CA Inter Corporate and Other Laws MCQ Test 14: answer key

Question 1 · 2 marks · Incorporation of Company and Matters Incidental · hard

Scenario. Kaveri Grid Solutions Private Limited was incorporated on 12 January 2026 with objects covering smart-grid software and activities incidental or ancillary to it. Its subscribers took 10,000 equity shares each; one subscriber paid the subscription amount through a bank transfer before incorporation. Another subscriber is a body corporate whose authorised signatory signed the memorandum. The registered office is in Coimbatore. In March 2026 the company allotted 2,000 cumulative preference shares to a family trust without altering its articles. On 3 February 2026 the Board decided to start operations and borrow ₹75 lakh from a bank. On 20 February 2026 the bank asked for the certificate of incorporation and the declaration about payment of subscription money. The company had not filed the declaration in Form INC-20A and had not submitted the registered-office confirmation. On 5 March 2026 the Board shifted the registered office from one building to another within Coimbatore and filed Form INC-22 with the Registrar on 2 April 2026. In April 2026 the promoters wanted to change the name to Kaveri Grid Technologies Private Limited; the company had not filed its annual return for the year ended 31 March 2026, and the Board proposed to pass only a board resolution. The Board seeks advice on commencement, registered-office change and name change.

On the facts stated, what is the legal position about Kaveri Grid Solutions Private Limited commencing business and borrowing on 3 February 2026?

1. It could commence business and borrow because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, incorporation itself confers all powers, and the declaration under section 10A is needed only before the first annual general meeting.
2. It could not commence business or exercise borrowing powers until it filed the registered-office confirmation and the declaration that subscribers had paid the value of shares, and the declaration is due within 180 days of incorporation. (correct answer)
3. It could borrow but not commence business because section 10A applies only to companies with share capital and borrowing is outside its scope.
4. It could commence business after filing INC-20A within 180 days, but borrowing is permitted immediately because lenders can rely on the certificate of incorporation.

Answer: B — It could not commence business or exercise borrowing powers until it filed the registered-office confirmation and the declaration that subscribers had paid the value of shares, and the declaration is due within 180 days of incorporation.

Explanation. Section 10A permits a company with share capital incorporated after the 2019 amendment to commence business or exercise borrowing powers only after filing the registered-office confirmation under section 12(2) and the declaration in Form INC-20A that subscribers have paid the value of shares. The declaration is due within 180 days of incorporation. Option d is tempting but wrongly treats borrowing as immediately available.

Where it goes wrong. Borrowing is also covered by section 10A, not only commencement of business.

Authority. Section 10A; Section 12(2)

Question 2 · 2 marks · Incorporation of Company and Matters Incidental · medium

The shift of registered office from one building to another within Coimbatore and the filing on 2 April 2026 is challenged. Which statement is correct?

1. Valid, because a shift within the same city needs only a board resolution and intimation to the Registrar within 30 days of the change. (correct answer)
2. Invalid, because every change of registered office requires a special resolution and approval of the Regional Director.
3. Valid, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the Registrar's certificate of incorporation itself records the new address and no separate notice is needed.
4. Invalid, because the company had not filed INC-20A, so it could not change its registered office at all.

Answer: A — Valid, because a shift within the same city needs only a board resolution and intimation to the Registrar within 30 days of the change.

Explanation. A change of registered office within the same city or town is approved by the Board and notice in Form INC-22 is given to the Registrar within 30 days of the change. A special resolution and Regional Director approval are needed for certain shifts outside the local limits or from one Registrar's jurisdiction to another, not for a shift within the same city.

Where it goes wrong. Regional Director approval is not needed for every address change.

Authority. Section 12(4); Section 12(5)

Question 3 · 2 marks · Incorporation of Company and Matters Incidental · hard

The proposed name change by board resolution in April 2026 is considered. What is the correct legal position?

