CA Inter Corporate and Other Laws MCQ Test 15: answer key

Question 1 · 2 marks · Management and Administration (Chapter 7); Audit and Auditors (Chapter 10) · hard

Scenario. Kaveri Spice Processing Limited is an unlisted public company with 1,240 members and registered office at Kochi. Its financial year ended 31 March 2026. The Board fixed the annual general meeting for 29 September 2026 at 10:00 a.m. at the registered office and approved the notice on 3 September 2026. The notice was sent to members by registered post on 3 September; by a clerical oversight, no notice was sent to the statutory auditor. At the meeting, 13 persons attended in person and 4 members attended through proxies. The chairman waited until 10:30 a.m., found that only 13 members were personally present, and adjourned the meeting to 6 October 2026 at the same time and place. On 6 October, 9 members were personally present; the chairman treated them as forming the quorum and passed an ordinary resolution for appointment of a director. The company has paid-up capital of ₹9 crore and turnover of ₹42 crore for 2025-26. It has no company secretary. The Board wants to know whether the AGM and the adjourned meeting were valid, and how the annual return for 2025-26 must be signed and whether it needs certification by a company secretary in practice. Based on the facts above and the applicable provisions, answer MCQs q01 to q03.

What is the effect of the omission to send the AGM notice to the statutory auditor?

1. The AGM is invalid because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the auditor is entitled to notice and the omission is not excused.
2. The AGM remains valid if the omission was accidental, though the company may face consequences for not forwarding the notice. (correct answer)
3. The AGM is invalid only if the auditor actually attended and objected at the meeting.
4. The AGM is valid because notice to the auditor is required only for Board meetings.

Answer: B — The AGM remains valid if the omission was accidental, though the company may face consequences for not forwarding the notice.

Explanation. Section 101(3) requires notice of a general meeting to be sent to the auditor. Section 101(4) provides that accidental omission to give notice, or non-receipt by any person entitled, does not invalidate the proceedings. A deliberate failure can still attract section 146 and penalty under section 147. Option (a) is tempting but ignores the accidental-omission protection.

Where it goes wrong. Thinking auditor notice is mandatory in every case and forgetting the accidental-omission rule.

Authority. sections 101(3), 101(4), 146, 147

Question 2 · 2 marks · Management and Administration (Chapter 7) · hard

Was the adjourned meeting validly constituted when 9 members were personally present?

1. No, because a public company with more than 1,000 members requires 15 members and that requirement continues at the adjourned meeting.
2. Yes, because at an adjourned meeting where quorum is absent, the members present form the quorum. (correct answer)
3. No, because the 4 proxies should be added to the original 13 to make up the quorum.
4. Yes, because 9 members exceed one-tenth of the 1,240 members.

Answer: B — Yes, because at an adjourned meeting where quorum is absent, the members present form the quorum.

Explanation. For a public company with more than 1,000 but up to 5,000 members, quorum is 15 members personally present. Proxies are not counted for quorum. The original meeting lacked quorum. Under section 103(3), if quorum is absent at the adjourned meeting also, the members present form the quorum. Hence the adjourned meeting was validly constituted.

Where it goes wrong. Counting proxies for quorum or applying the original quorum to the adjourned meeting.

Authority. section 103(2), 103(3)

Question 3 · 2 marks · Management and Administration (Chapter 7) · medium

How must the annual return for 2025-26 be signed and certified?

1. It must be signed by a director and a company secretary in practice, and certified by a company secretary in practice because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, turnover exceeds ₹50 crore.
2. It must be signed by a director and a company secretary in practice, but no certification by a company secretary in practice is required because paid-up capital is below ₹10 crore and turnover is below ₹50 crore. (correct answer)
3. It may be signed only by a director, and no company secretary in practice is needed because the company has no company secretary.
4. It must be signed by two directors, and certification by a company secretary in practice is required because it is a public company.

Answer: B — It must be signed by a director and a company secretary in practice, but no certification by a company secretary in practice is required because paid-up capital is below ₹10 crore and turnover is below ₹50 crore.

Explanation. Under section 92(1), the annual return is signed by a director and the company secretary; where there is no company secretary, by a company secretary in practice. Certification under section 92(2) is needed for a listed company or a company with paid-up capital of ₹10 crore or more or turnover of ₹50 crore or more. Here capital is ₹9 crore and turnover ₹42 crore, so certification is not required.

