neeraj mudgal law classes 2/75, lalita park, … · page 3 of 79 neeraj mudgal law classes 2/75,...

of 79 NEERAJ MUDGAL LAW CLASSES

2/75, LALITA PARK, LAXMI NAGAR, DELHI.

9910965137, 9711284246



9910965137, 9711284246

From NEERAJ MUDGAL SIR

STUDENTS ARE ADVISED TO MAKE THOROUGH REVISION OF TOPICS

OF DIRECTOR/SEBI ICDR AND FEMA.

WISH U ALL GREAT LUCK & KNOWLEDGE

FIRST OF ALL, ALL THE VERY BEST FOR THE EXAMS ,WHILE I M WRITING

THIS , I WISH YOU ALL HAVE THOROUGLY REVISED YOUR SYLLABUS AS

MANY AS 3 TIMES.

� THIS IS AN ASSIGNMENT IN WHICH SOME QUESTIONS ARE ENLISTED,

THROUH WHICH YOU CAN QUICKLY REVISE AND CHECK YOUR

CONCEPTS ON TIPS.

� THIS ASSIGNMENT COVERS ALMOST 80 MARKS OUT OF 120 MARKS

OF CORPORATE AND ALLIED LAWS.



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INTER-CORPORATE LOAN, GUARANTEE, SECURITY & INVESTMENT

BY

www.neerajmudgal.com

Q.1. What are the transactions to which sec. 186(2) does not apply?

A.Provisions of sec. 186(2) does not apply to loan/ guarantee/ security / investment made by Banking

co., insurance co., housing finance co., co established with the object of financing of companies or

providing infrastructural facilities

Provisions of sec. 186(2) does not apply to any investment by

(a) a co whose principle business is the acquisition of securities, or

(b) a NBFC registered with RBI

(c) aco in shares in right issue under section 62(1)(a).

Q. 2. WHETHER THE APPROVAL OF SHARE HOLDERS IS REQUIRED FOR L/G/S/I ?

A

HIGHER AMOUNT IS

L/G/S/I =loan/ guarantee/ security / investment, S.R.= Special Resolution

UBR = Unanimous Board Resolution ( consent of all the directors present at the board meeting)

Q. 3. WHETHER THE APPROVAL OF PUBLIC FINANCIAL INSTITUTION (PFI) IS REQUIRED FOR L/G/S/I ?

If (EXISTING L/G/S/I + PROPOSED L/G/S/I) is

lesser or equal to HIGHER AMOUNT

UBR shall be passsed

If (EXISTING L/G/S/I + PROPOSED L/G/S/I) is

more thanHIGHER AMOUNT

UBR shall be passed and approval of

shareholder shall be obtained by

passingPRIORS.R.

CS NEERAJ MUDGAL

BEST & EXCLUSIVE FOR CA FINAL LAW

60% OF ( P.U.C. + FREE RESERVES + SECURITIES PREMIUM ACCOUNT)

OR WHICH EVER IS HIGHER

100% OF (FREE RESERVES + SECURITIES PREMIUM ACCOUNT)



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If EXISTING L/G/S/I + PROPOSED L/G/S/I is

more thanHIGHER AMOUNT and the co has not

repaid the loan taken from the PFI

PRIOR APPROVAL OF PFIshall be obtained by the

co

Q. 3.CAN THE APPROVAL OF SHAREHOLDERS BE TAKEN SUBSEQUENTLY ?

ASec. 186(2) requires prior approval of share holders , however if the SR is passed within 1 year of the

notification(1.4.2014) of this section then it will be a vaid SR.

Q. 4. IF A COMPANY IS HAVING THE PUC OF RS. 40 CRORES AND FREE RESERVES AND SECURITIES

PREMIUM OF RS. 160 CRORES.

A

S.NO. SITUATION HIGHER

LIMIT

BR SR PFI APPROVAL

1 Where the company wants to make loan

of Rs. 20 crores and its existing L/G/S/I are

Rs 20 crores

160 U BR NA NA

2 If in the above case company wants to

make a loan of Rs. 100 crores

160 U BR NA NA

3 If in the case 1 the company wants to

make a loan of Rs. 200 crores

160 UBR PRIOR

SR

NA

4 If in the case 3 the company has taken a

loan of Rs. 25 crores from LIC

160 UBR PRIOR

SR

PFI APPROVAL

5 If co wants to make a loan of rs. 120 cr.

And its existing L/G/S/I are 20 cr. Also the

co has taken a loan of rs. 25 cr from LIC

160 UBR NA NA

.

Q. 5 CAN THE MANAGING DIRECTOR OF A PUBLIC CO. DECIDE TO MAKE INVESTMENT IN ANOTHER CO. ?

ASec. 186(2) requires CONSENT OF ALL THE DIRECOTRS PRESENT IN THE BOARD MEETING

,thereforeManging Director can not take the decision on investment.

