CA Inter Corporate and Other Laws MCQ Test 11: answer key

Question 1 · 2 marks · Accounts of Companies · medium

Scenario. Nirvaan Agro Foods Limited is an unlisted public company with its registered office at Jaipur. Its articles authorise the Board to decide the place of keeping books of account. In the immediately preceding financial year it had net worth of ₹620 crore, turnover of ₹1,150 crore and net profit of ₹4.2 crore. On 6 May 2026 the Board resolved to keep all books at a leased storage facility in Gurugram, and the company filed Form AOC-5 on 19 May 2026. For 2025-26 it spent ₹1.80 crore on CSR projects and activities; general management and administration expenses within that amount were ₹12 lakh. One ongoing CSR project had ₹20 lakh unspent at 31 March 2026; the company transferred that amount to its Unspent CSR Account on 14 May 2026. The company also changed its registered office within Jaipur city by Board resolution on 2 April 2026 but did not give the Registrar notice within thirty days. Its CSR committee has three directors, one of whom is an independent director. The Board seeks advice on the books, CSR spending and connected compliance. Based on the facts above and the applicable provisions, answer MCQs q01 to q03.

On the keeping of books at Gurugram, which statement is correct?

1. Yes, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the Board may decide any place in India and Form AOC-5 may be filed within thirty days of the decision.
2. No, because books of account may be kept only at the registered office and no other place is permitted.
3. No, because Form AOC-5 giving the full address of the other place was required within seven days of the Board decision. (correct answer)
4. Yes, because the articles authorise the Board and no notice to the Registrar is needed for a place in India.

Answer: C — No, because Form AOC-5 giving the full address of the other place was required within seven days of the Board decision.

Explanation. Section 128(1), first proviso, permits the Board to decide another place in India, but the company must file Form AOC-5 within seven days of that decision. The Board decided on 6 May 2026; filing on 19 May 2026 was beyond seven days. Option (a) is tempting because the Board has power, but it states the wrong filing period. Option (d) ignores the notice requirement.

Where it goes wrong. Board power is correct, but the AOC-5 time limit is seven days, not thirty.

Authority. Companies Act 2013, s.128(1), first proviso; Rule 2A, Companies (Accounts) Rules 2014

Question 2 · 2 marks · Accounts of Companies · hard

For the ₹20 lakh unspent amount of the ongoing CSR project, what penalty is attracted for the delay in transferring it to the Unspent CSR Account?

1. The company is liable to ₹40 lakh and every officer in default to ₹2 lakh. (correct answer)
2. The company is liable to ₹20 lakh and every officer in default to ₹2 lakh.
3. The company is liable to ₹1 crore and every officer in default to ₹2 lakh.
4. The company is liable to ₹40 lakh and every officer in default to ₹20 lakh.

Answer: A — The company is liable to ₹40 lakh and every officer in default to ₹2 lakh.

Working. Company: 2 × 20,00,000 = 40,00,000; lower of 40,00,000 and 1,00,00,000 = 40,00,000. Officer: 1/10 × 40,00,000 = 4,00,000; lower of 4,00,000 and 2,00,000 = 2,00,000.

Explanation. Under section 135(6), unspent amount of an ongoing project must be transferred to the Unspent CSR Account within thirty days from the end of the financial year. For default under section 135(7), the company penalty is twice the amount required to be transferred or ₹1 crore, whichever is less: 2 × ₹20 lakh = ₹40 lakh. Each officer in default is liable to one-tenth of that amount or ₹2 lakh, whichever is less: ₹2 lakh. Option (c) uses the maximum cap without applying the lower amount.

Where it goes wrong. The statutory cap of ₹1 crore is not the penalty because twice ₹20 lakh is lower.

Authority. Companies Act 2013, s.135(6), s.135(7)

Question 3 · 2 marks · Accounts of Companies · medium

What is the legal position on the ₹12 lakh general management and administration expenses against CSR expenditure of ₹1.80 crore?