Where it goes wrong. Confusing signing with certification, or applying the ₹50 crore turnover test to ₹42 crore.

Authority. section 92(1), 92(2); Rule 11

Question 4 · 2 marks · Share Capital and Debentures (Chapter 4) · hard

Scenario. Nalanda Renewables Limited is an unlisted public company with paid-up equity capital of ₹20 crore, reserves available for distribution of ₹12 crore and securities premium of ₹4 crore. On 12 August 2026, the Board approved a rights issue of equity shares to existing shareholders. The letter of offer was dispatched on 20 August 2026 and stated that acceptances must be received by 30 August 2026. A shareholder, Mr. Pradeep, objected that the acceptance period was shorter than the period required by law. Separately, the company had defaulted in paying dividend on preference shares for 2025-26; it cleared the entire arrears on 18 June 2026. In September 2026, the Board proposed to issue equity shares with differential voting rights. The Board also proposed a buy-back of equity shares of ₹3 crore out of reserves and securities premium. The buy-back was approved by a Board resolution at a Board meeting, without a special resolution. The company wants advice on the rights issue acceptance period, the differential rights issue and the buy-back approval. Based on the facts above and the applicable provisions, answer MCQs q04 to q06.

Was the 10-day acceptance period for the rights issue valid?

1. Yes, because Rule 12A permits an acceptance period of not less than 7 days. (correct answer)
2. No, because section 62 requires at least 15 days and no shorter period is permitted.
3. No, because the offer must remain open for 30 days in every case.
4. Yes, because a public company may fix any period with consent of 90% of members.

Answer: A — Yes, because Rule 12A permits an acceptance period of not less than 7 days.

Explanation. Section 62(1)(a) requires the offer to specify a period of not less than 15 days or such lesser period as may be prescribed, and not more than 30 days. Rule 12A prescribes a minimum of 7 days. A 10-day period is therefore valid. Option (b) is the old 15-day impression, but the rule permits a shorter period.

Where it goes wrong. Applying the 15-day figure without the Rule 12A relaxation.

Authority. section 62(1)(a); Rule 12A

Question 5 · 2 marks · Share Capital and Debentures (Chapter 4) · hard

Can the company issue equity shares with differential rights in September 2026 after clearing the preference dividend arrears in June 2026?

1. No, because a company that made good such a default may issue only after five years from the end of the financial year in which the default was made good. (correct answer)
2. Yes, because no subsisting default exists on the date of issue.
3. Yes, because clearance within three months cures the default.
4. No, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, differential rights are prohibited for unlisted public companies.

Answer: A — No, because a company that made good such a default may issue only after five years from the end of the financial year in which the default was made good.

Working. Default made good in FY 2026-27; five-year wait runs from 31 March 2027.

Explanation. Rule 4 allows differential rights only if specified conditions are met. The note to Rule 4 states that where a default was made good, the company may issue such shares only upon expiry of five years from the end of the financial year in which the default was made good. The arrears were cleared in FY 2026-27, so a September 2026 issue is not permissible.

Where it goes wrong. Treating cure of default as immediate eligibility.

Authority. Rule 4, Companies (Share Capital and Debentures) Rules, 2014

Question 6 · 2 marks · Share Capital and Debentures (Chapter 4) · medium

Was a Board resolution sufficient for the buy-back of ₹3 crore?

1. Yes, because it does not exceed 10% of paid-up equity capital and reserves (including securities premium), which is ₹3.6 crore. (correct answer)
2. Yes, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, buy-back up to 25% of paid-up capital always needs only a Board resolution.
3. No, because any buy-back requires a special resolution.
4. No, because the amount exceeds 10% of paid-up equity capital alone.

Answer: A — Yes, because it does not exceed 10% of paid-up equity capital and reserves (including securities premium), which is ₹3.6 crore.

Working. 20+12+4=36; 10% of 36=3.6.

Explanation. Under section 68(2), a special resolution is not needed where the buy-back does not exceed 10% of the aggregate of paid-up equity capital and reserves, and is authorised by Board resolution. Securities premium is included in reserves for this purpose. The aggregate is ₹20 crore + ₹12 crore + ₹4 crore = ₹36 crore; 10% is ₹3.6 crore. The ₹3 crore buy-back is within the limit.

