CA Inter Corporate and Other Laws MCQ Test 9: answer key

Question 1 · 2 marks · Audit and Auditors · hard

Scenario. Nalanda Foods Limited is a listed company with paid-up equity capital of ₹40 crore and 1,200 members. Its audit committee recommended Meera & Co. for appointment as statutory auditor at the forthcoming annual general meeting. The Board did not agree and referred the recommendation back to the committee citing concerns about the firm's sector experience. The committee, after considering the reasons, declined to reconsider its original recommendation. Separately, M/s Ravi & Associates was appointed as auditor at the annual general meeting held on 30 September 2021; it has completed one term of five consecutive years, and the Board now proposes its re-appointment for a further term at the annual general meeting scheduled for 28 September 2026. In another development, the relative of a partner of the current auditor acquired equity shares of Nalanda Foods Limited of face value ₹1,20,000 on 10 January 2026. The partner's firm continued as auditor and has not taken any corrective step. The company also received a resignation letter from a branch auditor, but the central auditor continued. Based on the facts above and the applicable provisions of the Companies Act, 2013, answer the following MCQs.

In respect of the audit committee's recommendation and the Board's disagreement, which course is legally correct?

1. The Board must accept the committee's original recommendation because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the audit committee is a statutory committee.
2. The Board may send its own recommendation to the members after recording reasons, since the committee declined to reconsider its original recommendation. (correct answer)
3. The Board must obtain Central Government approval before placing any name before the members.
4. The Board can appoint the auditor itself without placing the matter before the members.

Answer: B — The Board may send its own recommendation to the members after recording reasons, since the committee declined to reconsider its original recommendation.

Explanation. Under the appointment procedure, where the Board disagrees with the audit committee, it refers the matter back with reasons. If the committee declines to reconsider, the Board records its reasons and may send its own recommendation for the members' consideration. Option (a) treats the committee's recommendation as binding, which it is not. Option (d) ignores the members' role at the annual general meeting.

Where it goes wrong. Assuming the audit committee recommendation is binding on the Board.

Authority. Section 139(1); Rule 3 of Companies (Audit and Auditors) Rules, 2014; Section 177

Question 2 · 2 marks · Audit and Auditors · hard

At the annual general meeting on 28 September 2026, what is the maximum further period for which M/s Ravi & Associates can be re-appointed as auditor of Nalanda Foods Limited?

1. No further period, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, an audit firm can hold office for only one term of five consecutive years.
2. One more term of five consecutive years, because an audit firm may hold office for two terms of five consecutive years. (correct answer)
3. One more term of three years, because the first term was completed before the 2026 meeting.
4. Two more terms of five consecutive years, because the firm is a limited liability partnership.

Answer: B — One more term of five consecutive years, because an audit firm may hold office for two terms of five consecutive years.

Working. First term: conclusion of AGM 2021 to conclusion of AGM 2026. Second term: conclusion of AGM 2026 to conclusion of AGM 2031.

Explanation. For the listed company, an audit firm may be appointed for two terms of five consecutive years. M/s Ravi & Associates completed the first term from the conclusion of the 2021 meeting to the conclusion of the 2026 meeting. It can therefore be re-appointed for one more term of five consecutive years. Option (a) applies the individual auditor limit to a firm.

Where it goes wrong. Applying the individual auditor's one-term limit to an audit firm.

Authority. Section 139(2)

Question 3 · 2 marks · Audit and Auditors · medium

The relative of the current auditor acquired shares of face value ₹1,20,000 on 10 January 2026. What is the latest date for the auditor to take corrective action to maintain the prescribed limit?

1. 11 March 2026, being sixty days from the date of acquisition. (correct answer)
2. 9 February 2026, being thirty days from the date of acquisition.
3. 10 April 2026, being ninety days from the date of acquisition.
4. No corrective action is possible; the auditor vacates office immediately on acquisition.

Answer: A — 11 March 2026, being sixty days from the date of acquisition.

Working. 10 January 2026 + 60 days, excluding the first day, ends on 11 March 2026.

Explanation. A relative may hold securities of face value up to ₹1,00,000. If the relative acquires securities above that threshold, corrective action must be taken within sixty days of the acquisition. Counting from 10 January 2026, the sixtieth day is 11 March 2026. Option (b) uses thirty days, which is not the period for this corrective step.

Where it goes wrong. Using a thirty-day period instead of the sixty-day corrective window.

