act, and the Contractual rights are available under the Memorandum of Association of the company

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15. Answer : (a) Reason : As per Section 217(i) of the Companies Act the Board is report shall be attached to every balance

sheet laid before a company in an annual general meeting . Hence along with the auditors report balance sheet and profit and loss account the board of directors report shall be adopted in annual general meeting.

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16. Answer: (c) Reason: An auditor appointed at the Annual general meeting will hold office from the conclusion of that

meeting to the conclusion of the next annual general meeting. Unlike directors who cease to hold office if the annual general meeting is not held in accordance with section 166, an auditor appointed under section 224 will not vacate his office if the annual general meeting is not held on time .He will continue to hold office until the next annual general meeting is actually held and concluded and he cannot be deemed to have vacated his office on the last date on which the meeting ought to have been held. Similarly, where a meeting is held but is adjourned for want of quorum or any other reason to a later date, he will hold office till the conclusion of the adjourned meeting. Hence all other options are not correct

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17. Answer : (d) Reason: Under section 215 of the Companies Act, 1956, the annual financial statements (i.e. every Balance sheet and profit and loss account of a company, other than banking company) shall be

signed on behalf of the Board of Directors by its - a. Manager or secretary of the company if any b. Not less than two directors of the company, one of who shall be managing director if any.

In the case of a banking company by the person specified in clause (a) and (b), as the case may be of sub-section (2) of section 29 of the Banking Companies Act 1949.

The chairman of the company in that capacity is not entitled under section 215 of the Act. Hence option (d) is correct

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18. Answer: (a) Reason: Under section 260 of the Companies Act, 1956 additional directors of the company shall be

appointed by the board of directors (subject to articles of association of the company). The power to appoint additional directors cannot be exercised by any others except the BOD. This provision is made under appointment of directors by directors. Hence option (a) is the correct answer, whereas all other options are not.

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19. Answer : (a) Reason : When a promissory note or bill of exchange has been dishonored by non acceptance or non payment,

the holder may, within a reasonable time cause such dishonor to be noted and certified by a notary public. Such certificate is called a protest.

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20. Answer : (b) Reason : Termination of agency by operation of law takes place in situations given in options (a),(c),(d) and

(e).Termination of agency by mutual agreement is not by operation of law.

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21. Answer: (b) Reason: Under section 309(4) of the Companies Act, 1956 a director who is neither in the whole time

employment of the company nor managing director may be paid remuneration either by way of a monthly, quarterly or annual payment with the approval of the central Government or by way of commission if the company by special resolution authorizes such payment, provided that the remuneration paid to such director, or where there is more than one such director, to all of them

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together, shall not exceed one percent of the net profits of the company ,if the company has a managing or whole time director. If the company has no such managing or whole time director three percent of the net profits of the company

22. Answer: (e) Reason: Under section 77A (2) of the Companies Act, 1956 No company shall purchase its own share or other

specified securities, unless The buy-back is or less than 25% of the total paid up capital and free reserves of the company

furthermore, the buy-back of equity shares in any financial year shall not exceed 25% of the total paid-up capital in that financial year

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23. Answer : (c) Reason : & company is an example for general crossing.

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24. Answer : (b) Reason : Contracts executed by a public company after the incorporation and before obtaining the certificate

of commencement of business are known as Provisional contracts. The contracts entered before the incorporation of the company are Pre-incorporation contracts. A contract even though there is no offer, no acceptance, no consensus ad idem, etc. Such type of

contract where there is no element of contract but which still is considered as contract is referred as quasi-contract.

The contracts on which the law imposes a special duty to act with the utmost good faith to disclose all material information. Such type of contracts are known as Uberrimae Fidae Contracts.

Contingent contract is a contract which kinds the parties depend upon happening or not happening of an event which may or may not happen.

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25. Answer: (c) Reason: Under section 100 of the Companies Act, contemplates that the reduction of share capital requires

passing special resolution and sanction of the court. All other matters like Alteration of capital clause, appointment of managing director, and issue of shares at discount require only ordinary resolutions.

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26. Answer : (d) Reason : The resignation of a managing director is effective, On the day the resignation is accepted by the

board of directors. The appointment of managing director is by virtue of an agreement with the company and hence he cannot simply resign like any other director. His resignation must be accepted by the company i.e. the Board of Directors.

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27. Answer : (c) Reason : A company can close its register of members in a year for an aggregate period of not exceeding 45

days. But not exceeding 30 days at any one time.