Where it goes wrong. Excluding securities premium or comparing only with paid-up capital.

Authority. section 68(2); Explanation II to section 68

Question 7 · 2 marks · Audit and Auditors (Chapter 10) · medium

Scenario. Sundara Infra Limited is an unlisted public company. At its AGM held on 30 September 2025, it appointed M/s Vardhman & Co LLP as statutory auditor for five years. In January 2026, the auditor accepted an assignment from Sundara Infra to conduct its internal audit for the year 2025-26. The Board approved the internal audit engagement and paid a separate fee. In May 2026, one partner of M/s Vardhman & Co LLP, Mr. Raghavendra, acquired 300 equity shares of Sundara Infra Limited. In August 2026, M/s Vardhman & Co LLP resigned as statutory auditor. The Board, at its meeting on 10 September 2026, appointed M/s Kavya Associates as the new auditor to fill the casual vacancy caused by the resignation. The Board did not place the appointment before members at a general meeting. The company seeks advice on the validity of the internal audit engagement, the effect of Mr. Raghavendra’s shareholding and the validity of the Board’s appointment of M/s Kavya Associates. Based on the facts above and the applicable provisions, answer MCQs q07 and q08.

What is the legal position on the internal audit engagement accepted by M/s Vardhman & Co LLP?

1. Valid, because internal audit is permitted if approved by the Board and a separate fee is paid.
2. Valid, because the prohibition applies only to accounting and book-keeping services.
3. Invalid, because a statutory auditor cannot render internal audit services to the company. (correct answer)
4. Invalid only if the internal audit fee exceeds the statutory audit fee.

Answer: C — Invalid, because a statutory auditor cannot render internal audit services to the company.

Explanation. Section 144 prohibits an auditor from rendering specified services to the company, including internal audit. Board approval or separate payment does not remove the prohibition. Accepting the engagement contravenes section 144 and can attract penalty under section 147. Option (a) is tempting because Board approval is generally needed for other services, but internal audit is barred.

Where it goes wrong. Thinking Board approval can cure a prohibited service.

Authority. section 144

Question 8 · 2 marks · Audit and Auditors (Chapter 10); Management and Administration (Chapter 7) · hard

Was the Board’s appointment of M/s Kavya Associates to fill the resignation vacancy valid without general meeting approval?

1. Yes, because the Board may fill any casual vacancy within 30 days.
2. Yes, because after resignation the Board’s appointment is final until the next AGM.
3. No, because where the vacancy is caused by resignation, the appointment must also be approved by the company at a general meeting convened within three months of the Board’s recommendation. (correct answer)
4. No, because only the Tribunal can fill a vacancy caused by resignation.

Answer: C — No, because where the vacancy is caused by resignation, the appointment must also be approved by the company at a general meeting convened within three months of the Board’s recommendation.

Explanation. Section 139(8) allows the Board to fill a casual vacancy within 30 days, but where the vacancy is caused by resignation, the appointment must also be approved by the company at a general meeting convened within three months of the Board’s recommendation. The Board appointed M/s Kavya Associates but did not obtain that approval, so the appointment is not complete in law.

Where it goes wrong. Applying the general casual-vacancy rule and ignoring the resignation proviso.

Authority. section 139(8)

Question 9 · 2 marks · FEMA, 1999 · hard

Scenario. Meera Iyer, an Indian citizen, stayed in India for 240 days during FY 2025-26. On 10 August 2026 she left India to take up a two-year employment contract in Dubai. She continues to hold a flat in Chennai and a savings account in India. Before leaving, on 1 August 2026, she proposed to remit USD 260,000 from her Indian bank account to her brother in London as a gift. Her bank asked whether the entire amount could be remitted without approval. In July 2026, while still in India, she inherited shares of a company incorporated outside India from her uncle, who was a person resident outside India. She wants to retain those shares abroad. Her cousin, Rohan, a person resident in India, proposes to import machinery from a Singapore supplier on three months’ credit. The bank is reviewing the transactions for compliance with the Foreign Exchange Management Act, 1999 and the rules thereunder. Based on the facts above and the applicable provisions, answer MCQs q09 to q11.

What is Meera’s residential status under FEMA for FY 2026-27?