Authority. Section 141(3)(d); Rule 10 of Companies (Audit and Auditors) Rules, 2014

Question 4 · 2 marks · Registration of Charges · hard

Scenario. Ganga Infra Limited created a charge on its office building in favour of Surya Bank on 10 March 2026 to secure a term loan of ₹8 crore. The charge instrument was executed by both parties, but the charge was not filed with the Registrar within thirty days. On 25 April 2026, the company realised the omission and proposed to file the particulars. In another transaction, the company had created a floating charge on its stock of cement, trade receivables and export proceeds in favour of Chandra Finance. Due to default in repayment, Chandra Finance enforced the security on 2 May 2026. On 15 May 2026, Ganga Infra acquired a warehouse from Yamuna Logistics Limited; the warehouse was already subject to a registered charge in favour of another lender. The directors of Ganga Infra say that since the charge was already registered by Yamuna Logistics, Ganga Infra need not file anything. The company also appointed a receiver over a charged property on 20 June 2026 but did not give notice to the Registrar. Based on the facts above and the applicable provisions of the Companies Act, 2013, answer the following MCQs.

For the charge created on 10 March 2026 in favour of Surya Bank, what is the latest date by which Ganga Infra Limited can file the particulars without payment of ad valorem fees?

1. 9 April 2026, being thirty days from creation.
2. 9 May 2026, being sixty days from creation. (correct answer)
3. 8 July 2026, being one hundred twenty days from creation.
4. 10 September 2026, being six months from creation.

Answer: B — 9 May 2026, being sixty days from creation.

Working. 10 March 2026 + 60 days, excluding the first day, ends on 9 May 2026.

Explanation. For a charge created on or after 02-11-2018, if registration is not made within thirty days, the Registrar may allow registration within sixty days of creation on payment of additional fees. Ad valorem fees apply only for the further period after sixty days. The sixtieth day from 10 March 2026 is 9 May 2026. Option (a) stops at the original thirty-day period.

Where it goes wrong. Treating the first thirty days as the only period before ad valorem fees.

Authority. Section 77(1); Companies (Registration of Charges) Rules, 2014

Question 5 · 2 marks · Registration of Charges · hard

The directors say that Ganga Infra need not file anything for the warehouse acquired subject to a registered charge. Which statement is correct?

1. The directors are correct, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the charge is already registered against the warehouse and no fresh filing is needed.
2. Ganga Infra must register the charge under Section 79 read with Section 77, because it has acquired property subject to a charge. (correct answer)
3. Ganga Infra must obtain Central Government approval, because the charge holder is a different lender.
4. Ganga Infra need not file anything until it defaults on its own loan.

Answer: B — Ganga Infra must register the charge under Section 79 read with Section 77, because it has acquired property subject to a charge.

Explanation. Section 79 applies the registration requirements to a company acquiring property subject to a charge and to modification of a charge. The registration already made by the seller does not remove the acquiring company's duty to register the charge in accordance with Section 77. Option (a) mistakes an existing registration for compliance by the new owner.

Where it goes wrong. Assuming the seller's registration satisfies the acquiring company's duty.

Authority. Section 79(a); Section 77

Question 6 · 2 marks · Registration of Charges · medium

What is the effect of Chandra Finance enforcing the floating charge on 2 May 2026?

1. The floating charge crystallises and attaches to the assets then existing, and the company cannot deal with them in the ordinary course after that. (correct answer)
2. The floating charge remains floating after enforcement, so the company may continue to sell the stock in the ordinary course.
3. The floating charge becomes void because it was not converted into a fixed charge at creation.
4. The floating charge shifts to the warehouse acquired later, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, all charges attach to after-acquired property automatically.

Answer: A — The floating charge crystallises and attaches to the assets then existing, and the company cannot deal with them in the ordinary course after that.

Explanation. A floating charge is dormant until it crystallises. Enforcement by the charge holder is a crystallising event; the charge then attaches to the assets existing at that time and the company cannot deal with them in the ordinary course. Option (b) ignores crystallisation. Option (d) treats a floating charge as automatically extending to a later-acquired warehouse.

Where it goes wrong. Believing the company may keep dealing with charged stock after enforcement.