1. Valid, because change of name is a board matter if the new name adds the word Technologies and does not alter the object clause.
2. Invalid, because a change of name requires a special resolution of shareholders and written approval of the Central Government, and cannot be effected by a board resolution alone. (correct answer)
3. Valid, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a private company may change its name by ordinary resolution and need only inform the Registrar after issuing fresh certificates.
4. Invalid, because a name change always requires approval of the Tribunal and a special resolution of shareholders.

Answer: B — Invalid, because a change of name requires a special resolution of shareholders and written approval of the Central Government, and cannot be effected by a board resolution alone.

Explanation. Under Section 13(2), any change in the name of a company requires the passing of a special resolution and the approval of the Central Government in writing (delegated to the Registrar). A board resolution alone is legally insufficient to change the name of the company.

Where it goes wrong. Private company status does not remove the filing-default bar.

Authority. Companies Act, 2013, Section 13(2); ICAI Study Material, August 2025, Chapter 2, p. 2.45

Question 4 · 2 marks · Accounts of Companies · medium

Scenario. Sahyadri Wellness Limited is an unlisted public company with its registered office in Chennai and financial year ending 31 March 2026. On 6 May 2026 the Board decided to keep its books of account at its Kochi branch instead of the registered office. The company filed Form AOC-5 with the Registrar on 19 May 2026. It maintains books in electronic mode using software that allows entries to be edited or deleted without retaining an audit trail. On 1 July 2026 a director asked for financial information relating to the company's Dubai branch; the finance department supplied it only on 10 August 2026. The company preserved vouchers and books for the previous six years only. For CSR, the immediately preceding financial year figures are: net worth ₹410 crore, turnover ₹1,080 crore and net profit ₹6.2 crore. Average net profit of the three preceding financial years is ₹4.6 crore. The company spent ₹7 lakh on CSR and transferred ₹2 lakh relating to an ongoing project to the Unspent CSR Account after 40 days from the close of the financial year. While preparing the financial statements for 2025-26, the directors found that the statements for four preceding financial years did not comply with accounting standards and the deviation was not disclosed. They want to revise those statements without approaching the Tribunal. The shareholders question the compliance position.

What is the legal consequence of keeping books at Kochi and filing Form AOC-5 on 19 May 2026 after the Board decision on 6 May 2026?

1. Valid, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, books may be kept at any branch if the Board decides, and Form AOC-5 may be filed within 30 days of the decision.
2. Invalid, because books of account must always be kept at the registered office and cannot be kept at a branch in India.
3. Invalid, because the Board's decision permits the change, but notice in Form AOC-5 had to be filed with the Registrar within seven days of the decision. (correct answer)
4. Valid, because Form AOC-5 is needed only where books are kept outside India and not for a branch in Kochi.

Answer: C — Invalid, because the Board's decision permits the change, but notice in Form AOC-5 had to be filed with the Registrar within seven days of the decision.

Explanation. Under the proviso to section 128(1), books may be kept at another place in India if the Board decides, but the company must file Form AOC-5 with the Registrar within seven days of that decision. Filing on 19 May 2026 is beyond seven days from 6 May 2026, so the requirement is not met on time.

Where it goes wrong. The period is seven days, not thirty days.

Authority. Section 128(1); Rule 2A Companies (Accounts) Rules 2014

Question 5 · 2 marks · Accounts of Companies · hard

For FY2025-26, what is the correct position on CSR spending and CSR Committee for Sahyadri Wellness Limited?

1. CSR applies because turnover exceeds ₹1,000 crore, and a CSR Committee is compulsory because the prescribed spend exceeds ₹50 lakh.
2. CSR does not apply because net worth is below ₹500 crore and net profit is below ₹5 crore, even though turnover exceeds ₹1,000 crore.
3. CSR applies because turnover exceeds ₹1,000 crore; the minimum spend is 2% of average net profit of the three preceding financial years, and the Board may discharge the Committee's functions if the amount to be spent does not exceed ₹50 lakh. (correct answer)
4. CSR applies only if all three thresholds are crossed, so no spend is required because net worth is below ₹500 crore.

