CA Inter Corporate and Other Laws MCQ Test 12: answer key

Question 1 · 2 marks · Share Capital and Debentures · hard

Scenario. Nirvaan Robotics Limited is an unlisted public company with paid-up equity share capital of Rs. 60 crore. Its articles authorise sweat equity shares. On 1 September 2025, it passed a special resolution authorising sweat equity shares of issue value Rs. 6 crore for 25 employees; the resolution stated the number, current market price, consideration and employee classes. Allotment was made on 5 September 2025. No other sweat equity shares were issued in FY 2025-26 before this issue, and the paid-up equity capital did not change. In February 2026, the Board used the same resolution to allot further sweat equity shares of issue value Rs. 4 crore to another group of employees. In September 2026, the company proposed one more allotment of Rs. 1 crore under that resolution. An allottee from the first issue, Ms. Ira, sought to transfer 800 shares to her cousin in August 2027; the proposed transferee is not an employee. The company filed the special resolution with the Registrar 50 days after passing it. The Board seeks advice on the February allotment, the September proposal and the transfer refusal.

What is the legal position of the further allotment of sweat equity shares of issue value Rs. 4 crore made in February 2026 under the same special resolution?

1. It is valid because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, it was made within twelve months of the special resolution and the resolution covered the class of employees.
2. It is invalid because the aggregate sweat equity issue in FY 2025-26 exceeds the higher of 15% of paid-up equity capital or Rs. 5 crore. (correct answer)
3. It is invalid because the cumulative sweat equity issue exceeds 25% of paid-up equity capital after the first issue.
4. It is valid because the Board can allot sweat equity shares without any annual ceiling once a special resolution is passed.

Answer: B — It is invalid because the aggregate sweat equity issue in FY 2025-26 exceeds the higher of 15% of paid-up equity capital or Rs. 5 crore.

Working. 15% of Rs. 60 crore = Rs. 9 crore; Rs. 6 crore + Rs. 4 crore = Rs. 10 crore.

Explanation. For sweat equity shares, the issue in a year cannot exceed the higher of 15% of existing paid-up equity capital or shares of issue value Rs. 5 crore. Here 15% of Rs. 60 crore is Rs. 9 crore. The first issue of Rs. 6 crore and the February issue of Rs. 4 crore aggregate to Rs. 10 crore in FY 2025-26, so the annual ceiling is crossed. The cumulative limit of 25% (Rs. 15 crore) is not crossed, so option c is the tempting but wrong reason.

Where it goes wrong. The resolution is still within 12 months, so the annual ceiling decides the issue.

Authority. Companies Act, 2013, s 54(1); Companies (Share Capital and Debentures) Rules, 2014, r 8(4)

Question 2 · 2 marks · Share Capital and Debentures · hard

What is the effect of the proposed allotment of Rs. 1 crore in September 2026 under the special resolution dated 1 September 2025?

1. It is valid because the amount is only Rs. 1 crore and within the cumulative 25% limit.
2. It is invalid because a special resolution authorising sweat equity allotment remains valid for making the allotment only for twelve months from the date of passing. (correct answer)
3. It is invalid because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a fresh special resolution is needed every six months for sweat equity shares.
4. It is valid because the Board can extend the life of the special resolution by a board resolution.

Answer: B — It is invalid because a special resolution authorising sweat equity allotment remains valid for making the allotment only for twelve months from the date of passing.

Working. Twelve months from 1 September 2025 ends on 1 September 2026.

Explanation. A special resolution authorising issue of sweat equity shares is valid for making the allotment for not more than twelve months from the date of passing. The resolution was passed on 1 September 2025, so it could support an allotment only up to 1 September 2026. The September 2026 proposal is outside that period. The amount being small or within the cumulative ceiling does not cure the expiry of the resolution.

Where it goes wrong. The 25% cumulative ceiling is satisfied, but the resolution has expired.

Authority. Companies Act, 2013, s 54(1); Companies (Share Capital and Debentures) Rules, 2014, r 8(3)

Question 3 · 2 marks · Share Capital and Debentures · medium

Can the company refuse to register Ms. Ira's transfer of 800 sweat equity shares in August 2027?

1. No, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, shares of an unlisted public company are transferable and sweat equity shares carry no restriction.
2. No, because the three-year lock-in ended on the date of the special resolution.
3. Yes, because sweat equity shares are locked in for three years from allotment, which continues till 5 September 2028. (correct answer)
4. Yes, because sweat equity shares can never be transferred.

