© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
3. The companies including Government companies may undertake the activities or projects
or programmes using CSR funds, directly by themselves or in collaboratio n as shared
responsibility with other companies, subject to fulfillment of Companies (CSR Policy) Rules,
2014 and the guidelines issued by this Ministry from time to time.
General Circular 13/2021 dated 30 th July, 2021
The Ministry of Corporate Affairs vide General Circular 10/2020 dated 23.03.2020 clarified that
spending of CSR funds for COVID- 19 is an eligible CSR activity. In continuation to the said
circular, it is further clarified that spending of CSR funds of COVID- 19 vaccination for persons
other than the employees and their families, is an eligible CSR activity under item no. (i) of
Schedule VII of the Companies Act, 2013 relating to promotion of health care including
preventive health care and item no. (xii) relating to disaster management.
Old Law (Pg 9.47)
The clarifications are newly inserted
QUESTIONS
After approval of the shareholders, the dividend amount was paid to the shareholders,
however dividend to some of the shareholders could not be paid within the prescribed
period for variety of reasons. The company transferred the unpaid dividend amount to a
separate bank account on 15 th October, 2020.
The details of the unpaid dividend amount for the previous year’s lying in the unpaid
dividend account is as under:
S. Dividend Date of Date when the Amount lying in
No. pertaining declaration amount was the Unpaid
to the FY of Dividend transferred to Unpaid Dividend Account
dividend Account (` in lakhs)
1 2019-20 31.08.2020 15.10.2020 92.50
2 2018-19 25.08.2019 28.09.2019 85.14
3 2017-18 20.08.2018 22.09.2018 80.00
4 2016-17 05.09.2017 07.10.2017 75.25
5 2015-16 01.09.2016 04.10.2016 45.15
6 2014-15 07.09.2015 09.10.2015 35.26
7 2013-14 05.05.2014 08.06.2014 15.10
8. 2012-13 06.06.2013 08.07.2013 07.25
Sustram, one of the investors who is holding 1000 shares in physical form, by visiting web -
site of the company, came to know that company had declared the dividends in some
previous years, but have not been paid to him. This happened due to the fact the company
was not having his current address and bank account details. Sustram approached the
company, along with all the supporting evidence to his claim and demanded the dividend
amount.
The company after being satisfied, paid all the dividend amount pertaining to the FY 2013-
14 to FY 2019-20. However, for FY 2012-13, the company informed that since the amount
of dividend has been transferred to Investor Education and Protection Fund, it cannot be
taken back now. Aggrieved from this, Sustram threatened the company officials to take
appropriate legal action.
Based on the above facts, answer the following MCQs:
1.1 When the shareholders demanded for increase in the rate of dividend, but since the
shareholders cannot increase the rate of dividend what the Board of Di rectors have
recommended, some of them walked out of the meeting hall. What shall be the
consequences of it:
(a) If, even after boycott, quorum is present, all the time during the course of general
meeting and they have approved with majority, the rate recommended by the
Board shall be treated as approved.
(b) Members present at the beginning of the meeting shall remain present all the
time during the general meeting, to approve any agenda, else it will be treated
as nullified.
(c) The approval of the dividend is an ordinary business resolution of the company,
so if some of the members have boycotted the meeting, it will have no effect ,
even if the quorum is not present.
(d) The recommendation of the Board of Directors of the company relating to the
rate of dividend shall stands withdrawn.
1.2 At which date, the unpaid dividend not claimed by the shareholders, shall be
transferred to a separate bank account, in the above case:
(a) On 5th August, 2020 (the date of Meeting of Board)
(b) On 31st August, 2020 (the date of Meeting of Shareholders)
(c) On 30 th September, 2020 (the date, after 30 days from the meeting of
shareholders)
(d) Latest by 7 th October, 2020 (within seven days from the date of expiry of 30
days)
1.3 The company transferred the amount of unpaid dividend to a separate bank accou nt
on 15th October, 2020.
What is the interest liability on the part of the company?
(a) No liability.
(b) Interest @ 10% p.a. on so much of the amount as has not been transferred to
the Unpaid Dividend Account.
(c) Interest @ 12% p.a. on so much of the amount as has not been transferred to
the Unpaid Dividend Account.