1. Valid, because administrative overheads may go up to ten per cent of CSR expenditure.
2. Not valid, because administrative overheads exceed five per cent of total CSR expenditure. (correct answer)
3. Valid, because only project implementation expenses count for the five per cent ceiling.
4. Not valid, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, administrative overheads cannot exceed two per cent of CSR expenditure.

Answer: B — Not valid, because administrative overheads exceed five per cent of total CSR expenditure.

Working. 5% of ₹1.80 crore = ₹9 lakh; ₹12 lakh > ₹9 lakh.

Explanation. Section 135(5) requires the Board to ensure that administrative overheads do not exceed five per cent of total CSR expenditure for the financial year. Five per cent of ₹1.80 crore is ₹9 lakh. The stated ₹12 lakh exceeds that ceiling. Option (a) uses ten per cent, which is not the CSR ceiling. Option (d) uses two per cent, which is the CSR spending rate, not the overhead ceiling.

Where it goes wrong. The two per cent CSR spend and five per cent overhead cap are different.

Authority. Companies Act 2013, s.135(5)

Question 4 · 2 marks · Incorporation of Company and Matters Incidental Thereto · hard

Scenario. Kalpavriksha Mobility Private Limited was incorporated on 5 January 2026 with share capital and registered office at Pune, Maharashtra. Its articles contain an entrenchment clause. It has two subscribers; one promoter is a body corporate. The Board wants to change the name to Bharat Mobility Limited, convert the company into a public company, shift the registered office to Surat, Gujarat, and commence borrowing. The proposed name change is not merely deletion of the word Private on conversion. The company has not filed its financial statements for 2025-26, though the filing became due on 30 October 2026. It filed Form INC-20A on 20 July 2026, declaring that subscribers had paid the value of shares. Its Board report for 2025-26 is ready but remains unfiled with those financial statements. A member asks whether the proposed steps can be taken in the present position. The Board seeks advice on name change, registered office and commencement. Based on the facts above and the applicable provisions, answer MCQs q04 to q06.

Can Kalpavriksha Mobility Private Limited change its name to Bharat Mobility Limited in the present position?

1. Yes, because the proposed change only removes the word Private on conversion, so no approval or filing condition applies.
2. Yes, because a special resolution for name change is enough even if financial statements are due.
3. No, because a company that has not filed financial statements due cannot change its name until it files them. (correct answer)
4. No, because every name change requires approval of the Tribunal.

Answer: C — No, because a company that has not filed financial statements due cannot change its name until it files them.

Explanation. Section 13(2) restricts a change of name where the company has not filed annual returns or financial statements due with the Registrar or has not paid matured deposits or debentures. The proposed change is not merely deletion of the word Private on conversion. Option (a) confuses the exemption for a mere Private deletion with a substantive new name. Option (d) is wrong because approval for this name change lies with the Central Government route, not the Tribunal.

Where it goes wrong. The exemption for adding or deleting Private on conversion does not apply to a new name.

Authority. Companies Act 2013, s.13(2)

Question 5 · 2 marks · Incorporation of Company and Matters Incidental Thereto · hard

Which course is required to shift the registered office from Pune, Maharashtra to Surat, Gujarat?

1. Board resolution, notice to the Registrar within thirty days, and a fresh certificate; no member approval is needed, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
2. Special resolution and approval of the Regional Director on Form INC-23; no newspaper advertisement is needed.
3. Special resolution, approval of the Central Government through the Regional Director on Form INC-23, advertisement in Form INC-26, and filing Form INC-28 with both Registrars within thirty days. (correct answer)
4. Ordinary resolution and approval of the Registrar; filing Form INC-22 within thirty days.

Answer: C — Special resolution, approval of the Central Government through the Regional Director on Form INC-23, advertisement in Form INC-26, and filing Form INC-28 with both Registrars within thirty days.