Answer: C — Yes, because sweat equity shares are locked in for three years from allotment, which continues till 5 September 2028.

Working. Three years from 5 September 2025 ends on 5 September 2028.

Explanation. Sweat equity shares issued to directors or employees are subject to a lock-in for three years from the date of allotment. The first allotment was on 5 September 2025, so the lock-in continues till 5 September 2028. A transfer in August 2027 is within the lock-in and the company can refuse registration. The public company transfer rule does not override this specific lock-in, and the shares are not permanently non-transferable.

Where it goes wrong. Public company shares are generally transferable, but the sweat equity lock-in is a specific restriction.

Authority. Companies Act, 2013, s 54; Companies (Share Capital and Debentures) Rules, 2014, r 8(5)

Question 4 · 2 marks · Management and Administration · medium

Scenario. Kaveri Fresh Foods Limited is a listed public company with 1,250 members. Its annual general meeting was fixed for Tuesday, 30 September 2025 at 11:00 a.m. at the registered office in Kochi. The notice was sent by ordinary post to members on 4 September 2025. Due to a clerical mistake, the statutory auditor was not sent the notice. At 11:30 a.m., 13 members were personally present, including Mr. R, the authorised representative of a corporate member; four other shareholders attended through proxies. The Chairman counted all 17 persons and commenced business. The annual return was filed with the Registrar on 2 December 2025. The Board's report placed on the website did not give the web link of the annual return. The Board seeks advice on the validity of the meeting, the quorum and the annual return compliance.

What is the effect of the company not sending the AGM notice to the statutory auditor?

1. The meeting is invalid because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, every auditor must receive notice of a general meeting.
2. The meeting is not invalid because an accidental omission to give notice to a person entitled does not invalidate proceedings under section 101(4). (correct answer)
3. The meeting is invalid unless the auditor consents after the meeting.
4. The meeting is valid only if the Registrar condones the omission.

Answer: B — The meeting is not invalid because an accidental omission to give notice to a person entitled does not invalidate proceedings under section 101(4).

Working. Not applicable.

Explanation. Section 101(3) requires notice of a general meeting to be given to the auditor. However, section 101(4) provides that an accidental omission to give notice to, or non-receipt of notice by, any member or other person entitled does not invalidate the proceedings. The clerical mistake is an accidental omission, so the meeting is not invalid on this ground, though the company may face other consequences.

Where it goes wrong. The auditor is entitled to notice, but accidental omission does not invalidate the meeting.

Authority. Companies Act, 2013, s 101(3), s 101(4)

Question 5 · 2 marks · Management and Administration · hard

Was the quorum for the AGM satisfied when the Chairman commenced business at 11:30 a.m.?

1. Yes, because 17 persons including proxies were present.
2. Yes, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a corporate representative counts as two members.
3. No, because a public company with 1,250 members needs 15 members personally present, and only 13 were personally present; proxies are excluded. (correct answer)
4. No, because every AGM needs 30 members personally present.

Answer: C — No, because a public company with 1,250 members needs 15 members personally present, and only 13 were personally present; proxies are excluded.

Working. Members personally present = 13; required = 15; proxies = 4, excluded.

Explanation. For a public company with more than 1,000 but not more than 5,000 members, the quorum is 15 members personally present. A corporate representative is counted as a member present in person, but proxies are excluded. There were 13 members personally present, including the corporate representative, and four proxies. Quorum was not met within half an hour, so the meeting should stand adjourned.

Where it goes wrong. Proxies are not counted for quorum, but a corporate representative is.

Authority. Companies Act, 2013, s 103(1), s 103(2)

Question 6 · 2 marks · Management and Administration · hard

What is the company's liability for filing the annual return on 2 December 2025?

1. No liability because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the annual return was placed on the website.
2. Liability of Rs. 10,000 plus Rs. 100 for each day of continuing failure, subject to Rs. 2 lakh, under section 92(5). (correct answer)
3. Liability of Rs. 5,000 per day with no upper limit.
4. Liability of Rs. 1 lakh only, payable by the company secretary.

Answer: B — Liability of Rs. 10,000 plus Rs. 100 for each day of continuing failure, subject to Rs. 2 lakh, under section 92(5).

