CA Inter – Corporate and Other Law

Test 1
Chapter – Incorporation of Company
Total marks – 30
Time – 60 mins
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Question 1:
Mr. Raja along with his family members is running successfully a trading business. He is capable of
developing his ideas and participating in the market place. To achieve this, Mr. Raja formed a single
person economic entity in the form of One Person Company with his brother Mr. King as its nominee. On
4th May 2020, Mr. King withdrew his consent as Nominee of the One Person Company. Can he do so
under the provisions of the Companies Act, 2013? Examine whether the following individuals are eligible
for being nominated as Nominee of the One Person Co. as on 5th May 2020 under the above said Act.
(i) Mr. Shyam, son of Mr. Raja who is 15 years old as on 5th May 2020.
(ii) Ms. Devaki an Indian Citizen, sister of Mr. Raja stays in Dubai and India. She stayed in India
during the period from 2nd January 2019 to 16th August 2019. Thereafter she left for Dubai
and stayed there.
(iii) Mr. Ashok, an Indian Citizen residing in India who is presently a member of a 'One Person
Company'.

Answer
Relevant provisions
As per section 3 of the Companies Act, 2013, the memorandum of One Person Company (OPC) shall
indicate the name of the other person (nominee), who shall, in the event of the subscriberÕs death or
his incapacity to contract, become the member of the company.

The other person (nominee) whose name is given in the memorandum shall give his prior written consent
in Form INC-3 and the same shall be filed with Registrar of companies at the time of incorporation
along with its Memorandum of Association and Articles of Association.

Such other person (nominee) may withdraw his consent in such manner as follows:
• Nominee may withdraw consent by giving a notice in writing to the sole member and to OPC.
• Sole member shall nominate another person within 15 days of such withdrawal.
• Send intimation of such nomination + written consent (Form INC 3)
• OPC to inform RoC in Form INC-4 within 30 days of withdrawal of nomination..

Analysis:
Therefore, in terms of the above law, Mr. King, the nominee, whose name was given in the memorandum,
can withdraw his consent as a nominee of the OPC by giving a notice in writing to the sole member and
to the One Person Company.

Conclusion:
Following are the answers to the second part of the question as regards the eligibility for being
nominated as nominee:
(i) No minor shall become member or nominee of the OPC. Therefore, Mr. Shyam, being a minor is not
 eligible for being nominated as Nominee of the OPC.

(ii) Only a natural person who is an Indian citizen whether resident in India or otherwise, shall be a
nominee or the sole member of a One Person Company. The term “Resident in India” means a person
who has stayed in India for a period of not less than 120 days during the immediately preceding
financial year.

Here Ms. Devaki though an Indian Citizen and a resident in India. So, she is eligible for being
nominated as nominee of the OPC.

(iii) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, a person shall not be a member of
more than one OPC at any point of time and the said person shall not be a nominee of more than 1
OPC.
Mr. Ashok, an Indian Citizen residing in India who is a member of an OPC (Not a nominee in any
OPC), can be nominated as nominee.

Question 2:
Mr. Ram along with his brothers got registered a company in the state of Telangana by furnishing false
information knowingly. What action may be taken against the company and its promoters under the
provisions of the companies act, 2013?
Answer
Relevant Provisions
Order of the Tribunal:
According to section 7(7) of the Companies Act, 2013, where a company has been got incorporated by
furnishing false or incorrect information or representation or by suppressing any material fact or
information in any of the documents or declaration filed or made for incorporating such company or
by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the
situation so warrants:
(i) pass such orders, as it may think fit, for regulation of the management of the company including
changes, if any, in its memorandum and articles, in public interest or in the interest of the company
and its members and creditors; or
(ii) direct that liability of the members shall be unlimited; or
(iii) direct removal of the name of the company from the register of companies; or
(iv) pass an order for the winding up of the company; or
(v) pass such other orders as it may deem fit.

However before making any order-.

(i) the company shall be given a reasonable opportunity of being heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the company,
including the obligations, if any, contracted or payment of any liability.

