GUIDELINE ANSWERS

1 GUIDELINE ANSWERSEXECUTIVE PROGRAMMEJUNE 2021 SessionMODULE 1 ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 Phones : 41504444, 45341000; Fax : 011-24626727E-mail : Website : ANSWERS have been written by competent personsand the Institute hope that the GUIDELINE ANSWERS willassist the students in prepar ing for th e Institute'sexaminations. It is, however, to be noted that the answersare to be treated as model ANSWERS and not as exhaustiveand the Institute is not in any way responsible for thecorrectness or otherwise of the ANSWERS compiled andpublished O N T E N T S PageMODULE and Management (OMR Based Exam) and Commercial Laws and Practice (OMR Based Exam)..61 The GUIDELINE ANSWERS contain the information based on theLaws/Rules applicable at the time of preparation.

2 However,students are expected to be well versed with the amendmentsin the Laws/Rules made upto six months prior to the date CL June 2021 COMPANY LAWTime allowed : 3 hours Maximum marks : 100 NOTE ALL references to sections relate to the Companies Act, 2013 unless 1 Comment on the following:(a)Every Company is required to issue securities in dematerialized form only.(b)No Debenture Redemption Reserve is required to be created for privately placeddebentures and for debentures issued by a housing finance company.(c)Share certificate of a company is an official publication.(d)The statutory auditor of a public company may render actuarial services to itsholding company. (5 marks each)Answer 1(a)Section 29 of the Companies Act 2013 mandates that every company making publicoffer and such other class or classes of companies as may be prescribed, shall issuethe securities only in dematerialized form by complying with the provisions of theDepositories Act, 1996 and the regulations made , Section 29 read with Rule 9A of the Companies (Prospectus and Allotmentof Securities)

3 Rules, 2014 also mandates that every unlisted public company shall issuethe securities only in dematerialised form and also facilitate dematerialisation of all of itsexisting securities in accordance with the provisions of the Depositories Act, 1996 andregulations made there , an unlisted public company which is a Nidhi Company, a GovernmentCompany or a wholly owned subsidiary company is exempted from the above requirementas specified in Rule 9A of the Companies (Prospectus and Allotment of Securities)Rules, company, other than the companies mentioned above, may convert its securitiesinto dematerialised form or issue its securities in physical form in accordance with theprovisions of the Companies Act, 2013 or in dematerialised form in accordance with theprovisions of the Depositories Act, 1996 and the regulations made 1(b)Section 71 read with Rule 18 of the Companies (Share Capital and Debentures)

4 Rules 2014 mandates certain classes of companies issuing debentures to createDebentures Redemption Reserve account out of the profits of the company available forEXECUTIVE PROGRAMME EXAMINATIONJUNE 2021EP CL June 20212payment of dividend and the amount credited to such account shall not be utilised bythe company except for the redemption of , every Listed Companies (including All India Financial Institutions(AIFIs)regulated by Reserve Bank of India and Banking Companies, listed/unlisted NBFCs andHousing Finance Companies) have been exempted from creation of DebentureRedemption Reserve (in case of both public issue as well as privately placed debentures,as applicable).Whereas, an unlisted company is required to create a Debenture Redemption Reservefor privately placed debentures for a value of 10% of the outstanding 1(c)The question whether a share certificate of a company is an official publicationwithin the meaning of Section 12(3)(c) was considered by the Department of CompanyAffairs (Now, Ministry of Corporate Affairs) and the Department has clarified vide CircularNo.

5 3/73[8/10(47)]/72-CL-V dated as follows: It will be seen that in terms of Section 82 [Corresponds to Section 44 of the CompaniesAct, 2013], the shares in a company are movable property transferable in the mannerprovided in the articles of the company. Section 84 [Corresponds to Section 46 of the Companies Act, 2013] provides that acertificate issued under the common seal of the company, if any or signed by twodirectors or by a director and the Company Secretary, wherever the company hasappointed a Company Secretary, specifying the shares held by any member shall beprima facie evidence of the title of the member to such , shares are movable property transferable in the manner provided in the articlesof the company and that the share certificates are certificates of title and are movableproperty but are not publications in the nature of prospectus, balance sheet, profit andloss account, notice or conclusion reached, therefore, is that the share certificate is not an officialpublication within the meaning of Section 12(3)(c) of Companies Act, 1(d)