Authority. Chapter VI; Section 2(16)

Question 7 · 2 marks · Prospectus and Allotment of Securities · hard

Scenario. Vardhan Renewables Limited, a public company with paid-up capital of ₹25 crore and 2,000 members, issued a prospectus on 5 May 2026 for a public issue of equity shares proposed to be listed on a recognised stock exchange. The prospectus was signed by the directors, but a copy was not delivered to the Registrar before the issue. The issue opened on 12 May 2026 and closed on 25 May 2026. The prospectus stated a minimum subscription of 90% of the issue. Applications were received for only 78% of the issue, but the Board proceeded to allot shares on 10 June 2026 to avoid delay. The company also stated that application money would be at least 5% of the nominal value; it received 5% from applicants. One applicant, Ms. Rhea, paid ₹2,000 on application for shares of nominal value ₹10 each. The company did not file the return of allotment within thirty days. Based on the facts above and the applicable provisions of the Companies Act, 2013, answer the following MCQs.

What is the legal consequence of issuing the prospectus without delivering a signed copy to the Registrar?

1. The issue is valid because the prospectus was signed by the directors before the issue opened.
2. The issue is void only if an applicant proves loss; otherwise no penalty applies.
3. The issue is in contravention of Section 26(4); the company and every person knowingly a party to the issue are liable to a fine of ₹50,000 to ₹3,00,000. (correct answer)
4. The issue is valid, but the company must file the prospectus within ninety days after the issue closes, as specifically evaluated under the mandatory statutory framework and applicable regulatory guidelines.

Answer: C — The issue is in contravention of Section 26(4); the company and every person knowingly a party to the issue are liable to a fine of ₹50,000 to ₹3,00,000.

Explanation. A prospectus cannot be issued unless a signed copy is delivered to the Registrar for filing. Issuing it without that delivery contravenes Section 26(4), and Section 26(9) imposes a fine of ₹50,000 to ₹3,00,000 on the company and every person knowingly a party. Option (a) confuses signing with filing.

Where it goes wrong. Thinking director signature alone satisfies the filing requirement.

Authority. Section 26(4); Section 26(9)

Question 8 · 2 marks · Prospectus and Allotment of Securities · hard

Applications were received for only 78% of the issue although the prospectus stated a 90% minimum subscription. The Board allotted shares on 10 June 2026. Which statement is correct?

1. The allotment is valid because applications for 78% of the issue were received and the Board decided to proceed.
2. The allotment is valid because the prospectus stated 90% and the company received more than 75%.
3. The allotment is invalid; the company must refund application money within fifteen days from the closure of the issue, and delay attracts interest at 15% per annum on the responsible directors and officers. (correct answer)
4. The allotment is invalid, but the company may retain the money until a fresh issue is made.

Answer: C — The allotment is invalid; the company must refund application money within fifteen days from the closure of the issue, and delay attracts interest at 15% per annum on the responsible directors and officers.

Explanation. No allotment can be made unless the minimum subscription stated in the prospectus has been subscribed and application money received. With only 78% against a stated 90%, the allotment is invalid. Refund is due within fifteen days from closure; default makes responsible directors and officers liable with interest at 15% per annum. Option (a) treats a lower receipt as sufficient.

Where it goes wrong. Thinking a substantial subscription below the stated minimum validates allotment.

Authority. Section 39(1); Section 39(3); Rule 11(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014

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

Scenario. Orion Exports Private Limited is a company resident in India with annual turnover of ₹12 crore. In August 2025, its director, Mr. Arun, sold USD 5,000 in cash to his friend Mr. Bala, a resident, at a rate better than the bank's rate; Mr. Bala is not an authorised person. In the same month, the company's restaurant accepted USD 20 cash from a foreign tourist against a meal bill. In September 2025, Mr. Arun paid the insurance premium of his brother, a person resident outside India, from his Indian bank account. In a separate arrangement, Mr. Arun gave ₹70,000 in cash to a local dealer, and the dealer's contact in Dubai paid USD 1,000 to Mr. Arun's cousin. The company has an authorised dealer account with a bank in Mumbai and no special permission from the Reserve Bank for any of these arrangements. The company also received a notice from the Directorate of Enforcement regarding the transactions. Orion Exports proposes to regularise the matters and asks whether any transaction is permitted. Based on the facts above and the applicable provisions of the Foreign Exchange Management Act, 1999, answer the following MCQs.

Which statement is correct about Mr. Arun's sale of USD 5,000 in cash to Mr. Bala?