1. Person resident in India for the whole financial year because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, she stayed more than 182 days in the preceding financial year.
2. Person resident outside India for the whole financial year because she left India at some time during the year.
3. Person resident in India until 9 August 2026 and person resident outside India from 10 August 2026 because she left for employment outside India. (correct answer)
4. Person resident outside India only after completing 182 days in Dubai.

Answer: C — Person resident in India until 9 August 2026 and person resident outside India from 10 August 2026 because she left for employment outside India.

Explanation. Under section 2(v), a person who has gone out of India for taking up employment outside India is not a person resident in India from the date of departure. Meera was resident until 9 August 2026 and became resident outside India on 10 August 2026. Her flat and savings account in India do not alter this position.

Where it goes wrong. Using only the 182-day test and ignoring the employment exception.

Authority. section 2(v), FEMA, 1999

Question 10 · 2 marks · FEMA, 1999 · medium

Can Meera remit USD 260,000 as a gift on 1 August 2026 without prior approval?

1. Yes, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, gift is a current account transaction and all current account transactions are without limit.
2. Yes, because she is a person resident outside India from the date she decided to leave.
3. No, because an individual may avail foreign exchange for gift up to USD 250,000 in a financial year; the excess needs prior approval. (correct answer)
4. No, because gift remittance is prohibited in all cases.

Answer: C — No, because an individual may avail foreign exchange for gift up to USD 250,000 in a financial year; the excess needs prior approval.

Explanation. Gift is a current account transaction, but Schedule III to the Current Account Transactions Rules permits an individual to avail foreign exchange for gift up to USD 250,000 in a financial year. Any additional amount requires prior approval of the Reserve Bank. The proposed USD 260,000 exceeds the limit by USD 10,000.

Where it goes wrong. Assuming all current account transactions are unlimited.

Authority. section 5, FEMA; Schedule III, Current Account Transactions Rules, 2000

Question 11 · 2 marks · FEMA, 1999 · hard

Can Meera retain the foreign shares inherited from her uncle who was a person resident outside India?

1. No, because a person resident in India cannot hold any foreign security.
2. No, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, prior Reserve Bank approval is always required for inheritance.
3. Yes, because all inherited foreign securities are outside FEMA.
4. Yes, because a person resident in India may hold foreign security acquired by inheritance from a person resident outside India. (correct answer)

Answer: D — Yes, because a person resident in India may hold foreign security acquired by inheritance from a person resident outside India.

Explanation. Section 6(4) permits a person resident in India to hold, own, transfer or invest in foreign currency, foreign security or immovable property outside India if it was acquired, held or owned when he was resident outside India or inherited from a person resident outside India. Meera inherited the shares from an uncle who was resident outside India, so retention is permitted.

Where it goes wrong. Reading section 4 as an absolute bar and missing the section 6(4) exception.

Authority. section 6(4), FEMA, 1999

Question 12 · 2 marks · LLP Act, 2008 · medium

Scenario. Vistara Legal LLP has three partners: Ananya, Bhavik and Zenith Consultants Private Limited. Ananya and Bhavik are designated partners; Ananya is resident in India and Bhavik is not. In February 2026, Bhavik transferred 40% of his right to receive profits from the LLP to his friend Farhan. Farhan then demanded participation in management, inspection of books and voting at partner meetings. In April 2026, Bhavik resigned as designated partner and also ceased to be a partner. The LLP did not appoint a new designated partner for 45 days. In June 2026, Zenith Consultants Private Limited also exited, leaving Ananya as the only partner. Ananya knew of this position, but the LLP continued its business for eight months. In February 2027, a supplier, Nimbus Paper House, extended credit of ₹18 lakh to the LLP. The LLP failed to pay. Nimbus wants to hold Ananya personally liable. A creditor also says the LLP should be wound up because the number fell below two. The partners seek advice on Farhan’s claim and Ananya’s liability. Based on the facts above and the applicable provisions, answer MCQs q12 and q13.

What rights does Farhan acquire from the transfer of 40% of Bhavik’s profit share?

1. He becomes a partner and acquires management and voting rights, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
2. The transfer automatically dissolves the LLP.
3. He gets management rights only after 30 days’ notice.
4. He is entitled only to the economic benefits transferred and does not get management or access rights. (correct answer)

Answer: D — He is entitled only to the economic benefits transferred and does not get management or access rights.