Answer: C — CSR applies because turnover exceeds ₹1,000 crore; the minimum spend is 2% of average net profit of the three preceding financial years, and the Board may discharge the Committee's functions if the amount to be spent does not exceed ₹50 lakh.

Working. 2% of ₹4.6 crore = ₹9.2 lakh, which is below ₹50 lakh.

Explanation. Section 135(1) applies if any one threshold is crossed. Turnover of ₹1,080 crore crosses the ₹1,000 crore limit. The spend is 2% of average net profit of three preceding years, i.e. 2% of ₹4.6 crore = ₹9.2 lakh. Since this does not exceed ₹50 lakh, section 135(9) allows the Board to discharge the Committee's functions.

Where it goes wrong. The Committee is not compulsory merely because CSR applies.

Authority. Section 135(1); Section 135(5); Section 135(9)

Question 6 · 2 marks · Accounts of Companies · hard

The directors propose to revise the financial statements of four preceding financial years without approaching the Tribunal, and they did not disclose the deviation from accounting standards. Which statement is correct?

1. The revision is valid for three preceding years by board resolution, and non-disclosure is cured if the deviation is mentioned in the next Board's report, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
2. The revision is not valid for four years and requires Tribunal approval; moreover, deviation from accounting standards must be disclosed with reasons and financial effects. (correct answer)
3. The revision is valid for four years because the company is unlisted, and disclosure of deviation is needed only in the auditor's report.
4. The revision is invalid because financial statements can never be revised after they are adopted; the only remedy is to reopen accounts under section 130.

Answer: B — The revision is not valid for four years and requires Tribunal approval; moreover, deviation from accounting standards must be disclosed with reasons and financial effects.

Explanation. Section 131 permits voluntary revision only for the three preceding financial years and only after Tribunal approval. Section 129(5) requires disclosure of any deviation from accounting standards, the reasons and the financial effects. A board resolution alone cannot support revision of four years, and the absence of disclosure is improper.

Where it goes wrong. Voluntary revision is not unlimited and is not by board resolution alone.

Authority. Section 131(1); Section 129(5)

Question 7 · 2 marks · Share Capital and Debentures · hard

Scenario. Vindhya Auto Components Limited is an unlisted public company. Its articles were altered last year by special resolution to authorise buy-back of securities. In 2022-23 the company failed to pay dividend on its cumulative preference shares; it cleared the entire outstanding dividend in September 2024. In 2025-26 it wants to issue equity shares with differential rights as to dividend and voting. It has not defaulted in filing annual accounts or annual returns for the three preceding financial years, and it has no subsisting default in repayment of matured deposits or redemption of preference shares. Its voting power in respect of shares with differential rights will be 68% of total voting power. Separately, the Board proposes to buy back 12% of the aggregate of paid-up equity capital and reserves by a board resolution. The debt-equity ratio after the buy-back will be 1.8:1, the shares to be bought back are fully paid, and the buy-back will be within the limits in section 68(2)(c). The company has not made any buy-back offer in the preceding year. The Board asks whether the differential-rights issue and the proposed buy-back are permissible.

Is Vindhya Auto Components Limited eligible in FY2025-26 to issue equity shares with differential rights?

1. Yes, because the default was made good in September 2024 and the company has no default in filing annual accounts or returns for the three preceding financial years.
2. No, because a company that has defaulted in payment of dividend on preference shares can never issue equity shares with differential rights.
3. No, because the five-year period is counted from the end of the financial year in which the default was made good, so eligibility arises only after that period. (correct answer)
4. Yes, because the five-year restriction applies only to listed companies and Vindhya is unlisted.

Answer: C — No, because the five-year period is counted from the end of the financial year in which the default was made good, so eligibility arises only after that period.

Explanation. Rule 4 permits issue of equity shares with differential rights after expiry of five years from the end of the financial year in which the default was made good. The default was made good in September 2024, so the relevant financial year ended 31 March 2025 and the five-year period is not over in FY2025-26.