Working. 30 September 2025 + 60 days = 29 November 2025.

Explanation. The annual return was due within 60 days from 30 September 2025, that is, by 29 November 2025. Filing on 2 December 2025 was late. Under section 92(5), the company is liable to a penalty of Rs. 10,000 and, in case of continuing failure, Rs. 100 for each day during which the failure continues, subject to a maximum of Rs. 2 lakh. Placing it on the website does not remove the filing penalty.

Where it goes wrong. Website placement is not a substitute for filing with the Registrar.

Authority. Companies Act, 2013, s 92(4), s 92(5)

Question 7 · 2 marks · Audit and Auditors · hard

Scenario. Surya Udyog Limited is a listed company. Its audit committee approved a proposal in June 2025 for the statutory auditor, M/s Dhanush & Associates, to design and implement a new financial information system. The auditor accepted and completed the work for a fee. In August 2025, during the statutory audit, the auditor found that an employee had misappropriated Rs. 70 lakh through false bills. The auditor reported the matter to the audit committee after five days. The company’s Board report for FY 2024-25 did not disclose the fraud or remedial action. The auditor also signed the audit report. The Board seeks advice on the auditor's acceptance of the system work and the reporting of the fraud.

What is the legal position of M/s Dhanush & Associates accepting the work of designing and implementing the financial information system?

1. It is valid because the audit committee approved it.
2. It is valid because the fee was disclosed in the Board's report.
3. It is not valid because section 144 prohibits an auditor from rendering design and implementation of a financial information system, and approval does not cure it. (correct answer)
4. It is not valid only if the fee exceeds Rs. 5 lakh.

Answer: C — It is not valid because section 144 prohibits an auditor from rendering design and implementation of a financial information system, and approval does not cure it.

Working. Not applicable.

Explanation. Section 144 prohibits an auditor from rendering specified services to the company, its holding company or subsidiary, directly or indirectly. Design and implementation of a financial information system is one such prohibited service. Approval by the audit committee or Board does not make a prohibited service permissible. Accepting it exposes the auditor to penalty under section 147.

Where it goes wrong. Audit committee approval does not override the statutory prohibition.

Authority. Companies Act, 2013, s 144, s 147

Question 8 · 2 marks · Audit and Auditors · medium

How should the auditor have dealt with the Rs. 70 lakh fraud?

1. Report to the audit committee or Board immediately and not later than 2 days, with the Board report disclosing the prescribed particulars. (correct answer)
2. Report to the Central Government within 2 days in Form ADT-4, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
3. Report only to the statutory auditor of the holding company.
4. Wait for the Board report before reporting to anyone.

Answer: A — Report to the audit committee or Board immediately and not later than 2 days, with the Board report disclosing the prescribed particulars.

Working. Rs. 70 lakh is below Rs. 1 crore.

Explanation. For a fraud involving less than Rs. 1 crore, the auditor must report to the audit committee, if constituted, or to the Board, immediately but not later than two days of knowledge. The audit committee or Board must disclose the nature, approximate amount, parties involved and remedial action in the Board's report. Reporting to the Central Government is required for fraud of Rs. 1 crore or more. The auditor took five days, so the timeline was not met.

Where it goes wrong. The Rs. 1 crore threshold decides whether the Central Government is to be approached.

Authority. Companies Act, 2013, s 143(12); Companies (Audit and Auditors) Rules, 2014, r 13(3), r 13(4)

Question 9 · 2 marks · Foreign Exchange Management Act, 1999 · medium

Scenario. Helios Analytics Inc. is a company incorporated in Singapore. In April 2025 it opened a liaison office in Pune to explore the Indian market. The Pune office has no separate legal personality, is funded from Singapore and all decisions are taken in Singapore. In June 2025, Bharat Cloud Systems Limited, an Indian company with registered office in Bengaluru, opened a branch in Dubai. The Dubai branch is owned by Bharat Cloud and its operations are controlled from Bengaluru. Helios now wants to convert its liaison office into a branch to carry on consultancy business in India. Bharat Cloud wants to know the status of its Dubai branch for FEMA. The authorised dealer bank also asks which authority can regulate Helios's proposed branch in India.

What is the status of Helios Analytics Inc.'s Pune liaison office under FEMA, 1999?

