CA-IPCC LAW PAPER DATED:- 08-11-2013
Q.1.(B)
Minimum subscription is the minimum amount as stated in the
prospectus, which in the opinion
of directors must be raised by the issue of share capital to start
with. The amount shall be
utilised to meet the following expenditure:
·
Purchase price of the property bought or to be bought.
·
Any preliminary expenses
·
Underwriting commission
·
The repayment of money borrowed by the company for the
above purposes.
·
Working capital and
·
Any other expenditure stating the nature and purpose
with estimated amount in each case.
Section 69(3) of the Companies Act, 1956 provides the amount
payable on application on each share shall not be less than 5% of the nominal
amount of share capital and Part I of schedule II to the Companies Act
stipulates that a declaration should be made in the prospectus that if the
company does not receive the minimum subscription of 90% within 90 days from
the closing of the issue, the company must refund the amount. In case of development,
no time-limit is prescribed therein. Hence a company is believed to obtain the minimum
subscription plus development amount within 90 days of the closure of the
issue.
From the above provisions, it may be inferred that the amount of
minimum subscription cannot be less that 90% of the 5% of the nominal value of
the public issue, It may be noted that the public issue may be made for a sum
which is larger than the amount required by way of minimum subscription and the
minimum subscription may be stipulated as larger than the sum payable on
application.
The SEBI Regulations provides that if minimum subscription plus
development amount (i.e., the amount payable by underwriters in case of under
subscription of shares as per the underwriting, contract) if any, is not
received within a period of 120 days of the opening of the issue, all monies
received from the applicants for shares must be forthwith repaid to them
without interest. In case any such money is not repaid within 10 days after
such 120 days, the company shall be liable to repay that money with interest at
prescribed rate (presently 15% p.a).
The time limit requirements of 120 days differ from the provision
of schedule II of Companies Act which requires a time limit of 90 days from the
closing of the issue for obtaining minimum subscription.
Q.2(b)
Corporate Social Responsibility is the
continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and
their families as well as of the local community and society at large.
“Corporate Social Responsibility is an
integrated combination of policies, programs, education and practices which
extend throughout a corporation’s o perations and into the communities in which
they operate”.
“Corporate Social Responsibility is the
continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and
their families as well as of the local community and society at large”.
Benefits of CSR
Long run self interest: A better society would
produce a better environment in which the business can be profitable in the
long run.
Better public image: Good public image is
necessary for a business to secure more customers, better employees and higher
profit. Business can capture a favourable public image by supporting the
society’s interest and social goals.
Avoiding government
regulation or control: Regulation
and control are costly to business both in terms of energy and money and also
restricts its flexibilities of decision making.
Effective use of resources
and power: Businessmen
command considerable power over the productive resources of a community. They
are under an obligation to use those resources for the common good of society.
Conversion of resistance
into resources: Business
has the innovative ability to return social problems into economic
opportunities and functional capacity can be increased many times.
Minimizing environmental
damage: The
effluences of many businesses positively damage the surrounding environment.
Question.3(A) Discharge of a
contract:-
A contract may be discharged in
eight ways as discuss hereunder.
(a) Discharge by
performance: Discharge by performance will take place when there is
(i) Actual performance or (ii) Attempted
performance
Actual performance / discharge
takes place when parties to the contract fulfill their obligations within time
and in the manner prescribed. Here each party has done what he has to do under
the contract. In attempted performance the promisor offers to perform his part
but the promisee refuses to accept his part. This is also known as tender.
(b) Discharge by mutual
agreement: Discharge also takes place where there is substitution [novation]
rescission, alteration and remission. In all these cases old contract need not
be performed.
(c) Discharge by
impossibility of performance: A situation of impossibility may have existed at the
time of entering into the contract or it may have transpired subsequently (also
known as supervening impossibility)
Impossibility can arise when
·
there is an unforeseen change in law.
·
destruction of subject matter.
·
non-existence or non occurrence of a state of thing to
facilitate happening of the agreement.