6 Section 144 of the Companies Act, 2013 provides that an auditor appointed underthis Act shall provide to the company only such other services as are approved by theBoard of Directors or the Audit Committee, as the case may be, but which shall notinclude any of the following services (whether such services are rendered directly orindirectly to the company or its holding company or subsidiary company), namely: (a)Accounting and book keeping services;(b)Internal audit;(c)Design and implementation of any financial information system;(d)Actuarial services;(e)Investment advisory services;3EP CL June 2021(f)Investment banking services;(g)Rendering of outsourced financial services;(h)Management services; and(i)Any other kind of services as , in view of the specific prohibition under the above referred provisions, a statutoryauditor of public or private company cannot render actuarial services to the company orany of its holding or subsidiary all parts of either or 2 Distinguish between the following :(a) Reduction of Share Clapital and Diminution of Share Capital (b) Quorum of Board Meeting and Quorum of General Meeting (c) Constitution of Audit Committee and Constitution of Corporate SocialResponsibility Committee.

7 (d) Inspection and Investigation (4 marks each)OR (Alternate question to Q. No. 2)Question 2A(i)Skill Properties Private Ltd. is in the business of real estate. lt has received anamount of `95000/- as an advance from its customers during the course ofbusiness on which no interest is payable to its customers. Referring to theprovisions of the Companies Act, 2013, decide whether this receipt should betreated as an advance by the company in its books of accounts.(ii)Members of Star Ltd. proposes to appoint Ram and Shyam as directors of thecompany by passing a single resolution in the general meeting. Can membersof Star Ltd. do so ? What will be your answer if it is a private company?(iii)Harsh Private Ltd. holds 50% of total shares of Spandan Ltd. A, B, and C holds10%, 20% and 30% shares of Harsh Private Ltd.

8 Discuss the proceduralformalities required to be complied with by A, B and C with respect to theirbeneficial ownership.(iv)Lily Ltd. was merged with Rose Ltd. under a scheme of arrangement. The minutesof the Board meetings and general meetings were handed over to Rose the Rose Ltd. on the following proposals :(a)Rose Ltd. proposes to preserve all minutes of Lily Ltd. for next eight years.(b)Rose Ltd. proposes to keep minutes of its general meetings and boardmeetings at its factory premises. (4 marks each)EP CL June 20214 Answer 2(a)Difference between Reduction of Share Capital and Diminution of Share Capital Reduction of Share CapitalReduction of Share Capital is the process of decreasing a company s share capital(both equity and preference share capital) through share cancellations and sharerepurchases.

9 After a capital reduction, the number of shares in the company will decreaseby the reduction of Share Capital is governed by the provisions of Section 66 of theCompanies Act, 2013. It provides that subject to confirmation by the Tribunal on anapplication by the company, a company limited by shares or limited by guarantee andhaving a share capital may, by a special resolution, reduce the share capital in anymanner and in, particular, may (a)extinguish or reduce the liability on any of its shares in respect of the sharecapital not paid-up; or(b)either with or without extinguishing or reducing liability on any of its shares,:(i)cancel any paid-up share capital which is lost or is unrepresented by availableassets; or(ii)pay off any paid-up share capital which is in excess of the wants of thecompany,alter its memorandum by reducing the amount of its share capital and of its of Share CapitalDiminution of capital is the cancellation of the unsubscribed part of the issued 61(1)(e) of the Companies Act, 2013, provides that, a limited companyhaving share capital, if so, authorised by its Articles of Association, may alter itsMemorandum in its general meeting to cancel shares which, at the date of the passingof the resolution in that behalf, have not been taken or agreed to be taken by any person,and diminish the amount of its share capital by the amount of the shares so , Section 61(2)

10 Of the Companies Act, 2013 specifically states that thecancellation of shares under section 61(1) shall not be deemed to be reduction of Reduction of Capital in accordance to Section 66 of the Companies Act, 2013requires confirmation of the same by Tribunal, diminution of capital do not require suchconfirmation by the 2(b)Difference between Quorum of Board Meeting and General MeetingQuorum of Board Meeting:In terms of section 174 of Companies Act, 2013 one third of total strength (anyfraction shall be rounded off to the next one) or two directors, whichever is higher, shall5EP CL June 2021be the quorum for a board meeting. For the purpose of determining the quorum, theparticipation by directors through Video Conferencing or other audio-visual means shallalso be per SS-1, where the quorum requirement provided in the Articles of Associationof the company is higher than one-third of the total strength, the company shall conformto such higher at any time the number of interested directors exceeds or is equal to two-thirds ofthe total strength of the Board of Directors, the number of directors who are not interestedand present at the meeting, being not less than two, shall be the quorum during a Meeting of the Board could not be held for want of Quorum, then, unless otherwiseprovided in the Articles, the Meeting shall automatically stand adjourned to the sameday in the next week.