Also the promoters, the persons named as the first directors of the company and the persons making
declaration at the time of registration of company shall each be liable for action under section 447.
Question 3:
Examine the validity of the following different decisions/proposals regarding change of office by A
Ltd. under the provisions of the Companies Act, 2013:
(i) The Registered office is shifted from Thane (Local Limit of Thane District) to Dadar (Local limit
of Mumbai District), both places falling within the jurisdiction of the Registrar of Mumbai, by
passing a special resolution but without obtaining the approval of the Regional Director.
 (ii) The Registered office is situated in Mumbai, Maharashtra (within the jurisdiction of the
Registrar, Mumbai, Maharashtra State) whereas the Corporate Office is situated in Pune,
Maharashtra State (within the jurisdiction of the Registrar, Pune). A Ltd. proposes to shift its
corporate office from Pune to Mumbai under the authority of a Board resolution.
(iii) The registered office situated in certain place of a city is proposed to be shifted to another
place within the local limits of the same city under the authority of Board Resolution.

Answer
Regarding the validity of Proposals w.r.t change of registered office by A Ltd. in the light of the section
12 of the Companies Act, 2013:
(i) In the first case, where the Registered office is shifted from Thane to Dadar (one District to
another District) falling under jurisdiction of same ROC i.e. Registrar of Mumbai.

As per Section 12 (5) of the Act which deals with the change in registered office outside the
local limit from one town or city to another in the same state, may take place by virtue of a special
resolution passed by the company. No approval of regional director is required as both the places
are falling within the jurisdiction of the Registrar of Mumbai. Accordingly, said proposal is valid.

(ii) Section 12 talks about shifting of Registered office only, In the second case the corporate office
is being shifted from Pune to Mumbai under the authority of Board resolution. Shifting of
corporate office under the board resolution is valid.

(iii) In the third case, change of registered office within the local limits of the same city. Said
proposal is valid in terms it has been passed under the authority of Board resolution.

Question 4:
AB Limited issued equity shares of Rs. 1,00,000 (10000 shares of Rs. 10 each) on 01.04.2020 which have
been fully subscribed whereby XY Limited holds 4000 shares and PQ Limited holds 2000 shares in AB
Limited. AB Limited is also holding 20% equity shares of RS Limited before the date of issue of equity
shares stated above. RS Limited controls the composition of Board of Directors of XY Limited and PQ
Limited from 01.08.2020. Examine with relevant provisions of the Companies Act, 2013:
(i) Whether AB Limited is a subsidiary of RS Limited?
(ii) Whether AB Limited can hold shares of RS Limited?
(iii) Whether AB Limited can vote at Annual General Meeting of RS Limited held on 30.09.2020?

Answer
Relevant Provisions
This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the Companies Act,
2013.
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or "subsidiary", in
relation to any other company (i.e., the holding company), means a company in which the holding
company—
(i) controls the composition of the Board of Directors; or
(ii) 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.
For the purposes of this clause, Explanation is given providing that a company shall be deemed to be a
subsidiary company of the holding company even if the control referred to in point (i) or point (ii) above,
is of another subsidiary company of the holding company.
Whereas Section 19 provides that, no company shall, hold any shares in its holding company and no
holding company shall allot or transfer its shares to any of its subsidiary companies and any such
allotment or transfer of shares of a company to its subsidiary company shall be void.

Provided that nothing in this sub-section shall apply to a case where the subsidiary company is a
shareholder even before it became a subsidiary company of the holding company.

Here in the instant case, AB Ltd. issued 10,000 equity shares on 1.4.2020 whereby XY Ltd. & PQ Ltd.
holds 4000 & 2000 shares respectively in AB Ltd., Considering 1 share = 1 vote, XY Ltd. and PQ Ltd.
together holds more than one-half (50%) of the total voting power. Therefore, AB Ltd. will be subsidiary
to XY Ltd. & PQ Ltd. from 1.4.2020.

Whereas AB Ltd. is already holding 20% equity shares of RS Ltd. before the date of issue of equity
shares i.e., 1.4.2020.

Further, RS Ltd. controls the composition of Board of Directors of XY Ltd. and PQ Ltd. from
01.08.2020. In the light of sub-clause (87) of Clause 2, RS Ltd. is a holding company of XY Ltd. and PQ
Ltd. (Subsidiary companies).

