C Law Test 8 Solution

Company Law
Solution
Part 1 MCQs
1. b
2. b
3. a
4. d
5. b
Part 2
Ans 1
Ultra vires borrowing
If a company borrows money without or in excess of the powers conferred on it

by memorandum, the borrowing is ultra vires the company.
Types Of Borrowings
Borrowing by issuing debentures
Effectively, any security issued by a company to raise capital, other than a share,
is a debenture. A public company may issue debentures to public or may issue
debentures to any persons privately. Debentures may be secured or unsecured.
Borrowing from credit institutions
Credit institutions include the commercial banks, investment banks, non-banking

finance companies, modaraba and all other business organisations providing
facilities for loan against the interest or sometimes against participation in
profits of the company as per agreed terms. These loans too, usually are secured
against the assets of the company.
Borrowing from other sources
Other sources for obtaining loans may include the sponsors or controlling
shareholders of the company. This type of financing is usually unsecured,
however, it may be secured against the assets of the company.
Ans 2
(a) There is no issue in this case as deadline to register mortgage is 30th July
2020.
(b) According to companies act 2017 if the company or interested persons fails
or neglects to register the mortgage or charge as aforesaid, the mortgage
or charge would become void and shall not be accepted as such by the
liquidator or any creditor. However, this shall not affect any contract or
obligation for repayment of the money secured by such unregistered
mortgage or charge. Hence non registration does not mean that terms of
contract of mortgage has become invalid. So property cannot be sold by
MNA limited.
(c) Mr. Saud cannot be reused for inspection as according to the companies act
2017 the register of charges maintained and the copies of instrument
creating any mortgage and charge or modification thereof shall be open to
inspection of:
any member or creditor of the company without fee; and
any other person on payment of such fee as may be fixed by the
company for each inspection.
The refusal of inspection of the said copies or the register shall be an
offence and any person guilty of an offence shall be liable to a penalty of
level 1 on the standard scale, and every officer of the company who
knowingly authorises or permits the refusal shall incur the like penalty, and
in addition to the above penalty, the registrar may by order compel an
immediate inspection of the copies or register.
Ans 3
Firangi limited should submit intimation of satisfaction up to 8 November 2021.
Further they have to follow the following procedure in accordance with
companies act 2017
Show cause notice to lender
The registrar shall, on receipt of intimation of payment or satisfaction by

company, cause a notice to be sent to the holder of the mortgage or charge
calling upon him to show cause within such time not exceeding 14 days, as may
be specified in such notice, as to why payment or satisfaction in full shall not be
recorded as intimated to the registrar.
If no cause is shown
If no cause is shown, by such holder of the mortgage or charge, the registrar shall
accept the memorandum of satisfaction and make an entry in the register of
charges kept by him.
If any cause is shown
If any cause is shown, the registrar shall record a note to that effect in the register
of charges and shall inform the company.
When show cause notice is not required
The show cause notice referred as above shall not be required if a no objection
certificate on behalf of the holder of the mortgage or charge is furnished, along-
with the intimation submitted for the payment or satisfaction.
Effect of delay
If a company fails to file the particulars of satisfaction of mortgage or charge

within the 30 days’ period, the required particulars may be submitted with the
additional fee, as may be specified and imposing the penalty as specified.
Ans 4
(a)
Forms of Security
Pledge
The Contract Act, 1872 defines pledge as “a bailment of goods as security

for the repayment of a debt or performance of a promise”. The pledge relates
to moveable assets whose physical possession is with the lender as security.
Mortgage
The Transfer of Property Act, ,1882 defines mortgage as “the transfer of an

interest in specific immoveable property for the purpose of securing the
payment of money advanced or to be advanced by way of loan, an existing
or future debt, or the performance of an engagement which may give rise to a
pecuniary liability ”. A mortgage relates to immovable assets when there is
transfer of title (an interest) to lender as security.
Charge
According to the Transfer of Property Act, 1882 a charge is security for the
payment of a debt or other obligation that does not pass ‘title of the property’ or
any right to its possession to the person to whom the charge is given.
A charge may relate to any asset that the lender has right to take possession in
event of company’s default to pay the loan.
The two broad categories of charge are:
Fixed charge: The charge which is created on identified assets like specific land
and building, specific plant and machinery, etc.
Floating charge: The charge is created over class of assets which changes over
time like debtors, stock, etc. or the entire undertaking of the company.
Definition: mortgage or charge
“mortgage or charge” means an interest or lien created on the property or assets

of a co mpany or any of its undertakings or both as security.
(b)
The Companies Act 2017 requires that the following charges (including
mortgage and pledge) must be registered:
a) a mortgage or charge on any immovable property wherever situate, or any

interest therein; or
b) a mortgage or charge for the purposes of securing any issue of debentures;
c) a mortgage or charge on book debts of the company;
d) a floating charge on the undertaking or property of the company, including

stock-in-trade; or
e) a charge on a ship or aircraft, or any share in a ship or aircraft;
f) a charge on goodwill or on any intellectual property;
g) a mortgage or charge or pledge, on any movable property of the company;
h) a mortgage or charge or other interest, based on agreement for the issue of

any instrument in the nature of redeemable capital; or
i) a mortgage or charge or other interest, based on conditional sale agreement,

namely, lease financing, hire-purchase, sale and lease back, and retention of
title, for acquisition of machinery, equipment or other goods.

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Company Law

Ultra vires borrowing

If a company borrows money without or in excess of the powers conferred on it

Borrowing by issuing debentures

Borrowing from credit institutions

Credit institutions include the commercial banks, investment banks, non-banking

Show cause notice to lender

The registrar shall, on receipt of intimation of payment or satisfaction by

If any cause is shown

When show cause notice is not required

If a company fails to file the particulars of satisfaction of mortgage or charge

The Contract Act, 1872 defines pledge as “a bailment of goods as security

The Transfer of Property Act, ,1882 defines mortgage as “the transfer of an

The two broad categories of charge are:

Definition: mortgage or charge

“mortgage or charge” means an interest or lien created on the property or assets

a) a mortgage or charge on any immovable property wherever situate, or any

b) a mortgage or charge for the purposes of securing any issue of debentures;

c) a mortgage or charge on book debts of the company;

d) a floating charge on the undertaking or property of the company, including

e) a charge on a ship or aircraft, or any share in a ship or aircraft;

f) a charge on goodwill or on any intellectual property;

g) a mortgage or charge or pledge, on any movable property of the company;

h) a mortgage or charge or other interest, based on agreement for the issue of

i) a mortgage or charge or other interest, based on conditional sale agreement,

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