1. Person resident in India because an office in India owned or controlled by a person resident outside India is a person resident in India. (correct answer)
2. Person resident outside India because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, Helios is incorporated in Singapore.
3. Not a person because a liaison office cannot be treated as a person.
4. Person resident in India only if it earns profit in India.

Answer: A — Person resident in India because an office in India owned or controlled by a person resident outside India is a person resident in India.

Working. Not applicable.

Explanation. Under section 2(v)(iii) of FEMA, 1999, an office, branch or agency in India owned or controlled by a person resident outside India is a person resident in India. The Pune liaison office is controlled from Singapore by Helios, a person resident outside India. Its status does not depend on earning profit in India, and a liaison office is covered as an office.

Where it goes wrong. The foreign parent is a non-resident, but its Indian office is treated as resident.

Authority. FEMA, 1999, s 2(v)(iii)

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

What is the status of Bharat Cloud Systems Limited's Dubai branch under FEMA, 1999?

1. Person resident in India because an office or branch outside India owned or controlled by a person resident in India is a person resident in India. (correct answer)
2. Person resident outside India because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, it is located outside India.
3. Person resident in India only if it is registered with the RBI.
4. Not a person because it is a branch.

Answer: A — Person resident in India because an office or branch outside India owned or controlled by a person resident in India is a person resident in India.

Working. Not applicable.

Explanation. Section 2(v)(iv) of FEMA, 1999 treats an office, branch or agency outside India owned or controlled by a person resident in India as a person resident in India. Bharat Cloud is an Indian company and controls the Dubai branch from Bengaluru. The location of the branch outside India does not make it a person resident outside India for this purpose.

Where it goes wrong. Location abroad does not decide status when an Indian resident owns or controls the branch.

Authority. FEMA, 1999, s 2(v)(iv)

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

Which authority may regulate Helios Analytics Inc.'s proposal to convert its liaison office into a branch in India?

1. The Registrar of Companies under the Companies Act, 2013 only.
2. No authority, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a foreign company may open a branch without any regulation.
3. The Central Government alone, with no role for the RBI.
4. The Reserve Bank of India by regulations under section 6(6) of FEMA, 1999, apart from other applicable requirements. (correct answer)

Answer: D — The Reserve Bank of India by regulations under section 6(6) of FEMA, 1999, apart from other applicable requirements.

Working. Not applicable.

Explanation. Section 6(6) of FEMA, 1999 empowers the Reserve Bank of India to prohibit, restrict or regulate, by regulation, the establishment in India of a branch, office or other place of business by a person resident outside India for carrying on activity relating to that branch or office. Helios is a person resident outside India. Company law requirements may also apply, but the FEMA power is with the RBI.

Where it goes wrong. The RBI's regulatory power is specific and not displaced by company law alone.

Authority. FEMA, 1999, s 6(6)

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

Scenario. Sahyadri Advisors LLP is an Indian LLP with three partners: Mr. Nilesh, Ms. Tara and Nordic Legal LLP, a foreign LLP registered in Norway. Nordic Legal LLP has established a place of business in India. The LLP agreement names Mr. Nilesh and Ms. Tara as designated partners; Ms. Tara stayed in India for 130 days in FY 2024-25. In August 2025, Mr. Nilesh resigned as designated partner and no new designated partner was appointed for 40 days. The LLP continued business during this period. The Board of Nordic Legal LLP asks whether it can be a partner in an Indian LLP and what compliance applies to the vacancy in designated partners.

Can Nordic Legal LLP, a foreign LLP, be a partner in Sahyadri Advisors LLP?

1. No, because only individuals can be partners in an Indian LLP.
2. No, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a foreign LLP cannot be a body corporate under the LLP Act, 2008.
3. Yes, because a body corporate includes a foreign LLP, and a body corporate may be a partner in an Indian LLP. (correct answer)
4. Yes, but only if it is first converted into an Indian company.

Answer: C — Yes, because a body corporate includes a foreign LLP, and a body corporate may be a partner in an Indian LLP.

Working. Not applicable.

Explanation. Under the LLP Act, 2008, a body corporate includes an LLP incorporated outside India. Section 5 allows any individual or body corporate to be a partner in an LLP. Therefore, a foreign LLP can be a partner in an Indian LLP. Conversion into an Indian company is not a prerequisite, and partnership is not confined to individuals.

Where it goes wrong. A foreign LLP is within the definition of body corporate.