(d) Interest @ 15% p.a. on so much of the amount as has not been transferred to
the Unpaid Dividend Account.
1.4 In the given case, when and how much amount, the company shall transfer the funds
to the Investor Education and Protection Fund:
(a) Four years after 01.09.2016; Rs 45.15 lakh
(b) Five years after 07.09.2015; Rs 35.26 lakh
(c) Six years after 05.05.2014; ` 15.10 lakh
(d) Seven years after 08.07.2013: ` 07.25 lakh
2. Amber Limited is a manufacturer of glassware. Its paid up share capital is divided into
20,0000 shares of ` 100 each. The company is maintaining its register of members as per
the provisions of the Companies Act, 2013. The company wanted to close its register of
members for declaring dividend. It may do so by giving minimum …….. days’ notice.
(a) 7 days
(b) 10 days
(c) 15 days
(d) The register of members cannot be closed.
3. ………………. interpretation concerns itself with “what the law says” and ……….
interpretation, seeks to ascertain “what the law means”.
(a) Grammatical, Logical
(b) Legal, usual
(c) Usual, legal
(d) Logical, grammatical
4. Arvind lends money to Mamta against the security of jewellery deposited by Mamta with
Arvind. Arvind gave this jewellery to his friend Vinayak who had a safe locker at his home.
Who is the pawnor in the given case?
(a) Arvind
(b) Mamta
(c) Vinayak
(d) Both Arvind and Vinayak
5. Raman, the original allottee of 2000 equity shares in ABC Limited has transferred the same
to Ruchi. The instrument of transfer dated 21 st August, 2020, duly stamped and signed by
Raman was handed over to Ruchi. Advise Ruchi regarding the latest date by which the
instrument of transfer along with share certificates must be delivered to the company, to
register the transfer in its register of members.
(a) 21st August, 2020.
(b) 20th September, 2020
(c) 20th October, 2020.
(d) 19th November, 2020
8. Vishal Limited has paid dividend consistently every year at the rate of 10% on its equity
share capital in the last 5 years (2015-2016 to 2019-2020). The company has incurred loss
in the current financial year (FY 2020-2021). It still wants to declare dividend for the
FY 2020-2021. Whether the company can do so? Explain.
PART II: OTHER LAWS
The Indian Contract Act, 1872
9. ‘Surendra’ guarantees ‘Virendra’ for the transactions to be done between ‘Virendra’ &
‘Jitendra’ during the month of March, 2021. ‘Virendra’ supplied goods of ` 30,000 on
01.03.2021 and of ` 20,000 on 03.03.2021 to ‘Jitendra’. On 05.03.2021, ‘Surendra’ died
in a road accident. On 10.03.2021, being ignorant of the death of ‘Surendra’, ‘Virendra’
further supplied goods of ` 40,000. On default in payment by ‘Jitendra’ on due date,
‘Virendra’ sued on legal heirs of ‘Surendra’ for recovery of ` 90,000. Describe, whether
legal heirs of ‘Surendra’ are liable to pay ` 90,000 under the provisions of Indian Contract
Act 1872.
What would be your answer, if the estate of ‘Surendra’ is worth of ` 45,000 only?
The Negotiable Instruments Act, 1881
10. ‘Anjum’ drew a cheque for ` 20,000 payable to ‘Babloo’ and delivered it to him. ‘Babloo’
indorsed the cheque in favour of ‘Rehansh’ but kept it in his table drawer. Subsequently,
‘Babloo’ died, and cheque was found by ‘Rehansh’ in ‘Babloo’s table drawer. ‘Rehansh’
filed the suit for the recovery of cheque. Whether ‘Rehansh’ can recover cheque under
the provisions of the Negotiable Instrument Act 1881?
The General Clauses Act, 1897
11. Ayush and Vipul are good friends and pursuing CA course. While doing group studies
for the paper of “Corporate and Other Law”, they are confused about the provisions of
section 3 of the Companies Act 2013. Section 3 provides “A company may be formed for
any lawful purpose by…………….” Both Ayush and Vipul are in difficulty about the
meaning of word “may”. Whether it should be taken as mandatory or directory?
