GUIDELINE ANSWERS - ICSI

1 GUIDELINE ANSWERSPROFESSIONAL PROGRAMME(New Syllabus)DECEMBER 2020 MODULE 3 ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 Phones : 41504444, 45341000; Fax : 011-24626727E-mail : Website : O N T E N T S PageMODULE Funding & Listing in Stock Case - Law & Practice (Elective Paper ) - Law & Practice (Elective Paper ) Property Rights - Laws and Practices(Elective Paper ) Audit (Elective Paper ) Tax Law & Practice (Elective Paper ) Laws & Practice (Elective Paper ) & Business Modelling (Elective Paper ) - Law and Practice (Elective Paper )155 These ANSWERS have been written by competent persons and the Institutehope that the GUIDELINE ANSWERS will assist the students in preparingfor the Institute's examinations.

2 It is, however, to be noted that the answersare to be treated as model ANSWERS and not as exhaustive and the Instituteis not in any way responsible for the correctness or otherwise of theanswers compiled and published ANSWERS to the questions based on case study, the students maywrite any other alternative answer with valid GUIDELINE ANSWERS contain information based on the Laws/Rulesrelevant for the Session. Students are expected to be well versed withthe amendments in the Laws/Rules made upto six months prior to thedate of CFLSE December 2020 PROFESSIONAL PROGRAMME EXAMINATIONDECEMBER 2020 CORPORATE FUNDING & LISTING IN STOCK EXCHANGESTime allowed : 3 hours Maximum marks : 100 NOTE : Answer ALL AQuestion 1(a)Define and discuss the conditions for Preferential Issue.

3 When an issuerbecomes ineligible to make a such issue ? (5 marks)(b)State the guidelines issued by RBI (Reserve Bank of India) for large borrowersunder the cash credit facility. (5 marks)(c)Balance Sheet of X company as at 31st March, 2018 and its statement ofchanges in financial position for the year ending on 31st March, 2019 arepresented below:Balance Sheet as at 31st March, 2018 Liability `Assets `Common Stock6,000 Land9,800 Reserves6,560 Equipment12,200 Preferential Stock2,500 Accumulated Depreciation(2,000)Long term Bonds7,000 Inventory2,370 Amount Payable2,140 Amount Receivable1,300 Cash53024,20024,200 Statement of changes in Financial Position for the year ended on 31st March,2019.

4 Sources`Uses`Net Income1,200 Paid Cash Dividend360 Depreciation600 Repaid Preferential Stock2,500 Loss on sale of land(80)Retired Bond Payable1,400 Issued Stock4,000 Purchased Equipment3,000 Sold land1,880 Increase in Working Capital3407,6007,600 Calculate the working capital as on 31st March, 2019. (5 marks)PP CFLSE December 20202 Answer 1(a)Define and discuss the conditions for preferential issue:A listed issuer may make a preferential issue of specified securities, if: all equity shares allotted by way of preferential issue shall be made fully paid upat the time of the allotment; a special resolution has been passed by its shareholders; all the equity shares, if any, held by the proposed allottees in the issuer are indematerialised form.

5 The issuer is in compliance with the conditions for continuous listing of equityshares as specified in the listing agreement with the recognised stock exchangewhere the equity shares of the issuer are listed, SEBI Listing Regulations, 2015as amended, and any circular or notifications issued by SEBI thereunder; the issuer has obtained the Permanent Account Number of the proposed an issuer becomes ineligible to make a such issue of specified securities shall not be made to any person whohas sold or transferred any equity shares of the issuer during the six monthspreceding the relevant issuer shall not be eligible to make a preferential issue if any of its promotersor directors is a fugitive economic any person belonging to promoter(s) or the promoter group has previouslysubscribed to warrants of an issuer but failed to exercise the warrants, thepromoter(s)

6 And promoter group shall be ineligible for issue of specified securitiesof such issuer on preferential basis for a period of one year from :(a)the date of expiry of the tenure of the warrants due to non-exercise of theoption to convert; or(b)the date of cancellation of the warrants, as the case may 1(b)In respect of borrowers having aggregate fund based working capital limit of Rs. 1500million and above from the banking system, a minimum level of loan component of 40percent shall be effective from April 1, 2019. Accordingly, for such borrowers, the outstanding loan component (Working Capital Loan) must be equal to at least 40 percent of thesanctioned fund based working capital limit, including ad hoc limits and TODs.

7 Hence,for such borrowers, drawings up to 40 percent of the total fund based working capitallimits shall only be allowed from the loan component . Drawings in excess of the minimum loan component threshold may be allowed in the form of cash credit facility. The bifurcationof the working capital limit into loan and cash credit components shall be effected afterexcluding the import credit limits and bills limit for inland sales from the working capitallimit. {Ok in terms of page of module}3PP CFLSE December 2020 Answer 1(c)Working capital as on 31st March, 2018 Opening w. c.(Rs.) = Cash + AR + Inv. - AP=530+1300+ 2370 -2140=2060 Hence as on 31st March 2019=Opening + change in for the year ended on march 31, 2019=Rs.

8 2060 + 2400 Attempt all parts of either Q. No. 2 or Q. No. 2 AQuestion 2(a)Explain guidelines issued by SEBI on participation by the strategic investors inInvITs and REITs vide its circular dated 18th January, 2018.(b)Explain the provisions relating to maintenance of records by an investmentmanager pertaining to the activity of the InvIT.(c)Define briefly the following in context of Indian equity private funding :(1)Alternative investment Fund(2)Infrastructure Fund(3)Social Venture Fund(4)Sponsor(5)Venture Capital Fund. (5 marks each)OR (Alternate question to Q. No. 2)Question 2A(i)Explain the conditions to become an Angel investor under SEBI (Venture CapitalFund) Regulations, 1996.

9 (ii)On 30th May, 2017 SEBI came out with a circular stating the disclosurerequirements for issuance and listing of Green Debt Securities in India. Explainthe Disclosure Document and other requirements in this context.(iii)Differentiate between Hire Purchase and Hypothecation. (5 marks each)Answer 2(a)Participation by the strategic investors in the public issue of the REITs(i)Holding requirements-Holding by strategic investors Minimum 5%, maximum 25%.-Holding by public, other than strategic investors and sponsor Minimum25%-Holding by sponsor Minimum 5%, maximum 70%PP CFLSE December 20204(ii)Issue price of the units and utilisation of funds-The price at which units are offered to the strategic investors must not beless than the price determined in the public must be ensured that the subscription amount is kept in the separateaccount until the public issue is opened.

10 (iii)Lock-in period-The units subscribed by strategic investors, pursuant to the unit subscriptionagreement, will be locked-in for a period of 180 days from the date of listingin the public 2(b)The investment manager shall maintain records pertaining to the activity of the InvIT,wherever applicable, including, (a)all investments or divestments of the InvIT and documents supporting the sameincluding rationale for such investments or divestments;(b)agreements entered into by the InvIT or on behalf of the InvIT;(c)documents relating to appointment of persons;(d)insurance policies for infrastructure assets;(e) investment management agreement;(f)documents pertaining to issue and listing of units including placementmemorandum, draft and final offer document, in- principle approval by designatedstock exchanges, listing agreement with the designated stock exchanges, detailsof subscriptions, allotment of units, etc;(g)distributions declared and made to the unit holders;(h)disclosures and periodical reporting made to the trustee, SEBI, unit holders andthe designated stock exchanges including annual reports, half yearly reports,etc.