·
personal incapacity of the promisor.
·
declaration of war.
(d) Discharge by lapse of
time: Performance of contract has to be done within certain prescribed
time. In other words it should be performed before it is barred by law of
limitation. In such a case there was no remedy for the promisee. For example,
where then the debt is barred by law of limitation.
(e) Discharge by operation
of law: Where the promisor dies or goes insolvent there is a discharge by
operation of law.
(f) Discharge by breach of
contract: Where there is a default by one party from performing his part of
contract on due date then there is breach of contract. Breach of contract can
be actual breach or anticipatory breach. Where a person repudiates a contract
before the stipulated due date, it is anticipatory breach. In both the events,
the party who has suffered injury is entitled for damages. Further he is
discharged from performing his part of the contract.
(g) A
promisee may remit the performance of the promise by the promisor. Here there
is a discharge. Similarly the promisee may accept some other satisfaction. Then
again there is a discharge on the ground of accord and satisfaction
(h) When a
promisee neglects or refuses to afford the promisor reasonable facilities or
opportunities for performance, promisor is excused by such neglect or refusal.
Q.6(a)
Registered office is the point of communication for any person
with the company. It is the channel to communicate grievance from the
shareholder
Procedure for shifting registered office from one state to
another: A company can change its registered office from one State to
another only for purpose specified in Section 17(1) of the Companies Act, 1956
and for no other purpose.
Resolution of the Board of Directors: The first
step in changing registered office is that the board of directors must adopt a
resolution to that effect.
Special resolution: A special resolution must be
passed by the company in the general body meeting of shareholders/members.
[Section 17(1)].
Confirmation by the CLB: The change shall not take effect
unless and until it is confirmed by the CLB on a petition by the Company.
[Section 17(2)].
Notice to affected parties: Before confirming the change the
CLB shall ensure that sufficient notice has been given to every person whose
interest will be affected by the change and that the consent creditors of the
company has been obtained or their debts or claims have been discharged or
secured. [Section 17(3)].
Notice to Registrar: The CLB shall cause notice of the
petition for confirmation of the change to be served on the Registrar. The
Registrar shall also be given a reasonable opportunity to appear before the CLB
and state his objections and suggestions, if any, with respect to the
confirmation of the alteration. [Section 17(4)].
The CLB as it may think fit impose such terms and conditions.
Copy of the order to be filed with ROC's: A
certified copy of the order confirming the alteration, together with a printed
copy of altered memorandum shall be filed by the company with the registrar. The
aforesaid copy of the order must be filed within three months from the date of
the order.
Q.6(b)
XYZ limited
FOR IMMEDIATE RELEASE: 14th
feb 2013
Our Extraordinary Performance in 2012-13
Nagpur, Maharashtra,12th feb 2013 –we are privileged to announce
that we have achieved extraordinary performance during the year 2012-13 in the
fields of Healthcare by winning an export promotion award for exceeding the
target of export by 20%.
We have achieved this target by
introducing 10 new life saving drugs by which we were able to export more then
our set targets. This remarkable increase has given us the new heights in the
industry and thereby increasing our overall profits by 30%.
On behalf of the Board we would like to
congratulate to our team who have shown extraordinary efforts to bring this
position.
For ABC Limited
Wardhaman Nagar Nagpur
.www.ABC life.com
Q.6 (C) (i)
The Statement is Incorrect:-
‘Agency’ is a comprehensive word used to describe the relationship
between one person and another, where the first mentioned person brings the
second mentioned person into legal relation with others.
Hence
the silent feature of agency
1. Basis:
The basic essence of ‘agency’ is that the principal is bound by
the acts of the agent and is answerable
to third parties.
2. Consideration
not necessary: Unlike other regular contracts, a contract of agency does not
need consideration. In other words, the
relationship between the ‘principal’ and ‘agent’ need not be supported by
consideration.
3. Capacity
to employ an agent: A person who is competent to contract alone can employ
4. Capacity
to be an agent: A person in order to be an agent must also be competent to
contract. In other words, he must also be a person who has attained majority
and is of sound mind.