Explanation. A change of registered office from one State to another alters the situation clause and requires a special resolution. Section 13(4) requires Central Government approval on Form INC-23; the power is with the Regional Director. The company must advertise in Form INC-26 and file the certified order in Form INC-28 with the Registrar of each State within thirty days. Option (b) omits the advertisement. Option (d) uses the wrong form and resolution.

Where it goes wrong. INC-22 is for a change within the same Registrar's jurisdiction, not an inter-State shift.

Authority. Companies Act 2013, s.13(4), s.13(5), s.13(7)

Question 6 · 2 marks · Incorporation of Company and Matters Incidental Thereto · hard

What is the consequence of filing Form INC-20A on 20 July 2026 for a company incorporated on 5 January 2026?

1. No penalty, because Form INC-20A was filed before the first annual general meeting.
2. The company is liable to ₹50,000 and every officer in default to ₹1,000 per day up to ₹1,00,000. (correct answer)
3. The company is liable to ₹5,000 and every officer in default to ₹100 per day up to ₹50,000, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
4. Only the subscribers are liable; the company has no penalty.

Answer: B — The company is liable to ₹50,000 and every officer in default to ₹1,000 per day up to ₹1,00,000.

Working. 5 January 2026 + 180 days falls before 20 July 2026.

Explanation. Section 10A requires a declaration in Form INC-20A by a director within 180 days of incorporation. The 180-day period from 5 January 2026 ended before 20 July 2026. For default, the company is liable to ₹50,000 and every officer in default to ₹1,000 per day, subject to a maximum of ₹1,00,000. Option (c) uses the LLP-style lower amounts and is not the section 10A penalty.

Where it goes wrong. The 180-day period runs from incorporation, not from the first AGM.

Authority. Companies Act 2013, s.10A

Question 7 · 2 marks · Declaration and Payment of Dividend · medium

Scenario. Tulsi Chemicals Limited is a listed company. The Board's report for 2025-26 recommended a final dividend of 8% on equity shares of face value ₹10 each. The annual general meeting was held on 5 September 2026 and the shareholders approved the recommended rate. In the current financial year 2026-27 the company incurred a loss up to the quarter ended 30 June 2026. In the three immediately preceding financial years it had declared dividend at 7%, 11% and 12%. In July 2026 the Board declared an interim dividend of 12%. After the annual general meeting, dividend warrants for ₹8 lakh remained unpaid or unclaimed beyond thirty days from 5 September 2026. The company transferred that amount to its Unpaid Dividend Account on 18 October 2026. Some warrants had returned due to a bank mandate mismatch, but the company did not communicate this to the members. The company has not adjusted any amount against calls in arrears. A shareholder asks about the interim dividend rate and the consequences of the delayed transfer. Based on the facts above and the applicable provisions, answer MCQs q07 to q08.

What is the maximum rate at which the Board could declare interim dividend in July 2026 when the company had loss up to 30 June 2026?

1. 12%, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the Board may declare interim dividend at the last year's rate.
2. 10%, because the average of 7%, 11% and 12% is the ceiling when there is loss. (correct answer)
3. 11%, because the average of the two highest preceding rates applies.
4. 12%, because the loss arose after the quarter ended 30 June 2026.

Answer: B — 10%, because the average of 7%, 11% and 12% is the ceiling when there is loss.

Working. (7 + 11 + 12) / 3 = 30 / 3 = 10%.

Explanation. Section 123(3) proviso limits interim dividend where the company has incurred loss up to the quarter immediately preceding the declaration. The rate cannot exceed the average dividend declared in the immediately preceding three financial years. The average of 7%, 11% and 12% is 10%. Option (a) ignores the loss proviso. Option (d) misreads the quarter test.

Where it goes wrong. The average is of the immediately preceding three years, not the last rate or two highest rates.