Where it goes wrong. The waiting period runs from the end of the financial year in which the default is cured, not from the date of cure.

Authority. Rule 4 Companies (Share Capital and Debentures) Rules 2014; Section 43

Question 8 · 2 marks · Share Capital and Debentures · medium

The Board proposes buy-back of 12% of the aggregate of paid-up equity capital and reserves by board resolution. What is the correct position?

1. Valid, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, buy-back up to 25% of aggregate paid-up capital and reserves may be approved by board resolution if the debt-equity ratio after buy-back is within 2:1.
2. Invalid, because board resolution is available only where the buy-back does not exceed 10% of the aggregate of paid-up equity capital and reserves; 12% needs a special resolution. (correct answer)
3. Valid, because the articles authorise buy-back and the shares are fully paid, so no shareholder approval is needed for any amount up to 25%.
4. Invalid, because buy-back by an unlisted public company always requires Tribunal approval.

Answer: B — Invalid, because board resolution is available only where the buy-back does not exceed 10% of the aggregate of paid-up equity capital and reserves; 12% needs a special resolution.

Explanation. Under section 68(2), a special resolution is needed for buy-back unless the buy-back does not exceed 10% of the aggregate of paid-up equity capital and reserves and is authorised by a Board resolution. A 12% buy-back exceeds that limit, so a special resolution is required. The 25% ceiling is a different limit.

Where it goes wrong. The 10% board-resolution route is not the same as the 25% aggregate ceiling.

Authority. Section 68(2)

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

Scenario. Devansh, an Indian citizen, worked in Mumbai until August 2025. During 2024-25 he stayed in India for more than 200 days. On 1 September 2025 he joined a technology company in Toronto under a four-year employment contract. Before leaving India, he opened a Canadian bank account and bought shares of a Canadian company through permitted channels. He continues to own a flat in Jaipur and maintains savings accounts with Indian banks. His wife Ira accompanied him to Toronto but returned to India after five months to run her textile export unit in Jaipur, which she intends to operate permanently from India. Devansh supervises the Toronto branch of an Indian company whose head office in Gurugram controls that branch. In November 2025 Devansh wants to remit USD 40,000 from his Canadian account to his father in India as a gift. In December 2025 he wants to invest USD 100,000 from that account in shares of another Canadian company. The authorised dealer bank asks about the residential status of Devansh and Ira and the approvals needed for the proposed transactions.

What is Devansh's residential status under FEMA for FY2025-26?

1. Person resident outside India from 1 September 2025 because he left India for employment outside India, despite his stay in the preceding financial year. (correct answer)
2. Person resident in India throughout FY2025-26 because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, he stayed more than 182 days in FY2024-25 and owns a flat in Jaipur.
3. Person resident in India until 31 March 2026 because his wife returned to India within five months.
4. Person resident outside India for the entire FY2025-26 because he opened a Canadian bank account before leaving.

Answer: A — Person resident outside India from 1 September 2025 because he left India for employment outside India, despite his stay in the preceding financial year.

Explanation. Section 2(v) treats a person as resident in India if he stayed more than 182 days in the preceding financial year, but the definition excludes a person who goes out of India for employment outside India. Devansh left on 1 September 2025 for a four-year employment contract, so he becomes a person resident outside India from that date.

Where it goes wrong. Ownership of Indian assets does not decide FEMA residential status.

Authority. Section 2(v) FEMA 1999

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

What is Ira's residential status under FEMA after her return?

1. Person resident in India because she returned to carry on her export business in Jaipur with an intention to stay in India, and temporary accompaniment does not make her non-resident. (correct answer)
2. Person resident outside India because she accompanied her husband to Toronto and stayed there for five months.
3. Person resident outside India because her husband is a person resident outside India and her status follows his.
4. Person resident in India only if she stays in India for more than 182 days in FY2025-26, irrespective of the purpose of her return, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.