Q.6 (c) (ii)
The Statement is Correct: -
A contract of guarantee is a contract to perform the promise made
or discharge liability incurred by a third person in case of his default
(Section 126).
Any guarantee given may be oral or written
There are three parties in a contract of guarantee. Surety- person
who gives the guarantee, Principal debtor- person in respect of whose default
the guarantee is given, Creditor- person to whom the gurantee is given.
Q.6 (C)(iii)
The Statement is correct: -
An important step in the formation of a company is to
prepare a document called memorandum of
association. It is the charter of the company and is very important
document as it contains the basic
conditions on which the company is incorporated
The Memorandum contains the name, registered office, main
and other objects of the company, liability of the members and the authorized
capital of the company. The main purpose of the memorandum is to limit the
scope of activities and powers of the company. Thus, any act outside the
memorandum is ultra vires the company. Such an act is not
enforceable and directors involve personal liability for it.
The Memorandum of Association is
compulsory for every company. But the Articles of Association are not compulsory for a Public Limited Company. Having
share capital.
Q.6(c)(iv)
Incorrect. A resolution shall be a special resolution when the
votes cast in favour of the resolution by members (whether on a show of hands,
or on a poll , or by proxy), are not less than three times the number of votes,
if any, cast against the resolution.
Q.4(A)
Buy Back of
own Shares : Sources of Funds etc.
A company
can purchase its own shares or other specified securities. The Purchase should
be out of:
(i) its free reserves; or
(ii) the securities premium account,. or
(iii) the proceeds of any shares or other specified
securities.
However, buy
back of any kind of other specified securities cannot be made out of the
proceeds of an earlier issue of the same kind of shares or same kind of other specified securities [Section 77A(i)].
‘Specified
securities’ includes employees’ stock option or other securities as may be
notified by the Central Government from time to time (Explanation (a) section
77A).
In
accordance with the provisions of the Companies Act, 1956, as contained in
section 77A, the company deciding for buy back of shares must pass a special
resolution in a general meeting of its members authorizing the company for the
buy back. Secondly, the buy back is or less than
25% of the total paid-up capital and free
reserves of the company.
Taking into
account these two provisions (conditions) itself, the questions as asked in the
problem can be answered as under:
1. The company’s proposal for buy-back is not in
order as it has passed only an ordinary resolution and the percentage of 30%
buy-back is in violation of the provisions
2. The answer to the second question shall also
be the same since there also the resolution passed by the company is an
ordinary resolution and not special resolution, though the percentage of
buy-back, i.e. 20% is not violative.
Or
Conditions
of Buy Back
Section 77A of the Companies Act,1956
provider for a company to purchase its own shares or other specified securities
subject to certain conditions and regulations. Thus the Act says that no
company shall purchase its own shares or other specified securities unless-
(a) the buy–back is authorised by its articles;
(b) a special resolution has been passed in the general meeting of the
company authorizing the buy–back;
Provided that nothing contained
in this clause shall apply in any case where:-
(1) The buy–back is of less than 10% of the total equity paid up
capital and free reserves of the company; and
(2) Such buy–back has been authorised by the board by means of
resolution passed at its meeting;
(c) the buy–back is or less than 25% of the total paid up capital or
free reserves of the company
(d) the ratio of the debt owned by the company is not more than twice
the capital and its free reserves after such buy–back;
(e) all the shares or the specified securities for buy–back are fully
paid up;
(f) the buy–back of the shares or other specified securities listed on
any stock exchange is in accordance with the regulations made by Securities
Exchange Board of India in this behalf;
(g) the buy–back in respect of shares or other specified securities
other than those specified in clause (f) is in accordance with the guidelines
as may be prescribed.
Time limit for completion of buy–back: Every
buy–back shall be completed within 12 months from the date of passing the
special resolution or a resolution passed by the Board under the clause (b) of
sub– section (2) of Section 77A.