Authority. Companies Act 2013, s.123(3), proviso

Question 8 · 2 marks · Declaration and Payment of Dividend · hard

What is the legal consequence of transferring ₹8 lakh unpaid dividend to the Unpaid Dividend Account on 18 October 2026?

1. Default from 13 October 2026; interest at 12% p.a. on ₹8 lakh until transfer. (correct answer)
2. No default, because the amount was transferred within fifteen days after the thirty-day period.
3. Default from 5 October 2026; interest at 18% p.a. on ₹8 lakh until transfer.
4. No interest, because the unpaid amount was below ₹10 lakh.

Answer: A — Default from 13 October 2026; interest at 12% p.a. on ₹8 lakh until transfer.

Working. 30 days from 5 September ends 5 October; 7 days end 12 October; default begins 13 October.

Explanation. Dividend was declared on 5 September 2026. The thirty-day period ended on 5 October 2026. Section 124 requires transfer to the Unpaid Dividend Account within seven days from expiry of that thirty-day period, i.e. by 12 October 2026. Transfer on 18 October 2026 was late. Default attracts interest at 12% p.a. on the amount not transferred from the date of default, 13 October 2026. Option (c) uses the section 127 interest rate of 18%, which applies to failure to pay dividend, not failure to transfer to the unpaid account.

Where it goes wrong. 12% applies to the unpaid dividend account; 18% applies to failure to pay declared dividend.

Authority. Companies Act 2013, s.124(1), s.124(3)

Question 9 · 2 marks · Foreign Exchange Management Act 1999 · hard

Scenario. Himadri Renewables Limited is an Indian company with its registered office in Ahmedabad. It wants to borrow USD 15 million from a lender in Singapore to import wind-turbine equipment. It also proposes to lend USD 1 million to its wholly owned subsidiary in Sri Lanka for working capital. The Indian company further proposes to issue a guarantee in favour of a bank in Singapore for a USD 2 million term loan taken by that subsidiary. The subsidiary is a person resident outside India. The borrowing is a debt instrument; the lending is not a short-term trade credit; the guarantee is not a statutory obligation. The company has not sought any specific approval and believes that all three steps are current account transactions because they relate to business operations. Its CFO asks whether the borrowings, lending and guarantee fall within the capital account framework and which authority's regulations apply to the borrowing. Based on the facts above and the applicable provisions, answer MCQs q09 to q11.

How is the proposed USD 15 million borrowing from the Singapore lender characterised, and which regulations apply?

1. Capital account; the borrowing is a debt instrument and RBI regulations apply. (correct answer)
2. Current account, because the loan funds business operations; no regulations apply.
3. Capital account; only Central Government regulations for non-debt instruments apply.
4. Prohibited, because an Indian company cannot borrow from a person resident outside India.

Answer: A — Capital account; the borrowing is a debt instrument and RBI regulations apply.

Explanation. A foreign currency borrowing alters the liabilities outside India of a person resident in India and is a capital account transaction under section 2(e). After the 2019 amendments, the Reserve Bank regulates capital account transactions involving debt instruments, while the Central Government regulates non-debt instruments. Option (b) treats a capital account borrowing as current account. Option (c) applies the non-debt route to a debt instrument.

Where it goes wrong. Debt instruments are under RBI; non-debt instruments are under the Central Government.

Authority. FEMA 1999, s.2(e), s.6(2), s.6(2A)

Question 10 · 2 marks · Foreign Exchange Management Act 1999 · medium

How is the proposed USD 1 million lending to the Sri Lanka subsidiary characterised?

1. Capital account and a permissible class for a person resident in India under Schedule I, subject to limits and conditions. (correct answer)
2. Current account, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, it is a short-term credit facility in ordinary business.
3. Prohibited, because an Indian company cannot lend to its overseas subsidiary.
4. Capital account requiring prior approval of the Tribunal.

Answer: A — Capital account and a permissible class for a person resident in India under Schedule I, subject to limits and conditions.