Answer: A — Person resident in India because she returned to carry on her export business in Jaipur with an intention to stay in India, and temporary accompaniment does not make her non-resident.

Explanation. Ira's temporary stay abroad to accompany her husband does not fall within the exception for leaving India for employment, business or an uncertain period. She returned to carry on her export business in Jaipur with an intention to stay in India, so she remains a person resident in India. A spouse's status does not automatically determine the other spouse's status.

Where it goes wrong. Accompanying a non-resident spouse does not by itself make a person non-resident.

Authority. Section 2(v) FEMA 1999

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

Devansh wants to remit USD 40,000 from his Canadian account to his father in India as a gift in November 2025. What is the correct position?

1. The remittance is a freely permitted current account transaction by a person resident outside India, and does not require prior approval of the Reserve Bank. (correct answer)
2. Prior approval of the Reserve Bank is needed because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, any gift by a person resident outside India to a resident is a capital account transaction.
3. The remittance is prohibited because a person resident outside India cannot send gifts to a resident in India.
4. Prior approval is needed because the amount exceeds USD 25,000 for gifts.

Answer: A — The remittance is a freely permitted current account transaction by a person resident outside India, and does not require prior approval of the Reserve Bank.

Explanation. Under Section 5 of FEMA, 1999, any person may sell or draw foreign exchange to or from an authorised person for a current account transaction unless it is prohibited or restricted. An inward gift remittance from a Person Resident Outside India (PROI) is a freely permitted current account transaction and does not require RBI approval. The USD 250,000 LRS limit applies only to outward remittances by resident individuals.

Where it goes wrong. The gift limit is not USD 25,000; that figure relates to other remittances.

Authority. FEMA, 1999, Section 2(w) and Section 5; Foreign Exchange Management (Current Account Transactions) Rules, 2000

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

Scenario. Suryansh Legal LLP was incorporated in 2024 with three partners, Meera, Nalin and Ojas. The LLP agreement is silent on the manner of sharing profits and on the rights of partners if a new partner is admitted. It only states that the designated partners will manage the bank account. Before incorporation, the subscribers signed an agreement with a client under which the proposed LLP was to take over a service contract. That pre-incorporation agreement was not ratified by all partners after incorporation. In 2026 the partners, by a majority, vary the fee-sharing arrangement without obtaining Meera's consent. Meera says that the variation is invalid because the original agreement did not permit any change and because the pre-incorporation agreement already binds the LLP. Nalin says that where the agreement is silent, the First Schedule to the LLP Act applies, and that a pre-incorporation agreement can bind the LLP only if ratified by all partners after incorporation. The partners seek advice on the effect of silence in the agreement and on the pre-incorporation agreement.

The LLP agreement is silent on how profits are to be shared. A dispute arises. Which statement is correct?

1. The partners must share profits equally in all cases because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, equality is the default rule under the LLP Act.
2. The LLP is invalid because every LLP agreement must provide a profit-sharing ratio.
3. The senior-most designated partner decides the sharing ratio if the agreement is silent.
4. The matter is governed by the First Schedule to the LLP Act where the agreement is silent on mutual rights and duties. (correct answer)

Answer: D — The matter is governed by the First Schedule to the LLP Act where the agreement is silent on mutual rights and duties.

Explanation. Section 23(4) provides that in the absence of an agreement on any matter, the mutual rights and duties of partners and of the LLP and its partners are determined by the First Schedule. Silence on profit sharing does not invalidate the LLP, and no partner can decide the ratio unilaterally.

Where it goes wrong. The default rule is not automatic equal sharing unless the First Schedule says so.

Authority. Section 23(4) LLP Act 2008; First Schedule LLP Act 2008

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

A pre-incorporation agreement was made between the subscribers and imposed an obligation on the LLP, but it was not ratified by all partners after incorporation. What is the effect?