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28. Answer: (e) Reason: As a general principle, the board of directors can exercise unlimited powers the members of the

company are not entitled to interfere with the powers of the Board of directors The following are the exceptions to the general rule

Dead lock Incompetence of the board Malafide acts

Acts in violation of Companies Act Under the above exceptional situations members of the company can interfere with the powers of

the board of directors.

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29. Answer : (a) Reason : All pre-incorporation contracts are void. The company law does not contain the provisions to protect

the promoters for the contract entered by then before incorporation of a company. They are personally liable for the performance of the contract. But, they have the remedy under the Specific Relief Act 1963. U/s 15 (h) and 19 (e) of that Act. Hence option (a) is true answer and all other options are false.

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30. Answer: (e) Reason : A special agent is one who is appointed to perform a special act or to represent his principal in some

particular transaction.

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A general agent is one who has the authority to do all acts with a particular trade, business or employment.

Universal agent is one whose authority to act for the principal is unlimited. A commission agent is employed to buy and sell goods or transact business for others and earns

commission. A Del-credere agent is one who, in consideration of an extra commission guarantees his principal

that the persons with whom he enters into contract on behalf of the principal shall perform their obligations. Correct answer is (e).

31. Answer : (e) Reason : Under Section 295 of the companies Act, 1956, Making any loans /giving any guarantee/ providing

any security to the directors of the company requires prior approval of the Central Government. but all others do not require prior approval of the central Government.

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32. Answer : (b) Reason : Agenda items need not be annexed to the notice of the Board meeting only it is customary to give

agenda items, though not required as per law, such given items can be jumbled with the permission of the chairman of the Board meetings,

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33. Answer : (d) Reason : Only an individual can become director of a company according to the provisions of section 253 of

the Companies Act.

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34. Answer: (e) Reason: Liability of members of the company is the content of the memorandum of association but not the

content of articles of association.

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35. Answer: (e) Reason: A person and who thus had no authority at all usurp the office of a director and managing director

will amount to oppression. But the acts like majority shareholders appointed all directors, the management is inefficient, denying a shareholder the right to inspect the registers maintained by the company, Failure to comply with the formalities of giving notice for general meeting or refusal to declare dividend, will not amount to oppression.

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36. Answer: (a) Reason: U/S 73 of the Companies Act, 1956 when the permission of stock exchanges (whose names are

mentioned in the prospectus) refuses to grant the permission with in ten weeks from the date of the closure of the subscription list, the allotment made by the board of directors will be void and they must return the application money.

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37. Answer : (d)

Reason : Prospectus issued by a company is an invitation to offer.

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38. Answer : (c) Reason : Under section 255 of the Companies Act, in case of a public company or a private company which is

subsidiary of a public company shall have not less then two thirds directors as retiring category Accordingly, the number of rotational directors will be two thirds of 5. Fraction is to be rounded off

to the higher number. That is = 3.3 rounded to 4. 2 5

3×

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39. Answer : (d) Reason : Assignment of contract may take place by the act of parties or by operation of law.

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40. Answer : (e) Reason : The following circumstances will lead to a discharge of surety’s liability

When the creditor compounds with the principle debtor When the creditor agrees to give time to the principle debtor When the creditor agrees not to sue the principle debtor Hence option (e) is correct.

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41. Answer: (a) Reason: Mr. X the Director of the company can resign from the company. In fact Companies Act is silent

with regard to resignation by a Director. The resignation comes into the effect immediately from the time when the intention to resign is made clear. Resignation through E-mail or telegram or

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Telephone is also permitted as per the judicial decisions. Hence option (a) is correct and all other options are not correct

42. Answer: (e) Reason: Under section 169 of Companies Act, the members, who are holding 1/10 of the capital having

voting rights, may requisition for Extra ordinary general meeting. Such meeting is also called requisition meeting. In case the members send requisition, explanatory statement is not required to be sent by the members. The Board of Directors upon receiving the requisition they have to sent the notice of the Extra ordinary general meeting along with explanatory statement under section 173(2) to all the members of the company. Hence option (e) is correct but not others.

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43. Answer: (b) Reason: Mr. A cannot sue the university because for a valid contract two ingredients must be present i.e.

offer and acceptance. Mr. A cannot argue that the university has accepted by passing resolution, unless it is communicated to Mr. A. communication of acceptance is missing in the given case, Hence such contract is invalid and there by, not binding on the university. In the famous case of Powell Vs Lee 1908,which has the similar facts, the court held that it was not a binding contract because there was no acceptance by any authorized representative.

Hence option (b) is correct.