Explanation. A loan by a person resident in India to a person resident outside India alters assets outside India and is a capital account transaction. Schedule I to the FEMA (Permissible Capital Account Transactions) Regulations 2000 lists loans and overdrafts by a person resident in India to a person resident outside India as a permissible class, subject to limits and conditions. Option (b) wrongly treats it as a current account trade credit. Option (c) ignores the permissible class.

Where it goes wrong. Lending to an overseas subsidiary is capital account, not a routine current account payment.

Authority. FEMA 1999, s.2(e); FEMA (Permissible Capital Account Transactions) Regulations 2000, Schedule I

Question 11 · 2 marks · Foreign Exchange Management Act 1999 · hard

How is the proposed guarantee in favour of the Singapore bank for the subsidiary's loan characterised?

1. Current account, because a guarantee is only a contingent obligation.
2. Outside FEMA, because the guarantee is issued for a subsidiary.
3. Prohibited, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, guarantees in favour of overseas banks are not permitted.
4. Capital account and a permissible class for a person resident in India under Schedule I, subject to limits and conditions. (correct answer)

Answer: D — Capital account and a permissible class for a person resident in India under Schedule I, subject to limits and conditions.

Explanation. A guarantee issued by a person resident in India in favour of a person resident outside India is a capital account transaction because it can alter contingent liabilities outside India. Schedule I includes guarantees issued by a person resident in India in favour of a person resident outside India as a permissible class, subject to limits and conditions. Option (a) is tempting because a guarantee is contingent, but the definition expressly includes contingent liabilities.

Where it goes wrong. Contingent liabilities are within the capital account definition.

Authority. FEMA 1999, s.2(e); FEMA (Permissible Capital Account Transactions) Regulations 2000, Schedule I

Question 12 · 2 marks · Limited Liability Partnership Act 2008 · medium

Scenario. Nivaan Legal LLP was registered in 2023 with three partners: Aarav, Bina and Celerity Advisors Private Limited. Aarav and Bina were designated partners. In April 2026 Aarav died. The LLP continued its practice without any fresh registration and the remaining partners carried on client work. Celerity's nominee was not a designated partner; the LLP agreement is silent on the effect of a partner's death, and no notice of cessation was given to the Registrar. In May 2026 Bina, while handling a client matter, made a negligent statement that caused loss to the client. The client obtained an award against the LLP for ₹40 lakh. The LLP's assets are ₹25 lakh. The client wants to recover the balance from Bina and Celerity Advisors personally. Celerity Advisors contends that Aarav's death dissolved the LLP and that no recovery can be made from it. The partners seek advice on the effect of registration and liability. Based on the facts above and the applicable provisions, answer MCQs q12 to q13.

What is the effect of Aarav's death on the existence of Nivaan Legal LLP?

1. Yes, Aarav's death dissolved the LLP; the remaining partners must register a new LLP.
2. Yes, the LLP continued only as a partnership firm under the Indian Partnership Act, 1932.
3. No, but the LLP's registration lapses until a new partner is admitted.
4. No, the LLP continues as a body corporate with perpetual succession despite Aarav's death. (correct answer)

Answer: D — No, the LLP continues as a body corporate with perpetual succession despite Aarav's death.

Explanation. Section 3 provides that an LLP is a body corporate with perpetual succession and a legal entity separate from its partners. A change in partners, including death, does not affect the existence, rights or liabilities of the LLP. Option (a) applies firm dissolution ideas that do not fit an LLP. Option (b) is wrong because the Indian Partnership Act, 1932 does not apply to an LLP.

Where it goes wrong. Death of a partner does not dissolve an LLP; it continues as a body corporate.

Authority. LLP Act 2008, s.3

Question 13 · 2 marks · Limited Liability Partnership Act 2008 · hard

How far can the client recover the unpaid ₹15 lakh balance after exhausting the LLP's ₹25 lakh assets?