Q.4 (B)
Mahatma Gandhi said that
seven things will destroy us. Notice that all of them have to do with social
and political conditions. Note also that the antidote of each of these
"deadly sins" is an explicit external standard or something that is
based on natural principles and laws, not on social values.
1. . Wealth without work
2.
Pleasure without conscience
3.
Knowledge without Charter
4.
Commerce without morality
5.
Science without humanity
6.
Religion without scarifies
7. Politics without
principal
Q.4.(C)
Draft minutes of statutory meeting for
ABC limited
Ms. - MEMBER
Ms. - MEMBER
Ms. - MEMBER
Mr. - MEMBER
Mr. - MEMBER
Ms. ____________was elected as the Chairperson
1.
Notice.
The notice convening the meeting was read by
the Chairperson.
2.
The Chairperson reported that the meeting was called to comply with the
provisions of the Section 165 of the Companies Act, 1956.
3.
The Chairperson informed the members present that a list showing the
names,occupation and addresses of the members of the Company and the number of shares held by them respectively was ready for
inspection and would remain open during the continuance of the meeting.
4.
With the permission of members, the Statutory Report having been duly circulated
among
the members was taken as read.
The
Chairperson explained the position of the company and progress made since
incorporation of the Company and invited the members to ask the questions on
matters contained in the Statutory
Report and pertaining to the formation of the Company.
After
answering the queries raised by the members, the Chairperson proposed the following resolution which was seconded by Mr.
_______
“RESOLVED THAT the Statutory Report dated Date
as circulated among the members and forwarded to the Registrar of Companies,
Mumbai be and is hereby considered, approved and adopted.”
The meeting concluded with a vote of thanks to
the Chair.
__________
CHAIRPERSON
Dated:
Place:
Q.5(a)
Dishonour of cheque by banker:
A banker is justified to dishonour a cheque in the following
circumstances:
1. If a cheque is
undated.
2. If it is stale -
i.e. not been presented within reasonable period.
3. If the instrument
is inchoate or not free from reasonable doubt.
4. When cheque
presented before ostensible date.
5. When customer’s
funds are not properly applicable.
6. When customers
draws cheque upon another branch of the same bank.
7. If the banker
receives notice of customer’s insolvency or lunacy.
8. If the customer
countermands the payment of cheque.
9. If the court has
given order to the Banker not to make payments.
10. If the customer dies
and there is notice to the Banker.
11. If notice in respect
of closure of the account is served by either party on the other.
12. If it contains
material alteration.
Q.5(b)
Shelf Prospectus: According to Section 60-A as inserted by the Companies
(Amendment) Act, 2000, ‘Shelf Prospectus’ means a prospectus issued by any
financial institution or bank for one or more issues of the securities or class
of securities specified in that prospectus.
Any public financial institution, a public sector bank or
scheduled bank whose main object is financing, shall file a shelf prospectus.
‘Financing’ means making loans to or subscribing in the capital of, a private
industrial enterprise engaged in infrastructural financing, or such, other
company as the Central Government may
notify in this behalf.
A company filing a shelf prospectus with the Registrar shall not
be required to file prospectus afresh at every stage of offer of securities by
it within a period of validity of such shelf prospectus. It shall be required
to file an information memorandum. On all material facts relating to new
charges created, changes in the financial position as have occurred between the
first offer of securities, previous offer of securities and the succeeding
offer of securities within the time prescribed by the Central Govt., prior to
making of a second or subsequent offer of securities under the shelf
prospectus.
An information memorandum shall be issued to the public along with
shelf prospectus filed at the stage of the first offer of securities and such
prospectus shall be valid for a period of one year from the date of opening of
the first issue securities under that prospectus.
6. Compliance with law: Ethical
programs helps to avoid criminal acts “of omission” and reduce fines, focus on
ethical programs results in early identification of ethical issues and
violations, so that they can be reported or addressed.
