CA Final :: Corporate Laws and Secretarial Practice : May 2004

Roll No…………………
Total No. of Questions— 9	Total No. of Printed Pages—8
Time Allowed : 3 Hours	Maximum Marks : 100
WT
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Questions 1,2 and 3 are compulsory.
Answer any four questions from the rest.
Marks

1.	Answer any two of the following:
	(a)	A Public Company wants to include the following clause in its articles of Association:	5
		"Each Director shall be entitled to be paid out of the funds of the company for attending meetings of the Board or a Committee there of including adjourned meetings such sum as sitting fees as shall be determined from time to time by the directors, but not exceeding a sum of Rs. 30,000 for each such meeting to be attended by the Director."
		You are required to advise the Company as to the validity of such a clause and the correct legal position.
	(b)	Securities and Exchange Board of India received serious complaints against the Affairs of a Member of a Stock Exchange. Explain the powers of SEBI under Securities Contracts (Regulation) Act, 1956 to make enquiries and to take action, if necessary, against the member of a Stock Exchange.	5
	(c)	The governing body of City Stock Exchange Association Ltd. is desirous of putting various restrictions on voting rights of its members to be exercised in a meeting and on their right to appoint proxy. You are required to state whether the same is permissible. Also state the role of Central Government in this respect.	5

P.T.O.

( 2 )

Marks

Answer any two of the following:

(a)

Mr. Sane, an Indian National desires to obtain Foreign Exchange for the following purposes:

(i)	Remittance of UD Dollar 50,000 out of winnings on a lottery ticket.
(ii)	US Dollar 1,00,000 for sending a cultural troupe on a tour of U.S.A.
(iii)	US Dollar 50,000 for meeting the expenses of his business tour to Europe.

Advise him whether he can get Foreign Exchange and if so, under what conditions?

(b)

Explain the restrictions, if any, under Foreign Exchange Management Act, 1999 in respect of the following issue and transfer of shares:

(i)	Issue of Equity Shares of Rs. 1 crore at face value accounting for 45 percent of post-issue capital to non-resident Indians in U.S.A. on non-repatriation basis. The shares are issued by M/s ABC Knitwear Limited to finance the modernisation of its plant.
(ii)	A Non-resident Indian, who is holding Equity shares in M/s DEF Textiles Limited, proposes to sell some shares to another Non-resident Indian for a consideration of Rs. 50 lakhs and also transfer shares of face value of Rs. 25 lakhs to a person resident in India by way of Gift.

(c)

The articles of Association of XYZ Computers Limited provide for a maximum of 15 Directors. But the company has only 10 Directors and for two of them representing Foreign Collaborators, alternate Directors have been appointed. Board Meeting held on 1st August, 2003 was attended by 4 Directors including 2 alternate Directors.

Examine with reference to the relevant provisions of the Companies Act, 1956 whether quorum was present at the Board Meeting held on 1st August, 2003.

Will your answer be different, if the articles provide for a Quorum of 6 Directors?

WT	Contind...

( 3 )

Marks

Answer any two of the following:

(a)

An unlisted Company, having paid-up Share Capital of Rs. 3 crores consisting of 30,00,000 Equity Shares of Rs. 10 each fully paid-up, proposes to make an initial Public offer of 90,00,000 Equity Shares of Rs. 10 each at a premium of Rs. 5 per share, in July, 2004. The promoters acquired 10,00,000 shares on 1st January, 2000 and another 10,00,000 shares on 1st January, 2004 at face value:

(i)	What should be the minimum contribution that should be made by the promoters of the above company in order to comply with the guidelines issued by SEBI?
(ii)	State also the period for which the promoters are required to hold these shares and also the shares, if any, acquired by the promoters in excess of the required minimum contribution.

(b)

(i)	Explain briefly the powers of SEBI under Securities and Exchange Board of India Act, 1999 to seize the records of a Stock broker or other Intermediaries associated with Securities Market.	4
(ii)	An understanding has been reached among the manufacturers of cement to control the price of cement, but the understanding is not in writing and it is also not intended to be enforced by legal proceedings.	4

(c)

(i)

Explain the effects of a proviso to a section in a statute.

(ii)

Examine whether the following contracts require previous approval of the Central Government keeping in view the effect of the proviso to Section 297(1) of the Companies Act, 1956:
(a)
Contracts for purchase of goods from a Public Company having a paid-up Share Capital of more than Rupees one crore by a firm in which a director of the Public Company is a partner. The purchase is for cash at prevailing market prices.

P.T.O.

(4)

Marks

(b)	Contracts Attracting Section 297(1) to be entered into by a Public Company having a paid-up share capital of Rupees one crore in circumstances of urgent necessity.

(a)

State with reference to the relevant provisions of the Companies Act, 1956 whether the following persons can be appointed as a Director of a Public company:

(i)	Mr. A, who has huge personal liabilities far in excess of his Assets and Properties, has applied to the court for adjudicating him as an insolvent and such application is pending.
(ii)	Mr. B, who was caught red-handed in a shop lifting case two years ago, was convicted by a court and sentenced to imprisonment for a period of eight weeks.
(iii)	Mr. C, Former Bank Executive, was convicted by a court eight years ago for embezzlement of funds and sentenced to imprisonment for a period of one year.
(iv)	Mr. D is a Director of DLT Limited, which has not filed its Annual Returns pertaining to the Annual General Meetings held in the calendar years 2001, 2002 and 2003.

(b)

Draft a resolution proposed to be passed at a General Meeting of a Public Company giving consent to the Board of Directors for borrowing upto a specified amount in excess of the limits laid down under Section 293(1)(d) of the Companies Act, 1956 and also state the borrowings, which are are to be excluded from the said limits.