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44. Answer: (a) Reason: Under section 283 of the companies Act, 1956,a director automatically vacates his/her office, if

he /she absents himself/herself from three consecutive meetings of the Board of directors or from all meetings of the board for a continues period of three months, which ever is higher, with out obtaining the leave of absence from the board. Accordingly lakshmi was absent only for two board meetings in a period of three months from 1st January to 31st March. The provision demands that absence of three consecutive meetings or that number of meetings in a period of three months, which ever is higher. During that period only two meetings are conducted but not three or more (to take the higher). Hence she has not violated the provision and thereby she continues to hold office of directorship of XYZ company Ltd. as director.

Under section 286 of the companies Act, the notice of the board meeting must be sent to all the directors whose addresses are in India. But the company under the impression that Lakshmi is ceased to be director of the company did not sent the notice of the board meeting. If no notice is sent to any director can allege on that, and the proceedings of such meetings becomes invalid and resolutions at such meetings also become invalid (in case any director to whom notice is not sent alleges).

Hence the contention of Lakshmi is valid that the company’s calling of the Board of Directors meeting and decisions taken thereat on the ground of omission on the part of the company from implementing the decisions taken at the meeting are invalid and inoperative.

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45. Answer: (e) Reason: According to section 293(1)(a) of the Companies Act, 1956 The board of directors of a public

company or of a private company which is a subsidiary of a public company, shall not except with the consent of the members in general meeting, sell, lease, or otherwise dispose of the whole or substantially the whole of the undertaking of the company, where the company has more than one undertaking, of the whole or of any such undertaking.

In the given case the Pinky Ltd. has to comply section 293 of the Companies Act, and since it is a listed company it has to comply the listing formalities also like informing to stock exchange and passing the resolution by postal ballot etc.

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46. Answer: (d) Reason: According to section 314(1B) of the Companies Act, no relative of a director of a Company shall

hold office or place of profit in the company carrying a total monthly remuneration of not less than such sum as may be prescribed [at present a sum which is not less than Rupees Twenty thousand] except with the prior consent of the company by a special resolution and the approval of the Central Government.

Therefore in this case as the monthly remuneration of Kalid, a relative of director as General Manager (Marketing) exceeds Rs.20, 000 the limit prescribed under Section 314(1B), Modern Ltd. will have to get the prior consent of the company by convening a general meeting and getting a special resolution passed for the appointment and also get the approval of the Central Government before appointment of Kalid as a General Manager.

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47. Answer : (c) Reason : In the given case as Roam & Roam, chartered accountants have to be appointed as the auditors of

StarLtd. in place of the present auditors, the provisions and procedure given in Section 225 and sec224(7)have to be complied with. According to Section 225 of the Companies Act, 1956 if an auditor to be removed before his tenure, and appoint another in the place of the removing auditor, a special notice shall be required for passing a resolution at an Annual General Meeting. On receipt of notice of such resolution, the company shall send a copy to the removing auditor who may make representation in writing with a request to notify to members of the company. The company shall send the representation to the members in accordance with Sub-section (3) of Section 225 (unless the representations are received too late, whereupon they may be read out at the meeting). Thereafter, a general meeting has to be convened to pass the ordinary resolution by simple majority, and take the consent of the Central Government. A written certificate from the proposed auditor to the effect that appointment if made, will be in accordance with the limits specified in Section 224(1B) shall also be obtained. If the company is listed, the requirements of the listing agreement also have to be complied with and the stock exchanges have to be informed accordingly.

48. Answer: (e) Reason: According to Section 299(1) of the Companies Act, 1956 every director of a company who is in any

way whether directly or indirectly concerned or interested in a contract or arrangement or proposed contract or arrangement, entered into, or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of Board of Directors. In the case of a proposed contract or arrangement the disclosure, referred to above, shall be made at the meeting of the Board at which the question of entering into contract or arrangement is first taken into consideration or at the first meeting of the Board held after he becomes so interested or concerned. Further under Section 300 of the Act, an interested director is prohibited to take part in the discussion or vote on any contract or arrangement entered into by or on behalf of the company where he is directly or indirectly interested in it.

In the present case, Ram is an interested director. He should have, therefore, disclosed his interest in Moony Ltd. Non-disclosure of interest by Ram would subject him to a penalty of an amount, which may extend to Rupees 5,000 as stipulated in Section 299(4) of the Act. Further in accordance with the provisions of Section 283(1)(i) of the Act, Ram will have to vacate his office. Failure to disclose interest renders the contract voidable at the option of the Board.