Interpretation of Statutes
12. When can the Preamble be used as an aid to interpretation of a statute?
SUGGESTED ANSWERS
Thus, it can be said that the said notice was made by adequate number of members
within the prescribed time limit to Abhiyogic Ltd.
(b) As per Section 140(4) of the Companies Act, 2013: Where notice is given of a
resolution appointing as auditor a person other than a retiring auditor and the retiring
auditor makes with respect thereto representation in writing to the company (not
exceeding a reasonable length) and requests its notification to members of the
company, the company shall, unless the representation is received by it too late for it
to do so,—
(1) in any notice of the resolution given to members of the company, state the fact
of the representation having been made; and
(2) send a copy of the representation to every member of the company to whom
notice of the meeting is sent, whether before or after the receipt of the
representation by the company.
However, in the present case, Abhiyogic Ltd. received the representation made by
Chepal & Co. too late and accordingly it was not bound to send such representation
to its members even though it was requested by Chepal & Co. to do so.
Further, as per Section 140(4) of the Companies Act, 2013, if a copy of the
representation is not sent as aforesaid because it was received too late or because
of the company’s default, the auditor may (without prejudice to his right to be heard
orally) require that the representation shall be read out at the meeting such a copy of
representation thereof shall be filed with the Registrar.
Accordingly, Abhiyogic Ltd., apart from giving to right to be heard orally to Chepal &
Co. shall also made the representation read out at the AGM, if so required by Chepal
& Co., and shall also file such representation with the Registrar, respectively.
3. As per sub-clause (ixa) of Rule 2 (1) (c) of the Companies (Acceptance of Deposit) Rules,
2014, any amount raised by issue of non-convertible debentures not constituting a charge
on the assets of the company and listed on recognised stock exchange as per the
applicable regulations made by the Securities and Exchange Board of India, are not
considered as deposit.
Hence, ` 1 crore raised by Vrinda Limited will not be considered as deposit in terms of
sub-clause (ixa) of Rule 2 (1) (c).
4. As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on behalf
of a public company either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the formation of a public
company, shall be dated and signed and shall state such information and set out such
reports on financial information as may be specified by the Securities and Exchange Board
in consultation with the Central Government.
Provided that until the Securities and Exchange Board specifies the information and reports
on financial information under this sub-section, the regulations made by the Securities and
Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect
of such financial information or reports on financial information shall apply.
According to clause (c) of section 26 (1), the prospectus shall make a declaration about
the compliance of the provisions of the Companies Act, 2013 and a statement to the effect
that nothing in the prospectus is contrary to the provisions of this Act, the Securities
Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act,
1992 and the rules and regulations made thereunder.
Accordingly, the Board of Plum Limited which proposes to issue the prospectus shall
provide such reports on financial information as may be specified by the Securities and
Exchange Board in consultation with the Central Government to comply with the above
stated provisions and make a declaration about such compliance.
5. According to section 8 of the Companies Act, 2013, a company registered under this
section shall not alter the provisions of its memorandum or articles except with the previous
approval of the Central Government (the power has been delegated to Registrar of
Companies).
Also, a firm may be a member of the company registered under section.
Here, one of the matters of articles of Dhimaan Foundation was altered by passing a
special resolution in its general meeting and thereafter, intimation for the same was given
to Registrar of Companies.
As per the provisions of the Act, it is necessary to take previous approval of the Registrar
of Companies for the same which was not done in the present case and thus the contention
of Dhwaj & Co. was valid.
Also, section 8 allows a firm to be a member of such company and hence, Dhwaj & Co.
can be its member.
6. According to section 2(69) of the Companies Act, 2013, Promoter means a person: -
(a) Who has been named as such in a prospectus or is identified by the company in the
annual return; or
(b) Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board of Directors of
the company is accustomed to act.
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity.
As the job profile of Mr. Abhi is only limited to advise the Board of Directors on various
compliance matters, strategies, business plans and risk matters relating to busin ess of the
company and that too only in a professional capacity, he will not be classified as a Promoter
of XYZ Limited.