Authority. LLP Act, 2008, s 2(1)(d), s 5

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

What is the correct legal position after Mr. Nilesh resigned as designated partner and no new designated partner was appointed for 40 days?

1. The LLP complied because a designated partner vacancy can remain open indefinitely.
2. Nordic Legal LLP automatically became the only designated partner.
3. The LLP was automatically dissolved on the 31st day.
4. The LLP had 30 days to appoint a designated partner; on failure, each partner is deemed a designated partner under the proviso to section 9, and the LLP is exposed to penalty under section 10. (correct answer)

Answer: D — The LLP had 30 days to appoint a designated partner; on failure, each partner is deemed a designated partner under the proviso to section 9, and the LLP is exposed to penalty under section 10.

Working. Vacancy arose in August 2025; 30 days expired before the 40-day period ended.

Explanation. Section 9 allows an LLP to appoint a designated partner within 30 days of a vacancy. Its proviso states that if no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner. Section 10 provides penalties for contravention of section 9. The LLP did not fill the vacancy within 30 days, so it cannot claim compliance.

Where it goes wrong. The deeming proviso does not erase the 30-day compliance requirement or the penalty.

Authority. LLP Act, 2008, s 7, s 9, s 10

Question 14 · 2 marks · Interpretation of Statutes · hard

Scenario. State enacted the Handloom Weavers Welfare Act, 2024. Section 4 gives a monthly supplement to 'home-based handloom weavers'. Section 21 imposes a penalty on any 'agent' who collects yarn from a weaver without a receipt. The authority denied the supplement to Ms. Leela, who weaves on a handloom installed in a rented shed near her home, reading 'home-based' narrowly. It also imposed a penalty on Mr. Faris, who collected yarn from a weaver but gave an oral acknowledgement instead of a receipt, reading 'agent' literally. Ms. Leela claims the welfare provision should receive beneficial construction; Mr. Faris claims a penal provision cannot be expanded beyond its words. The authority seeks advice on the approach to these two provisions.

Which approach is correct for deciding whether Ms. Leela is a 'home-based handloom weaver' under section 4?

1. Only dictionary meaning can be used because welfare statutes are construed literally.
2. The authority can deny the benefit because no penalty is provided for denial.
3. The provision must be construed narrowly because it uses the word 'home'.
4. Beneficial construction may be adopted because the provision aims to improve the conditions of a class and two reasonable meanings are possible; a handloom in a rented shed near her home may be covered. (correct answer)

Answer: D — Beneficial construction may be adopted because the provision aims to improve the conditions of a class and two reasonable meanings are possible; a handloom in a rented shed near her home may be covered.

Working. Not applicable.

Explanation. The rule of beneficial construction is used for provisions meant to improve the conditions of underprivileged classes. It permits an extended meaning where two constructions are reasonably possible and the wider one advances the welfare object. The facts show a handloom in a rented shed near the home, so the meaning of 'home-based' is not free from doubt. A narrow literal reading would defeat the welfare purpose.

Where it goes wrong. Beneficial construction is possible only where two meanings are reasonably open, not where the words are unequivocal.

Authority. Study Material, Interpretation of Statutes, Rule of Beneficial Construction

Question 15 · 2 marks · Interpretation of Statutes · hard

How should section 21, which imposes a penalty on an 'agent' who collects yarn without a receipt, be applied to Mr. Faris?

1. The penal provision can be expanded by beneficial construction to cover any person handling yarn.
2. The penal provision applies only if the agent is a company.
3. The penal provision cannot apply because no loss is shown to the weaver.
4. The penal provision must be read literally; if Mr. Faris is an agent and no receipt was given, the penalty applies, and oral acknowledgement is not a receipt. (correct answer)

Answer: D — The penal provision must be read literally; if Mr. Faris is an agent and no receipt was given, the penalty applies, and oral acknowledgement is not a receipt.

Working. Not applicable.

Explanation. A penal provision is construed literally and is not extended by analogy or beneficial construction to persons or situations not covered by its words. Section 21 applies to an 'agent' who collects yarn without a receipt. If Mr. Faris is an agent and no receipt was given, the penalty applies. An oral acknowledgement is not a receipt, and the provision does not require proof of loss to the weaver.

Where it goes wrong. Beneficial construction cannot be used to widen a penal provision.

Authority. Study Material, Interpretation of Statutes, Rule of Literal Construction