(a)

(i)	Mr. SDR, a shareholder in M/s. JKP Ltd. holding ten equity shares of Rs. 10 each fully paid up wants to give a special notice to the company for removal of Mr. EDM, a Director of M/s. JKP Ltd. without stating any reason in the notice. You are required to state as per the provisions of the Companies Act, 1956 and/or any decided case law whether Mr. SDR is entitled to do so.	8
(ii)	Would your answer be different, if Mr. EDM was a Director appointed by the Central Government Under Section 408 of the Companies Act, 1956?

WT	Contind...

( 5 )

Marks

(iii)

Explain briefly the provisions of the Companies Act, 1956 relating to removal of a Director in case of receipt of an appropriate special notice by the company for this purpose.

(b)

The Registrar of Companies, West Bengal has received a complaint from a group of creditors of a Company, in order to prevent the unearthing of their embezzlement of company's funds, are engaged in falsification and destruction of original accounting books and records. The complaints urged the Registrar in seize the accounting books and records of the company so that the Directors may not be able to tampter the same. You are required to state the powers, if any, of the Registrar in this respect.

(a)

XYZ, Producer Company Limited was incorporated on 1st April, 2003. At present it has got 200 members and its board consists of 10 Directors. The Board of Directors of the company seeks your advice on the following proposals:

(i)
Appointment of one expert Director and one Additional Director by the Board for a period of four years.

(ii) Loan of Rs. 10,000 to Mr. X, a Director of the company repayable within a period of six months.

(iii) Donation of Rs. 10,000 to a Political Party.

Advise the Board of Directors explaining the relevant provisions of the Companies Act, 1956.

(b)

The issued, subscribed and paid-up share capital of ABC Nidhi Company Limited is Rs. 10 lakhs consisting of 90,000 Equity shares of Rs. 10 each fully paid up and 10,000 Preferance shares of Rs. 10 each fully paid up. Out of members of company, 400 members holding one preference share each and 50 members holding 500 equity shares applied for relief Under Sections 397 and 398 of the Companies Act, 1956. As on the date of petition, the company had 600 Equity shareholders and 5,000 Preference shareholders.

Examine whether the above petition under Section 397 and 398 in maintainable. Will your answer be different, if preference shareholders have subsequently withdrawn their consent?

P.T.O.

( 6 )

Marks

(a)

Examine with reference to the provisions of the Companies Act, 1956 the validity of the following:

(i) A scheme provides for Amalgamation of a 'Foreign Company' with a Company Registered under the Companies Act, 1956.

(ii)
The statement forwarded with the notice convening a meeting of its members pursuant to Court's Direction Under Section 391 contains only 'Exchange Ratio' without details of its calculation.

(iii)
At the time of filing of the petition for Amalgamation, the object clause of both the transferor and Transferee Companies does not contain power to Amalgamate.

(b)

ABC Engineering Limited proposes to invest Rs. 20 lakhs in the Equity shares of PQR Trading Limited. The proposed investment togather with in investments in securities of companies and loans to body corporates already made exceed 60 per cent of the paid-up share capital and also 100 per cent of free reserves of the company. The company has taken term loans from IDBI.

Explain the procedure to be followed by ABC Engineering Limited to give effect to the proposed investment.

(a)

Mr. A, an advocate, is a Director of M/s. ABC Limited and he is proposed to be engaged by the company as an Advocate to appear before the court in connection with a case, on a remuneration of Rs. 10,000.

Will it amount to an 'Office or Place of Profit' attracting Section 314 of the Companies Act, 1956?

Will your answer be different, if he is proposed to be appointed on a regular retainer basis for rendering legal advise on a retainer fee of Rs. 5,000 per month either by ABC Limited or its subsidiary?

State also whether the proposed appointments can be made by the Board of Directors of the Companies.

WT	Contind...

( 7 )

Marks

(b)

Explain how the auditor will be appointed in the following cases:

(i) A Government Company within the meaning of Section 617 of the Companies Act, 1956.

(ii)
The Auditor of the company has resigned on 31st December, 2003, while the Financial year of the company ends on 31st March, 2004.

(iii)
A company, whose shareholders include the following:

(a) Bank of Baroda (A National Bank) holding 12% of the subscribed capital in the company.

(b)
National Insurance Company Limited (carrying on General Insurance Business) holding 10% of the subscribed capital in the company.

(c)
Maharashtra State Financial Corporation (A Public Financial Institution) holding 8% of the subscribed capital in the company.

(a)

The Board of Directors of M/s. ABC Limited, an unlisted company having a paid-up capital of Rs. 6 crores consisting of equity share capital of Rs. 5 crores and preference share capital of Rs. 1 crore and also 1,100 'Small Shareholders' holding equity shares seeks your advice on the following:

(i)	It is necessary for the Company to appoint a Director to represent the 'Small Shareholders'?
(ii)	In case the Company decides to appoint such a Director. The procedure to be followed by the company for such appointment and the period for which such appointment can be made.
(iii)	Can such a director be removed by the Company before the expiry of his period of appointment without the consent of the 'Small Shareholders'?

Advise explaining the relevant provisions of the Companies Act and the Rules.

P.T.O.

( 8 )

Marks

(b)

A Company created a floating charge of its Current Assets in favour of a Bank to secure a Current Account, which was in debit of Rs. 5 lakhs and also to secure further Working Capital facilities provided by the bank. The charge created on 1st January, 2003 was duly registered with the registered with the registrar of Companies. The bank advanced Rs. 10 lakhs subsequent to the creation of charge. The company has gone into voluntary liquidation pursuant to a resolution passed on 1st September, 2003. Examine the validity of the floating charge in case it is a creditors' voluntary winding up, but there is no fraudulent preference. Would your answer be different, if it was a member's voluntary winding up?