Explanation. Section 42 allows a partner to transfer the right to a share of profits and distributions. Such transfer does not by itself cause disassociation or dissolution, and it does not entitle the transferee to participate in management or access information about the LLP’s transactions. Farhan therefore gets only the transferred economic right.

Where it goes wrong. Equating profit-share transfer with admission as a partner.

Authority. section 42, LLP Act, 2008

Question 13 · 2 marks · LLP Act, 2008 · hard

Is Ananya personally liable to Nimbus for the credit extended in February 2027?

1. No, because partners are never personally liable for LLP obligations.
2. Yes, because all partners are jointly liable for all LLP debts from inception.
3. No, because the LLP alone is liable until the Tribunal orders winding up.
4. Yes, because after the number fell below two and business continued for more than six months, the only partner with knowledge is personally liable for obligations incurred during that period. (correct answer)

Answer: D — Yes, because after the number fell below two and business continued for more than six months, the only partner with knowledge is personally liable for obligations incurred during that period.

Explanation. Section 6(2) provides that if the number of partners falls below two and the LLP carries on business for more than six months, the person who is the only partner during that period and has knowledge is personally liable for obligations incurred during that period. Ananya knew and the LLP continued for eight months; Nimbus extended credit in February 2027, within that period.

Where it goes wrong. Applying blanket limited liability and ignoring the sole-partner exception.

Authority. sections 6(2), 27 and 28, LLP Act, 2008

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

Scenario. The Central Licensing Authority issued a notice under a Central Act to Ganga Traders, a partnership firm, asking why its licence should not be suspended. The notice was sent by registered post on 15 January 2026. The Act requires the licensee to reply within one month from the date of the notice. Ganga Traders received the notice on 17 January 2026 and filed its reply on 15 February 2026. The authority says the reply is late because one month from 15 January ended on 14 February. Ganga Traders also disputes whether it is a “person” under the General Clauses Act, 1897. Separately, the authority relies on the definition of “immovable property” to decide whether a crane permanently fastened to a concrete foundation and a stack of cut timber are immovable property. The authority seeks advice on the meaning of “person”, computation of the one-month period and the meaning of immovable property. Based on the facts above and the applicable provisions, answer MCQs q14 and q15.

Is Ganga Traders a “person” under section 3(42) of the General Clauses Act, 1897?

1. No, because only individuals and companies are persons.
2. Yes, but only after registration under the Indian Partnership Act, 1932.
3. No, because a partnership firm is not a body of individuals.
4. Yes, because “person” includes an association or body of individuals, whether incorporated or not. (correct answer)

Answer: D — Yes, because “person” includes an association or body of individuals, whether incorporated or not.

Explanation. Section 3(42) defines “person” to include a company, association or body of individuals, whether incorporated or not. A partnership firm is a body of individuals and is therefore within the definition. Registration under the Indian Partnership Act is not the test for this definition.

Where it goes wrong. Limiting “person” to individuals and companies.

Authority. section 3(42), General Clauses Act, 1897

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

Which statement is correct about the reply period and the two items?

1. The reply was due by 15 February because the first day is excluded; the crane permanently fastened to the foundation is immovable, while cut timber is not. (correct answer)
2. The reply was due by 15 February because the first day is included; both the crane and the timber are immovable.
3. The reply was due by 14 February because the last day is excluded; the crane is movable, while the timber is immovable.
4. The reply was due by 15 February because a month means 30 days; only land is immovable.

Answer: A — The reply was due by 15 February because the first day is excluded; the crane permanently fastened to the foundation is immovable, while cut timber is not.

Working. 15 January excluded; one month ends 14 February.

Explanation. Under Section 9 of the General Clauses Act, 1897, where time is reckoned 'from' a specified date, the first day is excluded and the last day is included; therefore, one month from 15 January ends on 15 February. Under Section 3(26), immovable property includes things attached to the earth or permanently fastened to anything attached to the earth; the permanently fastened crane is immovable property, whereas cut timber severed from the earth is movable property under Section 3(36).

Where it goes wrong. Including the first day, or treating all timber as immovable.

Authority. General Clauses Act, 1897, sections 3(26), 3(36), 9; ICAI Study Material, August 2025, Other Laws Chapter 1, pp. 1.13, 1.23