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49. Answer : (d) Reason : The persons who are entitled to receive the notice of the general meeting is Present members of the

company whose names are borne in the register of members ,Legal representatives/heirs of the deceased members and Official assignees of the insolvent members and the auditor(s) since as rightly told by the company secretary since the BOD and MD are not members of the company they are not entitled to receive under the provisions of the companies Act but it is a custom to give notice of the general meetings to the BOD and MD also.

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50. Answer : (e) Reason : Certain powers to be exercised by Board only at meeting The Board of directors of a company shall exercise the following powers on behalf of the company,

and it shall do so only by means of resolutions passed at meeting of the Board, (not by circular resolution)

(a) The power to make calls on shareholders in respect of money unpaid on their shares; [17(aa) the power to authorize the buy-back referred to in the first proviso to clause (b) of sub-section (2) of section 77A]

(b) The power to issue debentures; (c) The power to borrow moneys otherwise than on debentures; (d) The power to invest the funds of the company; and (e) The power to make loans: – Powers relating to power borrow money otherwise then on debentures. – Power to invest the funds of the company and power to make loans can be deligated to

committee of directors. But power to make calls and issue debentures cannot be decided by committee of directors. Those two powers can be exercised by the Board of directors only.

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51. Answer : (c) Reason : In the general meetings only on those matters which were given in the agenda can be discussed..In

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this persent matters since a fresh notice is given to the three items those can be discussed in the adjourned meeting and hence they are valid. [The Board of Directors added two more items to the notice of the adjourned meeting]

52. Answer : (d) Reason : Yes, the director in the present question can vote, it is general meeting and a director if he is member

of the company ,can vote at general meeting even if he is interested .The restrictions u/s 297and 299 and 300 are applicable in connection with contracts in which he is interested are applicable only in case of board meetings .In case of general meeting, the director can attend as a member ,speak and also vote at the meeting .his attendance will be counted as quorum .The only requirement is that his interest should be disclosed in the explanatory statement attached to the notice of the general meeting.

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53. Answer : (b) Reason : After the commencement of this Act, no person shall, save as otherwise provided in section 276,

hold office at the same time as director in more than fifteen companies. Exclusion of certain directorships for the purposes of sections 275, 276 and 277. 278. (1) In calculating, for the purposes of sections 275, 276, and 277, the number of companies

of which a person may be a director, the following companies shall be excluded, namely:- a. a private company which is neither a subsidiary nor a holding company of a public company; b. an unlimited company; c. an association not carrying on business for profit or which prohibits the payment of a dividend; d. a company in which such person is only an alternate director, that is to say, a director who is

only qualified to act as such during the absence or incapacity of some other director. Hence in the given question all the other three are excluded from the preview of section 275 i.e. Directorship in – Private company. – Association not carrying for profit . – Alternate directorship are not included in calculation of total directorship a person can hold.

Directorship for 9 public companies is only taken for calculation of Number of directorship i.e. 9 directorships. Hence, Harichandra is entitled to be appointed as director in wise Limited.

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54. Answer : (e) Reason : A listed company cannot refuse transfer of shares u/s 111A of the companies Act but it can reject

only on the ground when the transfer deed contains some technical defects if there is any order by SICA or SEBI or any authority, then in such case first transfer must be effected and then the board can make an application NCLT, the decision of the NCLT is to be implemented . Hence resolution passed in a board meeting without a valid quorum for transfer of shares has no effect. A refusal by a defectively constituted board is no proper refusal.

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55. Answer : (c) Reason: Section 372A(1)(a) of the Companies Act, 1956 provides that no company shall, directly or

indirectly, make any loan to any other body corporate exceeding sixty percent of its paid-up share capital and free reserves or hundred percent of its free reserves, whichever is more. Provided that where the aggregate of loans etc, along with loan etc. proposed to be made or given by the Board exceeds the aforesaid limits, no loan etc. shall be made unless previously authorized by a special resolution passed in a general meeting. Further sub-section (2) of said section disallows making of inter-corporate loans etc. by the Board of directors of a company unless the resolution sanctioning the loan is passed at a meeting of the Board with the consent of all the directors present at the meeting.

In the given case 60% of the paid-up capital and free reserves of Ankit Ltd. would amount to Rs.180 crores. However, the Board has made a loan of Rs.150 crores to a body corporate, which does not exceed the ceiling specified in the said section. Thus the company has not violated any provision of the Companies Act, 1956 provided that the Board by means of passing unanimous resolution at the Board meeting had approved the amount of loan.