1. The agreement binds the LLP automatically because the subscribers became partners on incorporation.
2. The agreement binds only the designated partners and not the LLP.
3. The agreement is void in all cases because an LLP cannot be bound by any pre-incorporation agreement.
4. The agreement may impose obligations on the LLP only if it is ratified by all partners after incorporation. (correct answer)

Answer: D — The agreement may impose obligations on the LLP only if it is ratified by all partners after incorporation.

Explanation. Section 23(3) allows a written agreement made before incorporation between the subscribers to impose obligations on the LLP only if it is ratified by all partners after incorporation. Without such ratification, the pre-incorporation agreement does not bind the LLP merely because the subscribers became partners.

Where it goes wrong. Subscribers becoming partners does not automatically ratify a pre-incorporation agreement.

Authority. Section 23(3) LLP Act 2008

Question 14 · 2 marks · Interpretation of Statutes · medium

Scenario. A State enacted the Trade Facilitation Act, 2025. Section 12 requires a licence for operating a processing unit. Section 18 states that notwithstanding anything in section 12, the designated authority may grant a temporary licence in an emergency. Section 22 contains a proviso that no temporary licence shall remain in force beyond 90 days. Section 25 imposes a general penalty for breach of the Act, while section 26 imposes a special penalty for operating a processing unit without a licence. During a supply crisis, the designated authority grants a temporary licence to a packaging unit for 120 days without calling for the usual inspection. The authority also imposes the general penalty under section 25 on the same unit for a different procedural breach. The unit argues that the temporary licence is valid for the full 120 days because the emergency power overrides every other provision, and that once the general penalty is imposed, no other penalty can be levied. The authority argues that the proviso to section 22 limits the temporary licence to 90 days and that the special penalty under section 26 can operate alongside the general penalty. The matter requires interpretation of the statute.

Section 12 requires a licence for a processing unit, while Section 18 allows the designated authority to grant a temporary licence in an emergency notwithstanding Section 12. The authority grants a temporary licence during an emergency. How should the provisions be read?

1. Section 12 prevails because a general provision always overrides a special provision.
2. Both provisions are void to the extent of conflict, and the authority must seek a fresh enactment.
3. Section 18 is invalid because it conflicts with Section 12 and must be ignored.
4. Section 18 prevails to the extent of the emergency because it is a special provision with a non-obstante clause, and the two provisions should be read harmoniously. (correct answer)

Answer: D — Section 18 prevails to the extent of the emergency because it is a special provision with a non-obstante clause, and the two provisions should be read harmoniously.

Explanation. Harmonious construction reads the statute as a whole. Section 18 is a special provision with a non-obstante clause and permits temporary licences in an emergency. It operates as an exception to the general requirement in section 12. The specific provision prevails to that extent, but the rest of section 12 continues to apply.

Where it goes wrong. A non-obstante clause does not destroy the general provision for all purposes.

Authority. Rule of Harmonious Construction; generalia specialibus non derogant

Question 15 · 2 marks · Interpretation of Statutes · hard

Section 22 contains a proviso that a temporary licence shall not remain in force beyond 90 days. The authority grants a temporary licence for 120 days. What is the correct interpretation?

1. The proviso states a general rule that all licences, including permanent licences, must end within 90 days.
2. The proviso applies only where the temporary licence is granted without an emergency.
3. The proviso is only directory, so the authority may grant a temporary licence for any period.
4. The proviso carves out an exception to the main provision and limits temporary licences to 90 days, so the grant beyond 90 days is not valid to that extent. (correct answer)

Answer: D — The proviso carves out an exception to the main provision and limits temporary licences to 90 days, so the grant beyond 90 days is not valid to that extent.

Explanation. A proviso ordinarily carves out an exception to or qualifies the main provision to which it is attached. The proviso to section 22 limits temporary licences to 90 days; it does not regulate permanent licences generally. A grant for 120 days exceeds the proviso and is invalid to the extent of the excess.

Where it goes wrong. A proviso is not a general rule for all licences.

Authority. Proviso; Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax