CA Inter Corporate and Other Laws MCQ Test 5: answer key

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

Scenario. Aariv Grid Components Limited was incorporated as a public company in Indore on 12 May 2026 with share capital. In July 2026, it made a public issue through a prospectus and raised ₹48 crore. At 31 October 2026, ₹14 crore remained unutilised. The original objects cover manufacture of power-grid equipment, but the Board now proposes to add battery recycling and software services. It circulated a notice setting out the new objects and the business rationale, and intends to place a special resolution before shareholders at an extraordinary general meeting. The company has not proposed a postal ballot. The same Board has also approved a move of the registered office from Madhya Pradesh to Gujarat. Members have passed a special resolution amending the situation clause. One secured lender has refused to consent, although the company has arranged security sufficient to discharge all existing debts and obligations. The company plans to publish the prescribed newspaper advertisements 24 days before filing its application with the Regional Director. Separately, the company filed proof of its registered office with the Registrar on 20 May. One subscriber agreed to take 20,000 shares but had paid for only 16,000 shares when a director filed Form INC-20A on 20 October 2026, within 180 days of incorporation. The form was signed by a practising chartered accountant. The Board proposes to begin commercial operations and borrow for a production line immediately. The Board seeks legal advice on the proposed alterations and commencement of operations. Based on the facts above and the applicable provisions, answer MCQs q01 to q03.

Which procedural route must Aariv follow before applying the unutilised public-issue proceeds to the proposed new objects?

1. It must pass a special resolution through postal ballot and provide the prescribed disclosures, newspaper publication and website disclosure where applicable, together with an exit opportunity for dissenting shareholders. (correct answer)
2. It may pass a special resolution at the extraordinary general meeting because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the Act does not prescribe a postal ballot once the company has obtained member approval.
3. It may pass an ordinary resolution at the extraordinary general meeting because the proposed objects are ancillary to the original objects.
4. It must obtain the consent of every public-issue subscriber because any change in objects after a prospectus is prohibited.

Answer: A — It must pass a special resolution through postal ballot and provide the prescribed disclosures, newspaper publication and website disclosure where applicable, together with an exit opportunity for dissenting shareholders.

Working. Public issue through prospectus + unutilised proceeds = special resolution through postal ballot, prescribed notice disclosures, advertisement and exit opportunity.

Explanation. Since the company raised money from the public through a prospectus and still has an unutilised amount, section 13(8) requires a special resolution through postal ballot. The notice must contain the prescribed particulars, and the company must publish the required newspaper advertisement and provide the prescribed exit opportunity to dissenting shareholders. Option b is tempting because it proposes a special resolution, but an ordinary meeting vote does not replace the required postal-ballot procedure.

Where it goes wrong. A special resolution at an extraordinary general meeting is not a substitute for the prescribed postal-ballot procedure when unutilised public-issue proceeds are involved.

Authority. Companies Act, 2013, section 13(8)-(10); ICAI Study Material, Chapter 2, pp. 2.52-2.53

Question 2 · 2 marks · Chapter 2 – Incorporation of Company and Matters Incidental Thereto · medium

What is the consequence of the secured lender refusing consent to the proposed interstate registered-office transfer?

1. The lender's refusal bars the move because consent of every creditor and debenture-holder is a mandatory condition in all cases.
2. The Regional Director may approve the alteration if satisfied that adequate security for discharge has been provided, even though one lender has not consented. (correct answer)
3. The Board may complete the interstate move without an approval order because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, a special resolution alone alters the situation clause.
4. The move can be approved only if the company pays every creditor before it files Form INC-23.

Answer: B — The Regional Director may approve the alteration if satisfied that adequate security for discharge has been provided, even though one lender has not consented.

Working. Special resolution passed; interstate transfer requires Central Government/Regional Director approval. Adequate security is an alternative to creditor consent.

Explanation. Section 13(5) permits the Central Government, whose power is delegated to the Regional Director, to satisfy itself that creditors have consented, sufficient provision has been made for due discharge of debts and obligations, or adequate security has been provided. These are alternative safeguards. Option a incorrectly treats creditor consent as an absolute requirement even where adequate security has been provided.

Where it goes wrong. Creditor consent is not the only route; adequate security or sufficient provision for discharging obligations can satisfy the requirement.

Authority. Companies Act, 2013, section 13(4), (5) and (7); ICAI Study Material, Chapter 2, pp. 2.51-2.52

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

Is Aariv entitled to commence business and exercise borrowing powers immediately after filing Form INC-20A on the stated facts?

1. Yes, because the declaration was filed within 180 days and proof of the registered office is already with the Registrar, so payment by any remaining subscriber can follow later.
2. Yes, because the company has share capital and the director's form has been signed by a practising chartered accountant.
3. No, because every subscriber must have paid the value of the shares agreed to be taken by that subscriber on the declaration date, in addition to the registered-office filing. (correct answer)
4. No, because the declaration must be filed within 30 days and the period cannot be extended.

Answer: C — No, because every subscriber must have paid the value of the shares agreed to be taken by that subscriber on the declaration date, in addition to the registered-office filing.

Working. Form filed within 180 days: satisfied. Registered-office filing: satisfied. Full payment by every subscriber on declaration date: not satisfied. Commencement and borrowing condition therefore remains unmet.

Explanation. Section 10A imposes cumulative conditions. The company must file verification of its registered office under section 12(2), and a director must file the prescribed declaration within 180 days stating that every subscriber has paid the value of the shares agreed to be taken. Although the office filing and time requirement are met, one subscriber remains short of the agreed subscription. Option a overlooks this separate condition.

Where it goes wrong. Filing within 180 days and having registered-office proof on record do not replace the requirement that every subscriber has paid the agreed share value.

Authority. Companies Act, 2013, section 10A read with section 12(2); ICAI Study Material, Chapter 2, p. 2.60

Question 4 · 2 marks · Chapter 4 – Share Capital and Debentures · hard

Scenario. Vardhan Rail Components Limited is an unlisted public company engaged in manufacturing signalling equipment. It is neither a banking company nor a non-banking finance company, housing finance company or financial institution. Its Articles authorise equity shares with differential voting rights. In the financial year 2021-22, it failed to pay a declared dividend on a class of preference shares. The arrears were fully paid on 20 December 2023, during the financial year 2023-24. The company has since cleared its matured liabilities, paid current dividends, filed its annual accounts and annual returns for the relevant preceding years, and has not incurred any other disqualification. The Board proposes to issue equity shares with differential rights in May 2028. Shareholders are willing to pass an ordinary resolution, and after the proposed issue the voting power attached to the differential-right shares would be 72% of the total voting power. The company is also undertaking a metro-rail power corridor project specified as an infrastructure project in Schedule VI. It proposes to issue redeemable preference shares for 26 years but plans to redeem only 7% of those shares each year from the twenty-first year. Separately, it has privately placed non-convertible debentures of ₹12 crore outstanding, of which ₹3 crore will mature during the financial year ending 31 March 2027. The finance team proposes a Debenture Redemption Reserve of ₹60 lakh and an investment of ₹30 lakh by 30 April 2026. The Board seeks legal advice on its capital-raising and redemption proposals. Based on the facts above and the applicable provisions, answer MCQs q04 to q06.

Assuming all other Rule 4 conditions remain satisfied, which is the first date on which Vardhan may issue the proposed equity shares with differential rights?

1. It may issue from 20 December 2028, because five years are counted from the date the arrears were paid.
2. It may issue from 1 April 2028, because five financial years include the year in which the default was made good.
3. It may issue from 1 April 2029, because five years must expire from 31 March 2024, the end of the financial year in which the default was made good. (correct answer)
4. It may issue from 1 April 2030, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the five-year period begins after the financial year in which the default was made good.

Answer: C — It may issue from 1 April 2029, because five years must expire from 31 March 2024, the end of the financial year in which the default was made good.

Working. Default made good: FY 2023-24. End of relevant FY: 31 March 2024. Five years expire: 31 March 2029. First subsequent date: 1 April 2029. The proposed May 2028 issue is premature.

Explanation. The preference-dividend default was made good on 20 December 2023, during financial year 2023-24. Rule 4 permits the issue upon expiry of five years from the end of the financial year in which the default was made good. The relevant starting point is therefore 31 March 2024, not the payment date. The five-year period expires on 31 March 2029, making 1 April 2029 the first permissible date.

Where it goes wrong. The five-year period runs from the end of the financial year in which the default was made good, not from the date of payment.

Authority. Companies (Share Capital and Debentures) Rules, 2014, Rule 4; ICAI Study Material, Chapter 4, pp. 4.8-4.9

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

Which statement correctly states the redemption condition for Vardhan's proposed 26-year preference shares?

1. The issue is permissible because infrastructure projects may issue preference shares for up to 30 years without any prescribed annual redemption minimum.
2. The issue is not permissible because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the maximum redemption period for preference shares can never exceed 20 years, including for infrastructure projects.
3. The issue is permissible because the company may choose any annual redemption percentage after the twentieth year if the shareholders approve it.
4. The 26-year term may be used for a qualifying infrastructure project, but at least 10% of the shares must be redeemed annually from the twenty-first year onwards or earlier, on a proportionate basis at the option of preference shareholders. (correct answer)

Answer: D — The 26-year term may be used for a qualifying infrastructure project, but at least 10% of the shares must be redeemed annually from the twenty-first year onwards or earlier, on a proportionate basis at the option of preference shareholders.

Working. Proposed term: 26 years, within the infrastructure exception of 20-30 years. Required annual redemption from year 21: at least 10%. Proposed rate: 7%. The proposed schedule fails the minimum.

Explanation. The general maximum period for redeemable preference shares is 20 years. For infrastructure projects specified in Schedule VI, the company may issue preference shares for more than 20 years but not more than 30 years. The exception requires redemption of at least 10% annually beginning from the twenty-first year onwards or earlier, proportionately, at the option of preference shareholders. The proposed 7% rate is insufficient.

Where it goes wrong. The 30-year infrastructure exception does not remove the separate minimum annual redemption requirement.

Authority. Companies Act, 2013, section 55(2), first proviso; Companies (Share Capital and Debentures) Rules, 2014, Rule 9; ICAI Study Material, Chapter 4, p. 4.31

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

What minimum amounts must Vardhan provide under the Debenture Redemption Reserve and investment requirements for the stated debentures?

1. A Debenture Redemption Reserve of ₹1.20 crore and an investment or deposit of ₹45 lakh by 30 April 2026 are required. (correct answer)
2. A Debenture Redemption Reserve of ₹30 lakh and an investment or deposit of ₹1.20 crore by 30 April 2026 are required.
3. A Debenture Redemption Reserve of ₹60 lakh and an investment or deposit of ₹30 lakh are sufficient because the company privately placed the debentures.
4. A Debenture Redemption Reserve of ₹1.80 crore and an investment or deposit of ₹45 lakh by 31 March 2027 are required.

Answer: A — A Debenture Redemption Reserve of ₹1.20 crore and an investment or deposit of ₹45 lakh by 30 April 2026 are required.

Working. DRR = 10% × ₹12 crore = ₹1.20 crore. Investment/deposit = 15% × ₹3 crore = ₹45 lakh. The investment/deposit is due by 30 April 2026.

Explanation. For the stated unlisted company, the Debenture Redemption Reserve is 10% of outstanding debentures, giving ₹1.20 crore on ₹12 crore outstanding. Separately, 15% of debentures maturing during the financial year must be invested or deposited by 30 April. Fifteen per cent of ₹3 crore is ₹45 lakh. Option c incorrectly assumes that private placement exempts this company from the stated requirements.

Where it goes wrong. The Debenture Redemption Reserve is calculated on outstanding debentures, whereas the 15% investment requirement is calculated on debentures maturing during the financial year.

Authority. Companies Act, 2013, section 71(4); Companies (Share Capital and Debentures) Rules, 2014, Rule 18(7); ICAI Study Material, Chapter 4, pp. 4.78-4.80

Question 7 · 2 marks · Chapter 10 – Audit and Auditors · medium

Scenario. Bluepine Analytics Limited is an unlisted public company with paid-up share capital of ₹12 crore and has constituted the audit committee required under section 177. The committee recommended M/s Kaira & Bedi for appointment as statutory auditor on expiry of the incumbent auditor's term. The Board disagreed, recorded reasons, and referred the recommendation back to the committee. After reconsideration, the committee retained its original recommendation. The Board then proposed a different firm, M/s Dev & Rao, for appointment by members at the ensuing annual general meeting, while recording its reasons for not accepting the committee's view. The company has also considered M/s Nalin Shah & Co. as a possible auditor. A partner of that firm is associated with a separate consultancy entity. That entity uses the partner's name and brand and provides internal audit services to Bluepine's holding company. The proposed audit firm itself has not entered into an engagement with Bluepine or its holding company. The finance head considers that the relationship should not affect the firm's eligibility because the services are supplied by a separate entity. The company's legal team is examining whether the indirect service relationship affects the firm's eligibility under the Companies Act. The Board seeks advice on the authority of the audit committee and the eligibility of the proposed firm. Based on the facts above and the applicable provisions, answer MCQs q07 and q08.

Which statement correctly describes the Board's authority after the audit committee retains its original recommendation on reconsideration?

1. The Board must appoint the committee's original nominee because the committee's recommendation is conclusive in every case.
2. The Board may place a different firm before members after recording its reasons for disagreement and sending its own recommendation, because the committee retained its view on reconsideration. (correct answer)
3. The Board may disregard the committee without referring the matter back, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, any unlisted public company is exempt from section 177.
4. The Board must seek prior permission of the Central Government before recommending another audit firm.

Answer: B — The Board may place a different firm before members after recording its reasons for disagreement and sending its own recommendation, because the committee retained its view on reconsideration.

Working. Board disagreement with reasons → referral back to audit committee → committee retains recommendation → Board records reasons and sends its own recommendation to members.

Explanation. Where the company is required to constitute an audit committee, the committee recommends the auditor to the Board. If the Board disagrees, it must refer the recommendation back with reasons. If the committee retains its original recommendation, the Board may record its reasons for disagreement and send its own recommendation to the members. Option a incorrectly treats the committee's recommendation as binding on the Board.

Where it goes wrong. The audit committee's recommendation must be considered, but it does not prevent the Board from making its own recommendation after following the prescribed reconsideration procedure.

Authority. Companies Act, 2013, section 139(11); Companies (Audit and Auditors) Rules, 2014, Rules 3 and 6; ICAI Study Material, Chapter 10, pp. 10.5 and 10.11

Question 8 · 2 marks · Chapter 10 – Audit and Auditors · hard

Which conclusion should be reached about the eligibility of M/s Nalin Shah & Co. for appointment as statutory auditor?

1. The firm is disqualified because internal audit is a prohibited service and indirect rendering through an entity using a partner's name or brand is included within the restriction. (correct answer)
2. The firm is eligible because it has not itself entered into an engagement with the holding company, and the consultancy entity is legally separate.
3. The firm is eligible because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, section 144 restricts internal audit services only when they are supplied directly to the company whose accounts are being examined.
4. The firm is disqualified because every consultancy service supplied by a partner's separate entity is prohibited, irrespective of the nature of the service.

Answer: A — The firm is disqualified because internal audit is a prohibited service and indirect rendering through an entity using a partner's name or brand is included within the restriction.

Working. Service: internal audit, which is prohibited. Recipient: holding company. Connection: entity uses the audit partner's name and brand. Section 141(3)(i) read with section 144 creates disqualification.

Explanation. Section 144 prohibits an auditor from providing internal audit services directly or indirectly to the company, its holding company or subsidiary company. Section 141(3)(i) disqualifies a person or firm that renders a prohibited service. For a firm, indirect rendering includes services through an entity whose name, trademark or brand is used by the firm or any of its partners. Option b overlooks this indirect-service rule.

Where it goes wrong. A separate legal entity does not necessarily prevent a service from being treated as indirectly rendered by the audit firm.

Authority. Companies Act, 2013, sections 141(3)(i) and 144; ICAI Study Material, Chapter 10, pp. 10.43-10.45

Question 9 · 2 marks · Foreign Exchange Management Act, 1999 – Capital Account Transactions · hard

Scenario. Helios Ventures Pte. Ltd., a Singapore entity that is a person resident outside India, proposes to subscribe to newly issued equity shares of Narmada Robotics Limited, an Indian body corporate. The subscription is to be funded by inward remittance through an authorised dealer. The Indian company will use part of the proceeds to establish an operating subsidiary in Pune. After that subsidiary begins operations, its directors propose that it acquire shares in another Indian company engaged in component manufacturing; the group describes this second transaction as a downstream investment. In a separate proposal, Helios has offered to subscribe to non-convertible instruments classified as debt instruments for purposes of FEMA and issued by Narmada Robotics. The finance team has asked whether the equity subscription and debt subscription are treated alike under FEMA and whether the same authority prescribes the permissible classes, limits and conditions for both. It has also asked which authority deals with the mode of payment and reporting for non-debt instruments. The company's advisers have cautioned the Board not to assume that the rules governing the second-tier Indian investment are identical to those governing the initial overseas subscription. The Board seeks legal advice on the classification of the proposed investments and the allocation of regulatory powers under FEMA. Based on the facts above and the applicable provisions, answer MCQs q09 to q11.

Which description of Helios's original equity subscription aligns with the supplied FEMA material?

1. It is a current account transaction because the consideration is remitted through an authorised dealer.
2. It falls outside FEMA because the Indian company, rather than Helios, issues the equity shares.
3. It falls within the Schedule II class of investment in India by a person resident outside India, including investment in a security issued by a body corporate or entity in India. (correct answer)
4. It is prohibited because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, Schedule II permits a non-resident to contribute capital to a firm or proprietorship but not to subscribe to corporate securities.

Answer: C — It falls within the Schedule II class of investment in India by a person resident outside India, including investment in a security issued by a body corporate or entity in India.

Working. Non-resident subscribes to equity issued by an Indian body corporate. The investment alters the non-resident's assets in India and is included in the Schedule II category, subject to applicable limits and conditions.

Explanation. Section 2(e) treats a transaction that alters assets or liabilities in India of a person resident outside India as a capital account transaction. Schedule II to the Permissible Capital Account Transactions Regulations expressly includes investment in India by a person resident outside India, including investment in securities issued by an Indian body corporate or entity. Option d overlooks the separate category for corporate securities.

Where it goes wrong. The Schedule II investment category expressly includes securities issued by an Indian body corporate; it is not restricted to capital contributions to firms or proprietorships.

Authority. FEMA, 1999, section 2(e); Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, Schedule II; ICAI Study Material, Chapter 3, pp. 3.5 and 3.30-3.31

Question 10 · 2 marks · Foreign Exchange Management Act, 1999 – Capital Account Transactions · medium

Which statement accurately describes the regulatory allocation for Helios's proposed equity subscription, treated as a non-debt instrument?

1. The Reserve Bank alone prescribes the permissible classes, limits and conditions for non-debt instruments, while the Central Government is confined to reporting, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.
2. The Central Government prescribes the mode of payment and reporting, while the Reserve Bank sets all investment conditions for non-debt instruments.
3. Both the Reserve Bank and the Central Government are excluded because a Schedule II transaction falls outside section 6.
4. The Central Government may, in consultation with the Reserve Bank, prescribe permissible classes, limits and conditions for non-debt capital account transactions; the Reserve Bank has issued notifications on their mode of payment and reporting. (correct answer)

Answer: D — The Central Government may, in consultation with the Reserve Bank, prescribe permissible classes, limits and conditions for non-debt capital account transactions; the Reserve Bank has issued notifications on their mode of payment and reporting.

Working. Non-debt instruments: Central Government, in consultation with RBI, prescribes permissible classes, limits and conditions. RBI has issued notifications on payment mode and reporting.

Explanation. Under section 6(2A), the Central Government may, in consultation with the Reserve Bank, prescribe permissible classes of capital account transactions not involving debt instruments, along with their limits and conditions. The supplied material separately states that the Reserve Bank has issued notifications governing the mode of payment and reporting of non-debt instruments. Option a incorrectly gives the Reserve Bank the entire regulatory role.

Where it goes wrong. The authority prescribing permissible non-debt classes, limits and conditions is distinct from the authority dealing with payment and reporting requirements.

Authority. FEMA, 1999, section 6(2A); ICAI Study Material, Chapter 3, p. 3.26

Question 11 · 2 marks · Foreign Exchange Management Act, 1999 – Capital Account Transactions · hard

Is the finance team's view that the equity and debt subscriptions are regulated alike under section 6 sustainable?

1. Yes, because section 6 assigns every capital account transaction to the Reserve Bank without distinction between debt and non-debt instruments.
2. No, because non-debt instruments are prescribed by the Central Government in consultation with the Reserve Bank, whereas permissible debt-instrument classes, limits and conditions are specified by the Reserve Bank in consultation with the Central Government. (correct answer)
3. Yes, because the Central Government regulates debt instruments and the Reserve Bank regulates non-debt instruments.
4. No, because debt instruments are not capital account transactions and cannot be offered to persons resident outside India.

Answer: B — No, because non-debt instruments are prescribed by the Central Government in consultation with the Reserve Bank, whereas permissible debt-instrument classes, limits and conditions are specified by the Reserve Bank in consultation with the Central Government.

Working. Equity subscription: non-debt instrument → Central Government in consultation with RBI. Debt-instrument subscription → RBI in consultation with Central Government.

Explanation. Section 6 separates the regulatory treatment of debt and non-debt instruments. Under section 6(2), the Reserve Bank, in consultation with the Central Government, specifies permissible classes, limits and conditions for transactions involving debt instruments. Under section 6(2A), the Central Government, in consultation with the Reserve Bank, prescribes the corresponding framework for non-debt instruments. Option a ignores this statutory distinction.

Where it goes wrong. Debt and non-debt instruments are subject to different allocations of regulatory responsibility under section 6.

Authority. FEMA, 1999, section 6(2), (2A) and (7); ICAI Study Material, Chapter 3, pp. 3.26-3.29

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

Scenario. Sudarshan Design LLP carries on engineering consultancy in Bhopal through four partners and employs a finance manager, Ritesh. During a review of internal records, Ritesh finds that one partner, Dev, has transferred ₹18 lakh from the LLP's bank account to a private concern controlled by Dev's relative. Dev says the amount was an advance for project work, but the other partners cannot locate any work order or supporting agreement. Two partners request the Central Government to look into the LLP's affairs. The Central Government decides to exercise its statutory investigation power and appoints a competent authority for that purpose. During the inquiry, the appointed officer asks the LLP to make its books, bank records and correspondence available. Ritesh supplies information and copies of relevant documents, which assist the inquiry. Dev then tells the designated partners that Ritesh should be removed from employment for sharing internal information. Another partner argues that any penalty imposed on Ritesh should be reduced because he assisted the inquiry. The partners are concerned about the statutory authority responsible for investigating the LLP and the position of an employee who provides useful information. The partners seek legal advice on the investigation authority and the protection available to Ritesh. Based on the facts above and the applicable provisions, answer MCQs q12 and q13.