1. It contravenes Section 3(a), because a resident dealt in foreign exchange with a person who is not an authorised person. (correct answer)
2. It is permitted because Mr. Bala is a resident and the amount is below USD 10,000.
3. It is permitted because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, the rate was better than the bank's rate and no foreign currency left India.
4. It contravenes Section 3(d), because it is a financial transaction linked to an asset outside India.

Answer: A — It contravenes Section 3(a), because a resident dealt in foreign exchange with a person who is not an authorised person.

Explanation. Section 3 restricts dealing in or transferring foreign exchange or foreign security to a person who is not an authorised person. Mr. Bala is not an authorised person, so the cash sale contravenes Section 3(a). The amount being below USD 10,000 and the rate being better than the bank's rate do not create a permission.

Where it goes wrong. Assuming a small amount or a better rate makes the deal permissible.

Authority. Section 3(a); Section 2(c)

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

Mr. Arun paid the insurance premium of his brother, a person resident outside India, from his Indian bank account. Which statement is correct?

1. It is permitted as a current account remittance for a family member, because under the explicit statutory framework and mandatory procedural requirements of the governing legislation, payments for living expenses of relatives are current account transactions.
2. It is permitted only if the amount is below USD 250,000 under the Liberalised Remittance Scheme, because the remitter is an individual.
3. It contravenes Section 3(b), because a resident made a payment for the credit of a person resident outside India without the permission provided by the Act or the Reserve Bank. (correct answer)
4. It is permitted because the payment was made from an Indian bank account and not from a foreign currency account.

Answer: C — It contravenes Section 3(b), because a resident made a payment for the credit of a person resident outside India without the permission provided by the Act or the Reserve Bank.

Explanation. Section 3(b) restricts making payment to or for the credit of a person resident outside India in any manner, unless permitted by the Act or by the Reserve Bank. Paying the brother's insurance premium is a payment for the credit of a person resident outside India. The source of the bank account and a general individual limit do not by themselves remove the need for a permission.

Where it goes wrong. Treating any family-related remittance as automatically permitted.

Authority. Section 3(b); Section 2(w)

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

Which authority is entrusted with enforcement of the Foreign Exchange Management Act, 1999?

1. The Reserve Bank of India alone, because it regulates foreign exchange transactions.
2. The Securities and Exchange Board of India, because the company has an authorised dealer account.
3. The Central Government alone, because all contraventions are adjudicated by it.
4. The Directorate of Enforcement, because enforcement of the Act is entrusted to it. (correct answer)

Answer: D — The Directorate of Enforcement, because enforcement of the Act is entrusted to it.

Explanation. The Reserve Bank exercises overall control over foreign exchange transactions, but enforcement of the Act is entrusted to a separate Directorate of Enforcement. Option (a) confuses regulation with enforcement. Option (c) overstates the Central Government's role in adjudication.

Where it goes wrong. Equating the Reserve Bank's regulatory role with enforcement.

Authority. Section 36

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

Scenario. Sahana Design LLP was formed in 2018 with three partners, Ms. Sahana, Mr. Tejas and Mr. Varun; Ms. Sahana and Mr. Tejas are designated partners. Its financial year ended on 31 March 2026. The LLP prepared its Statement of Account and Solvency on 30 September 2026 and signed it by Ms. Sahana only. It filed the statement with the Registrar on 5 October 2026. The LLP filed its annual return for the year ended 31 March 2026 with the Registrar on 10 June 2026. The LLP had turnover of ₹38 lakh and contribution of ₹20 lakh, and it claims the status of a small LLP. The Registrar issued a notice on 20 October 2026 for delay in annual return and for the manner of signing the Statement of Account and Solvency. Based on the facts above and the applicable provisions of the Limited Liability Partnership Act, 2008, answer the following MCQs.

The annual return for the year ended 31 March 2026 was filed on 10 June 2026. What is the legal position?

1. The annual return was late; the LLP and every designated partner are liable to a penalty of ₹100 per day after the due date, subject to the prescribed caps. (correct answer)
2. The annual return was within time because the LLP has sixty days from the end of the financial year, which ends on 30 May 2026.
3. Only the designated partner handling filing is liable; the LLP is not liable.
4. No penalty applies because the LLP is a small LLP.

Answer: A — The annual return was late; the LLP and every designated partner are liable to a penalty of ₹100 per day after the due date, subject to the prescribed caps.

Working. Financial year closed 31 March 2026; 60 days, excluding the first day, ends on 30 May 2026.