Q.5(C)
An Act to provide, keeping in view of the economic
development of the country, for the establishment of a Commission to prevent
practices having adverse effect on competition, to promote and sustain
competition in markets, to protect the interests of consumers and to ensure
freedom of trade carried on by other participants in markets, in India, and for
matters connected therewith or incidental thereto.
It extends to the whole of India except the State
of Jammu and Kashmir. It
shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint:
Salient
features:-
Prohibits
Anti Competitive Agreements Sec (3)
Prohibits
abuse of dominant position Sec.(4)
Provides
for Regulation of Combinations Sec(5,6)
Enjoin
competition Advocacy Sec.(49)
Q.7(a)
The EPF & MP Act, 1952 does not apply to:
(a) Any
establishment registered under the Co-operative Societies Act, 1912, employing
less than 50 persons and working without the aid of power; or
(b) To any
other establishment belonging to or under the control of the Central Government
or a State Government and whose employees are entitled to the benefit of
contributory provident fund or old age pension in accordance with any scheme or
rule framed by the Central Government or the State Government governing such
benefits; or
(c) To any
other establishment set up under any Central, Provincial or State Act and whose
employees are entitled to the benefits of contributory provident fund or old
age pension in accordance with any
scheme or rule framed under that Act governing such benefits; or
(d)
Any other establishment newly set
up until the expiry of 3 years from the date on which the establishment is, or
has been set up.
Q.7(B)
Pre-incorporation contracts are those contracts, which are entered
into, by the persons proposing to float a company for prospective company
before it has come into existence. Contracts which are entered into by a
company after obtaining the Certificate of Incorporation but before getting the
certificate to commence business are
known as provisional contracts.
Contracts entered into by a company after its incorporation and
before it is entitled to commence business are provisional only and are not
binding on the company until the trading certificate is issued [Sec. 149(4) of
the Companies Act, 1956]. The expressional “provisional” denotes that the
contract should be read subject to an implied term that it shall not be binding
until the company becomes entitled to commence business. Consequently, should
the company go into liquidation without commencing business, such contracts
cannot be enforced at all.
The company which is not in existence, is not bound by the
pre-incorporation contracts unless the company adopts the same after
incorporation. There can be no ratification in case of pre-incorporation
contracts. Provisional contracts on the other hand shall be binding upon the
company from the date on which the company is entitled to commence business.
Q.7(C)
The given problem is based on Cousins vs International
Brick Company Limited. In above case the court held that a proxy is appointed
to attend a meeting on an implied condition that he will attend if the person
appointing the proxy is himself unable to attend the meeting. But if the person
appointing also attends the meeting and casts the vote the proxy’s stand will
be cancelled.
Hence A can do so.
Q.7(e)
Improvement of society: Focus on business ethics
has substantially improved society. Exploitation
of workers and children, monopolistic price fixing and profiteering, harassment
of employees at workplace cannot be practiced by business enterprises now. The
society has reacted and demanded that business enterprises place high value on
fairness and equal rights, thus resulting in improved social welfare.
2. Maintaining moral course in
turbulent times: Business ethics is helpful during times of fundamental
change, when there is often no clear moral compass to guide leaders through
complex conflicts about what is right or wrong. Continuing focus on ethics in
the workplace sensitizes leaders and staff for maintaining consistency in their
actions.
3. Strong teamwork and productivity:
When an organization finds surprising disparity between its preferred
values and the values actually regarding values at the workplace builds
openness, integrity and community, all critical ingredients of strong teams in
the workplace. E mployees feel strong alignment between their values and those
of the organization, as well as motivation and performance of employees are
also improved.
4. Employee growth: Focus on the
ethics in the workplace helps employees face reality, both good and bad, in the
organization and gain the confidence of dealing with complex work situation.
5. Ensure that policies are legal: Attention
to ethics ensures highly ethical policies and procedures in the workplace. For example,
in matters of hiring, evaluating, disciplining, firing, etc. most firms feet
that it is for better to incur the cost of mechanisms to ensure practices than
to incur cost of litigation later.