Which statutory route does the supplied LLP material identify for an investigation into Sudarshan Design LLP's affairs?

1. The Central Government may investigate the affairs of an LLP by appointing a competent authority for the purpose. (correct answer)
2. The partners must appoint an inspector by resolution, and that appointment itself becomes a statutory investigation.
3. The Registrar alone may investigate on an employee's complaint without any Central Government appointment.
4. A Court or Tribunal must first order every LLP investigation before a competent authority can be appointed.

Answer: A — The Central Government may investigate the affairs of an LLP by appointing a competent authority for the purpose.

Working. Authority identified in the supplied material: Central Government. Method identified: appointment of a competent authority.

Explanation. The supplied LLP chapter identifies the Central Government as the authority having power to investigate the affairs of an LLP and states that it exercises this power by appointing a competent authority for the purpose. A partners' resolution is not the statutory appointment mechanism described in the material. The supplied passage does not give further procedural thresholds or detailed inspector powers.

Where it goes wrong. The statutory investigation power described in the supplied material belongs to the Central Government, not to the partners acting through their own resolution.

Authority. LLP Act, 2008, Investigation feature in ICAI Study Material, Chapter 12, p. 12.10; statutory section number: check

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

Which legal response correctly addresses Dev's threat against Ritesh and the request for penalty relief?

1. Dev may remove Ritesh because confidentiality obligations override any whistle-blowing protection under the LLP Act.
2. Ritesh is automatically immune from every penalty and all other proceedings as soon as he gives information to the investigating officer.
3. A Court or Tribunal may reduce or waive a penalty against Ritesh if satisfied that he supplied useful information during the investigation, and the LLP may not discharge or discriminate against him merely for doing so. (correct answer)
4. Only the Central Government may waive the penalty, and the protection applies solely to designated partners and not employees.

Answer: C — A Court or Tribunal may reduce or waive a penalty against Ritesh if satisfied that he supplied useful information during the investigation, and the LLP may not discharge or discriminate against him merely for doing so.

Working. Ritesh is an employee and supplied useful information during the investigation. Section 31(1) allows penalty reduction or waiver by Court or Tribunal; section 31(2) protects him against retaliation merely for supplying information.

Explanation. Section 31 provides that a Court or Tribunal may reduce or waive a penalty leviable against a partner or employee if satisfied that the person supplied useful information during an investigation. The section also protects partners and employees from discharge, demotion, suspension, threats, harassment or other discrimination merely because they provided information. Option b is too broad because the relief is discretionary, not automatic immunity.

Where it goes wrong. The provision offers discretionary penalty relief and protection against retaliation; it does not create automatic immunity from every proceeding.

Authority. LLP Act, 2008, section 31; ICAI Study Material, Chapter 12, p. 12.26

Question 14 · 2 marks · General Clauses Act, 1897 – Effect of Repeal · medium

Scenario. The Central Legislature enacted the River Works Regulation Act, 2012, under which the competent authority issued a set of rules, forms and permits. A company obtained a permit under those rules in 2021 and began proceedings against a contractor for a breach committed in 2024. In July 2026, a new Central Act repealed the 2012 Act and re-enacted its regulatory scheme with modifications. The new Act does not expressly cancel existing rules or forms made under provisions re-enacted in substantially the same terms, nor does it terminate pending proceedings. It does, however, replace one of the earlier provisions with a differently worded provision on a particular class of permit. Separately, an Amendment Act of 2023 had inserted a new definition into another Central Act by expressly substituting text in that Act. In October 2026, a further Central Act repealed the 2023 Amendment Act, but did not state that the substituted definition should cease to operate. The company argues that its 2021 permit and the 2024 proceeding ended automatically when the 2012 Act was repealed. It also argues that repeal of the 2023 amending legislation restores the earlier wording of the other Central Act. The department disputes both claims. The authority seeks legal advice on the effect of repeal, the status of subordinate instruments and the survival of a textual amendment. Based on the facts above and the applicable provisions, answer MCQs q14 and q15.