7. According to section 77(1) of the Companies Act, 2013 it shall be the duty of every
company creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise, and situated in or outside India, to register
the particulars of the charge signed by the company and the chargeholder together with
the instruments, if any, creating such charge in such form, on payment of such fees and in
such manner as may be prescribed, with the Registrar within 30 days of its creation .
However, under clause (b) of first proviso to section 77 (1) the Registrar is empowered to
extend the period of 30 days by another 30 days (i.e. sixty days from the date of creation)
on payment of prescribed additional fee.
(a) Krish Limited did not register the charge with the Registrar of companies till 15 th
March, 2021. In this case particulars of charge were not filed within the prescribed
period of 30 days (i.e. till 4 th March, 2021).
Taking advantage of clause (b) of first proviso to section 77 (1), Krish Limited should
immediately file the particulars of charge with the Registrar after satisfying him
through making an application that it had sufficient cause for not filing the particulars
of charge within 30 days of its creation.
(b) Clause (b) of second Proviso to Section 77 (1) provides another opportunity for
registration of charge by granting a further period of sixty days but the company is
required to pay ad valorem fees.
If the company realises its mistake of not registering the charge on 27 th May, 2021
instead of 15 th March, 2021, it shall be noted that a period of sixty days has already
expired from the date of creation of charge.
Since the first sixty days from creation of charge have expired on 3 rd April, 2021, Krish
Limited can still get the charge registered within a further period of sixty days from
3rd April, 2021 after paying the prescribed ad valorem fees. The company is required
to make an application to the Registrar in this respect giving sufficient cause for non -
registration of charge.
8. As per second proviso to Section 123(1) of the Companies Act, 2013 read with Rule 3 of
the Companies (Declaration and Payment of Dividend) Rules, 2014, where in any year
there is absence of profit or there are no adequate profits for declaring dividend, the
company may declare dividend out of the profits of any previous year transferred by it to
the free reserves, only in accordance with the procedure laid down.
The contract on a negotiable instrument until delivery remains incomplete and revocable.
The delivery is essential not only at the time of negotiation but also at the time of making
or drawing of negotiable instrument. The rights in the instrument are not transferred to the
indorsee unless after the indorsement the same has been delivered. If a person makes the
indorsement of instrument but before the same could be delivered to the indorsee the
indorser dies, the legal representatives of the deceased person cannot negotiate the same
by mere delivery thereof. [Section 57]
In the given case, cheque was indorsed properly but not delivered to indorsee i.e.
‘Rehansh’, Therefore, ‘Rehansh’ is not eligible to claim the payment of cheque.
11. The word ‘shall’ is used to raise a presumption of something which is mandatory or
imperative while the word ‘may’ is used to connote something which is not mandatory but
is only directory or enabling. However, sometimes Word ‘may’ has a mandatory force if
directory force will defeat the object of the Act.
However, sometimes the words “may and shall” can be interpreted interchangeably
depending on the intention of the legislator.
Ayush and Vipul, two CA students, are confused with the language of the provisions of
section 3 of the Companies Act 2013 that whether the word “may” used in section should
be considered as mandatory or directory.
In the given case, it can be said that the word “may” should be taken as mandatory force,
because the law will never allow the formation of company with unlawful object.
Here the word used “may” shall be read as “shall”. Usage of word ‘may’ here makes it
mandatory for a company for the compliance of section 3 for its formation.
12. While the Preamble can be used to know the aims and objects of the legislation it cannot
be used to control or qualify the precise and unambiguous language of an enactment. The
preamble is the key to the mind of the maker of the law, but it cannot override in order to
enlarge or restrict the enacting provision of the Act. A provision contained in the Act cannot
be considered as invalid because they do not accord with the preamble, which is only a
brief summary of legislative objectives behind the Act, and if there is any conflict between
the preamble and any provision of an Act, the provision prevails.
The preamble merely affords help in the matter of construction if there is any ambiguity.
Where the language of the Act is clear, the court is bound to give it effect.
When will courts refer to the preamble as an aid to construction?
Situation 1: Where there is any ambiguity in the words of an enactment the assistance of
the preamble may be taken to resolve the conflict.
Situation 2: Where the words of an enactment appear to be too general in scope or
application then courts may resort to the preamble to determine the scope or limited
application for which the words are meant.