1. The client can recover the full balance from Celerity Advisors because it is a body corporate partner.
2. The client cannot recover anything because the LLP's liability is limited to ₹25 lakh in every case.
3. The client can recover the balance from all partners equally because the LLP's assets are insufficient.
4. The client can recover the balance from the LLP's assets only; Bina may be personally liable for her own wrongful act, but Celerity is not liable for that act. (correct answer)

Answer: D — The client can recover the balance from the LLP's assets only; Bina may be personally liable for her own wrongful act, but Celerity is not liable for that act.

Explanation. Under sections 27 and 28, an LLP's obligations are solely its own and are met out of its property; a partner is not personally liable merely for being a partner. A partner remains personally liable for his or her own wrongful act or omission, but not for another partner's wrongful act. Bina may therefore be personally liable for her negligent statement, while Celerity is not liable for that act. Option (c) ignores the limited liability of partners.

Where it goes wrong. The LLP's limited assets do not make every partner liable for the shortfall.

Authority. LLP Act 2008, s.27(3), s.27(4), s.28(1), s.28(2)

Question 14 · 2 marks · General Clauses Act 1897 · medium

Scenario. Prithvi Paints Limited discharged treated effluent into a canal from its plant in Vadodara. The same discharge was made the basis of two prosecutions: one under the Water Act for polluting a stream and another under the Environment Act for handling hazardous waste without care. The company contends that because the facts are the same, it cannot be prosecuted under the second enactment after the first complaint. In the Water Act case, the company was acquitted on a technical ground and no punishment was imposed. The Environment Act complaint includes an additional allegation that the company made a false statement in a return, which is not an ingredient of the Water Act offence. The company also argues that the acquittal bars the second case. The authority seeks advice on prosecution and punishment under two enactments. Based on the facts above and the applicable provisions, answer MCQs q14 to q15.

What is the position where the same act is an offence under two enactments?

1. The company can be prosecuted and punished under both enactments for the same act.
2. Only the enactment with the higher penalty applies.
3. Only the enactment enacted first applies; the second is void.
4. The company can be prosecuted and punished under either or any of the enactments, but not twice for the same offence. (correct answer)

Answer: D — The company can be prosecuted and punished under either or any of the enactments, but not twice for the same offence.

Explanation. Section 26 of the General Clauses Act, 1897 provides that where an act or omission constitutes an offence under two or more enactments, the offender may be prosecuted and punished under either or any of those enactments, but shall not be punished twice for the same offence. Option (a) ignores the bar on double punishment. Options (c) and (b) invent rules about priority or higher penalty that section 26 does not contain.

Where it goes wrong. Prosecution under both is possible; punishment twice for the same offence is not.

Authority. General Clauses Act 1897, s.26

Question 15 · 2 marks · General Clauses Act 1897 · hard

Does the acquittal in the Water Act case bar the Environment Act prosecution, which has an additional false-statement allegation?

1. The acquittal bars the second case because the facts are the same.
2. The second case is barred because Article 20(2) applies whenever two enactments are involved.
3. The second case is not barred if the offences are distinct and the second complaint has an additional ingredient; the bar applies only to the same offence. (correct answer)
4. The second case can proceed only with sanction of the Tribunal.

Answer: C — The second case is not barred if the offences are distinct and the second complaint has an additional ingredient; the bar applies only to the same offence.

Explanation. Section 26 and Article 20(2) bar double punishment for the same offence. They do not bar separate prosecutions where the offences are distinct and not identical. The Environment Act complaint has an additional ingredient, the false statement in a return, which is not an ingredient of the Water Act offence. Therefore, the acquittal in the first case does not automatically bar the second. Option (b) overstates Article 20(2).

Where it goes wrong. A different additional ingredient can make the offence distinct, so the double-jeopardy bar does not apply.

Authority. General Clauses Act 1897, s.26; Constitution of India, Article 20(2)