Does repeal of the River Works Regulation Act, 2012 automatically terminate the proceeding commenced in 2024 for the earlier breach?

1. Yes, because repeal erases the earlier Act for every purpose, including liability already incurred and proceedings already pending.
2. Yes, because section 6 saves only property rights and not penalties or legal proceedings.
3. No, because every repealed Act continues to operate fully for all future conduct until the successor Act is separately amended.
4. No, because section 6 preserves the previous operation, accrued liabilities and penalties, and an inquiry or proceeding concerning them may be continued unless a different intention appears. (correct answer)

Answer: D — No, because section 6 preserves the previous operation, accrued liabilities and penalties, and an inquiry or proceeding concerning them may be continued unless a different intention appears.

Working. Breach occurred before repeal and proceedings commenced before repeal. Section 6 preserves relevant previous operation, accrued liability and pending proceedings unless a different intention appears.

Explanation. Section 6 provides that repeal does not affect the previous operation of the repealed enactment or anything duly done under it. It also preserves accrued rights, obligations and liabilities, penalties incurred, and inquiries, litigation or remedies concerning them, unless a different intention appears. Since the breach and proceeding arose before repeal, the proceeding does not automatically end. Option a overlooks these statutory savings.

Where it goes wrong. Repeal does not automatically wipe out accrued liabilities, penalties or proceedings relating to the previous operation of the repealed enactment.

Authority. General Clauses Act, 1897, section 6; ICAI Study Material, Other Laws, Chapter 1, pp. 1.23-1.24

Question 15 · 2 marks · General Clauses Act, 1897 – Continuance of Orders and Effect of Amendment · hard

Which combined statement correctly describes the effect of the two repeal events on the existing rules and the substituted definition?

1. The existing rules and forms automatically lapse with the 2012 Act, but the substituted definition survives only if the 2023 Amendment Act remains in force.
2. The existing rules and forms continue under the re-enacted Act and are deemed to have been made under it, unless a different intention appears; the substituted definition also continues despite repeal of the amending Act, unless a different intention appears. (correct answer)
3. The existing rules and forms continue only if each is re-issued under the new Act, while repeal of the 2023 Amendment Act restores the earlier wording of the other Act.
4. The existing rules and forms continue under section 24, but section 6A terminates textual amendments whenever the enactment that made them is repealed.

Answer: B — The existing rules and forms continue under the re-enacted Act and are deemed to have been made under it, unless a different intention appears; the substituted definition also continues despite repeal of the amending Act, unless a different intention appears.

Working. First event: repeal and re-enactment → section 24 continuation of specified instruments. Second event: repeal of an enactment that made a textual amendment → section 6A preserves the amendment already in operation.

Explanation. Section 24 provides for continuation of appointments, notifications, orders, schemes, rules, forms and bye-laws made under an enactment that is repealed and re-enacted, unless a different intention is expressed. Section 6A separately preserves a textual amendment made by express omission, insertion or substitution when the amending enactment is later repealed, unless a different intention appears. Option c incorrectly assumes that both rules and amendments lapse automatically.

Where it goes wrong. Section 24 preserves specified subordinate instruments on repeal and re-enactment; section 6A preserves an operative textual amendment despite repeal of the amending enactment.

Authority. General Clauses Act, 1897, sections 24 and 6A; ICAI Study Material, Other Laws, Chapter 1, pp. 1.24-1.25 and 1.31-1.32