Explanation. An LLP must file its annual return within sixty days of the closure of its financial year. For the year ended 31 March 2026, the due date is 30 May 2026. Filing on 10 June 2026 is late, and the LLP and every designated partner are liable to a penalty of ₹100 per day after the due date, subject to the caps. The small LLP status does not remove this filing duty.

Where it goes wrong. Assuming small LLP status removes the annual return penalty.

Authority. Section 35(1); Section 35(2)

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

The Statement of Account and Solvency was signed only by Ms. Sahana and was filed on 5 October 2026. Which statement is correct?

1. The statement was compliant because it was filed within six months from the end of the financial year and signed by a designated partner.
2. Only the signing partner is liable; the LLP has no liability for late filing.
3. The statement was compliant because the Registrar may accept a statement signed by any partner.
4. The statement was not compliant because it was signed by only one designated partner and was filed after the six-month period, so the LLP and designated partners are liable. (correct answer)

Answer: D — The statement was not compliant because it was signed by only one designated partner and was filed after the six-month period, so the LLP and designated partners are liable.

Working. 31 March 2026 + 6 months ends on 30 September 2026; filing on 5 October 2026 is late.

Explanation. The Statement of Account and Solvency must be prepared within six months from the end of the financial year and signed by the designated partners. For the year ended 31 March 2026, the six-month period ends on 30 September 2026. Filing on 5 October 2026 is late, and signing by only one designated partner is not the prescribed manner. The LLP and designated partners are liable.

Where it goes wrong. Treating filing by any one designated partner as sufficient and ignoring the late filing.

Authority. Section 34(2); Section 34(3)

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

Scenario. The Trade Facilitation (State Powers) Act, 2025 was passed by Parliament and received the assent of the President on 15 July 2025. The Act did not mention a date of commencement. The Central Government issued a notification in the Gazette on 1 September 2025 bringing sections 1 to 10 into force with effect from 1 October 2025. The Act repealed the Trade Facilitation Act, 1998. Under the old Act, a licence granted to Ms. Nandini on 10 June 2025 was valid for three years. A rule made under the old Act required renewal applications to be filed in a particular form. After the new Act, the same rule was re-enacted with a new section number. Ms. Nandini's licence was cancelled by an authority on 15 November 2025 for an alleged violation that occurred in 2024. The authority also demanded a penalty under the old Act. Based on the facts above and the applicable provisions of the General Clauses Act, 1897, answer the following MCQs.

On which date did sections 1 to 10 of the Trade Facilitation (State Powers) Act, 2025 come into force?

1. 15 July 2025, because that is the date of assent when no commencement date is stated in the Act.
2. 1 September 2025, because that is the date of the Gazette notification.
3. 1 October 2025, because the notification brought sections 1 to 10 into force from that date. (correct answer)
4. 1 April 2026, because financial-year commencement is presumed for all Central Acts.

Answer: C — 1 October 2025, because the notification brought sections 1 to 10 into force from that date.

Explanation. Where a Central Act does not specify a commencement date, it comes into force on the date of assent. But if a specific date of enforcement is prescribed by notification in the Gazette, the Act or the notified provisions come into force from that date. Here the notification fixed 1 October 2025. Option (a) stops at the assent date.

Where it goes wrong. Ignoring the notified commencement date and using only the assent date.

Authority. Section 5

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

What is the effect of the repeal on Ms. Nandini's licence granted in June 2025 and the penalty demanded for a violation in 2024?

1. The repeal wipes out the licence and the pending penalty, because a repealed Act is treated as if it never existed.
2. Both the licence and the penalty are governed only by the new Act, because the new Act re-enacted the rule.
3. The licence survives, but the penalty cannot be imposed because the old Act no longer exists.
4. The repeal does not affect the licence already granted or the penalty incurred under the old Act; the proceedings may continue as saved by Section 6. (correct answer)

Answer: D — The repeal does not affect the licence already granted or the penalty incurred under the old Act; the proceedings may continue as saved by Section 6.

Explanation. Section 6 saves the previous operation of the repealed enactment and rights, privileges, obligations, liabilities and penalties incurred under it. A licence already granted and a penalty incurred for a past violation are not destroyed by the repeal. Option (a) states the general obliteration effect too broadly and ignores the savings.

Where it goes wrong. Applying the repeal as if all rights and liabilities under the old Act disappear.

Authority. Section 6; Section 8; Section 24