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56. Answer : (c) Reason : Raghavareddy can not demand for specific performance of contract because the contract is

impossible to perform, which is caused by the circumstances beyond the control of Murugan

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57. Answer: (b) < TOP >

Reason: ‘D’ acquires valid title to the cow. In the instant case sec.28 of the sale of Goods Act, 1930 is applicable which provides for the sale by one of the joint owners. If one of the several joint owners of goods has the sole possession of them by permission of the co-owners, the property in goods is transferred to the person who purchases them in good faith, and has not at the time of entering into the contract of sale notice that the seller has no authority to sell them. Hence, in the present case D, gets valid tile to the cow.

58. Answer : (b) Reason : No member is allowed to inspect the minutes book of meetings of the Board of Directors

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59. Answer : (e) Reason : Under section 293 A of the Companies Act, Government company or a company which is in

existence for less than 5 years can not contribute to the political party.

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60. Answer : (a) Reason : A time barred debt agreed upon by a written agreement, signed by the debtor or his duly authorized

agent, is enforceable even without consideration. Section 25(3), requires an express promise to pay the time barred debt rather than a mere acknowledgement of the debt. In the given ease it is only an acknowledgement of the existence of the debt and did not indicate whether Naveen intended to pay the debt. Hence the moneylender cannot file suit on the basis of the acknowledgement given by Naveen. Moneylender cannot file suit on the basis of original promissory note as it is not valid in law. Hence the correct answer is (a).

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61. Answer : (d) Reason : Yes, Ram will get his shares from Lakshman. The company is bound to restore the name of the

rightful owner in the register of members on becoming aware of the fact of forgery. Lakshman is required to surrender the share certificate to the company and repay all the dividends, benefits received by him. A person who becomes a holder of shares under a forged transfer does not acquire a good title and is bound to return the shares to the rightful owner

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62. Answer : (b) Reason : U/s 42 of the Companies Act, 1956 A subsidiary company cannot be a member of a holding

company except that a subsidiary may. Hold the shares in the capacity of a Legal representative of a deceased member. As trustee or continues to be a member of its holding company, either since the inception of the Act or before it became its subsidiary.

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63. Answer: (b) Reason : As per section 166 of the Companies Act, 1956 every annual general meeting shall be called during

business hours and on a day that is not a public holiday. But subsequent declaration of holiday by the government does not affect the notices of the meeting already issued. So the company can conduct the annual general meeting on 18th February .

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64. Answer : (a) Reason : The company has to pay the reward of Rs.100,000 to Mrs. Geeta as she was contacted with

Hepatitis-A, even after the use of the medicine as per the specifications.

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65. Answer : (c) Reason : Govind is liable to pay Rs.12,000. Where a person receives a part of the benefit during his minority

and part of it after attaining majority, then a promise made by him to pay for the both will be valid consideration and is enforceable.

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66. Answer : (b) Reason : The quick tech solutions cannot recover Rs.10 lakhs from the company. According to the Doctrine of Constructive notice, every outsider dealing with a company is deemed

to have a notice of the contents of the Memorandum and Articles of Association. Doctrine of indoor management has no application in this case.

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67. Answer : (a) Reason : As per section 534 of the Companies Act, 1956, a floating charge on the undertaking or property of a

company created within 12 months before the commencement of the winding up proceedings shall be void, if the company is not solvent immediately after the charge was created. As the company was not solvent charge is not valid. The creditor can enforce his charge for Rs.10 lakhs only.

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68. Answer : (d) < TOP >

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Reason : As Ajay and Vijay are discharged, both Vinay and Vinod are liable to pay Rs.200,000 options in (a), (b), (c) and (e) are not correct.

69. Answer: (a) Reason: Once the sale is complete and the right on the goods is transferred from the seller to the buyer, no

longer the seller is responsible for the loss or destruction, or damage of the goods. The buyer has to suffer the loss. In the instant case, Venkat purchased the T.V and kept the same in the very shop for his own convenience. For the occurrence of the fire, the shopkeeper is not responsible in fact his own goods are also burnt in the fire. Hence Venkat cannot compel the shopkeeper to give another or pay the money what he has paid.

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70. Answer: (b) Reason: All agreements are not contracts, even though there is an offer and acceptance, certain agreements

are social in nature, which do not contain any intention to create legal relationship. Hence they will not bind on the parties. In the present case Mr. Joy invites all his friends and make arrangements for lavish dinner in a star hotel. Thereby he incurs huge loss and got disappointed when the friends did not turn up to the dinner. Even then Mr. Joy cannot have any remedy for recovering the loss caused to him through his friends

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