Conclusions
Following are the answers to the questions:
(i) Yes. In this case AB Ltd. shall be deemed to be a subsidiary company of the holding company
(RS Ltd.) as RS Ltd. controls the composition of subsidiary companies XY Ltd. & PQ Ltd. as per
explanation to sub-clause (87) of Clause 2.
(ii) Yes. In this case AB Limited is a subsidiary of RS Limited as AB Ltd. was holding 20% of equity
shares of RS Ltd. even before it became a subsidiary company of the RS Ltd. (i.e. on 01
08.2020), according to the exception to section 19.
(iii) No. The subsidiary company shall have a right to vote at a meeting of the holding company only
in respect of the shares held by it as a legal representative or as a trustee but not where the
subsidiary company is a shareholder even before it became a subsidiary company of the holding
company. Therefore, AB Ltd. cannot vote at AGM of RS Ltd. held on 30.9.2020.

Question 5:
A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited liability
company to impart classroom teaching and aircraft flight training to trainee pilots. It was decided to
form a limited liability company for charitable purpose under Section 8 of the Companies Act, 2013 for
a period of ten years and thereafter the club will be dissolved and the surplus of assets over the
liabilities, if any, will be distributed amongst the members as a usual procedure allowed under the
Companies Act, 2013.
Examine the feasibility of proposal and advise the promoters considering the provisions of Co. Act, 2013.

Answer
Relevant provision
According to section 8(1) of the Companies Act, 2013, where it is proved to the satisfaction of the
Central Government that a person or an association of persons proposed to be registered under this Act
as a limited company:
(i) has in its objects the promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other object;
(ii) intends to apply its profits, if any, or other income in promoting its objects; and
(iii) intends to prohibit the payment of any dividend to its members;
the Central Government may, by issue of license, allow that person or association of persons to be
registered as a limited liability company.

Conclusion
In the instant case, the decision of the group of individuals to form a limited liability company for
charitable purpose under section 8 for a period of ten years and thereafter to dissolve the club and to
distribute the surplus of assets over the liabilities, if any, amongst the members will not hold good,
since there is a restriction as pointed out in point (b) above regarding application of its profits or other
income only in promoting its objects.

Further, there is restriction in the application of the surplus assets of such a company in the event of
winding up or dissolution of the company as provided in sub-section (9) of Sec 8 of the Companies Act,
2013.

Therefore, the proposal is not feasible.

Multiple Choice Question:

Question 6:
In view of the fact that a private company enjoys a number of privileges, Orange Pharma Limited
having 20 members is proposing to convert itself into a private company. For this purpose, the
company needs to alter its articles by inserting three restrictive clauses as specified in Section
2(68) and the consequent change in the name of the company requires:
(a) A SR and prior approval of the CG.
(b) A SR prior approval of the NCLT.
(c) A SR and prior approval of the ROC.
(d) A SR and prior approval of the State Government. [1
mark]
Question 7:
N Limited having 152 members was incorporated with the main objects of manufacture of
ceramic goods, glazed, unglazed floor and wall tiles, etc. and to carry on trading in such
products. After 3 years of business, it wants to diversify its business by entering into the field of
manufacturing electronic goods for which it is required to alter its objects clause. Advise:
(a) The company can alter its MoA by passing an OR and obtaining the confirmation of the RD.
(e) The company can alter its MoA by passing an SR at the shareholdersÕ meeting.
(b) The company can alter its MoA in relation to the objects clause by passing an SR at the
shareholdersÕ meeting and obtaining the confirmation of the RD.
(c) The co. can alter its MoA in relation to the objects clause by passing an SR at the shareholdersÕ
meeting and simultaneously publishing the contents of the SR in two newspapers (one in English
 and the other one in vernacular language) circulating in that area.
[2 marks]
Question 8
Today, itÕs May 2023. Mr. Nilanjan Chattopadhyay a 24 years old Indian youngster, who returned
back to India in January month of 2023 after completing his education in bio-nutrient and willing to
form an OPC; but not sure about the requirements or pre-conditions regarding eligibility. He read
some articles on provisions related to OPC and concluded;
(i) OPC can be formed by Indian Citizen only
(ii) He canÕt form OPC because in immediate previous year he was not resident in India
(a) Both the conclusions are valid
(b) None of the conclusion is valid
(c) First conclusion is invalid
(d) Second conclusion is invalid
[2 marks]