Q.6CAN THE CO MAKE INVESTMENT IN A CO , IF IT HAS ALREDY DEFAULTED IN THE PAYMENT OF

MATURED DEPOSITS AND IT IS STILL UNPAID ?



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AAccording to Sec. 186(8) if the co has defaulted in the payment of the matured deposits or interest

on deposit then it can not make L/G/S/I under sec. 186(2).

Q.7 CAN A CO TAKE APPROVAL OFSHAREHOLDERS FOR L/G/S/I IN THE GENERAL MEETING?

AAccording to sec. 110 and RULE 22of CO.(Management and Administration ) Rules, 2014, approval of

shareholders for L/G/S/ shall be taken by postal ballot method and not in the general meeting.

Howeverfor INVESTMENT postal ballot is not applicable.

In case of OPC and company with membersupto 200, post ballot is not compulsory.

Q.7CAN THE DEBENTURES PURCHASED BE CONSIDERED AS LOAN GIVEN FOR THE PURPOSE OF SEC.

186(2)?

AYES , LOAN includes Debentures.

Q.8CAN THE CO GIVE L/G/S/I TO WHOLLY OWNED SUBSIDIARY WITHOUT PASSING SR?

AYES,

A company can make L/G/S/I to its wholly owned subsidiary co.

A company can make L/G/S/ to its joint venture co.

SR is not required to be passed. (rule 11 of co(meetings of board and its powers) rules 2014

Q.9WHETHER THE LOAN GIVEN BY HOLDING CO TO ITS WHOLLY OWNED SUBSIDIARY CO SHALL BE

CONSIDERED FOR CALCULATING THE LIMITS UNDER SEC. 186(2) ?

ANO,SEC. 186(3)does not applytoLOAN GIVEN BY HOLDING CO TO ITS WHOLLY OWNED SUBSIDIARY.

Q.10WITH IN HOW MUCH TIME ENTRIES MUST BE MADE IN THE REGISTER OF L/G/S/I TRANSACTIONS?

Awithin 7 days. (FORM MBP 2)

Q.11IN A BOARD MEETING DISCUSSING INTER CORPORATE LOAN, 8 DIRECTORS WERE PRESENT, 7

VOTED IN FAVOUR, ONE REMAINED SILENT AND DID NOT VOTE, WHETHER THE UNANIMOUS BOARD

RESOLUTION IS PASSED?

ASEC. 186(5) requires the consent of all the directors present at the meeting , therefore if one director

present at the meeting did not give consent and remained silent , the Unanimous Board Resolution is

not passed.

Q.12 IF THE LOAN/GUARANTEE/SECURITY IS GIVEN BY A CO TO ANOTHER PUB IN WHICH ITS DIRECTOR

HOLD 25% OR MORE VOTING POWER, WHAT ARE REQUIREMENTS UNDER CO ACT?



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ASuch Loan/Guarantee/security can be given subject to provisions of sec. 185 and the requirements

of sec. 186(2).



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PREVENTION OF OPPRESSION AND MISMANAGEMENT

BY


Q.1 ?who can make application to the CLB under sec. 397/398?

AIN CASE OF Company having Share Capital

� At least100 members or

� 1/10th

of the total no of members OR

� Any member(s) holding not less than 1/10th

of the issued capital of the company.

The applicants should not have defaulted in the payment of calls due on their shares.

IN CASE OFCompany not having share capital

At least 1/5th

of the total no of members.

Q2 a member makes an application to the CLB under sec. 397 , however later on his name is struck off

the register of member. Whether the application is invalid ?

A.NO, the application is valid. (Sayedabad Tea Co. Ltd. vsSamarendraNathGhattak)

Q 3 can the application be filed by a member by taking the consent of other members?

A. any one or more eligible member(s) can obtain consent of the other members in writing, and may

make the application on behalf and for the benefit of all of them. [Sec. 399(3)].

Q.4 can the CG permit lesser no of member s to file an application u/s 397 and 398.?

A. yes, CG may , if in its opinion circumstances exist which make it just and equitable so to do, authorize

any member or members to apply to the CLB after obtaining adequate security as it may deem fit,

notwithstanding the requirements of clause (a) or (b) of subsection 1 of Section 399. [ Sec. 399(4)]

Q.5 can the CG itself make an application to the CLB under sec. 397/398?]

A. yes. The CG may itself or through an authorized person make an application u/s 397 or398. [sec.

401]

Q.6 can CG make a representation in respect of an application filed by member(s) u/s 397 or 398?

CS NEERAJ MUDGAL




9910965137, 9711284246

A. CLB shall give notice of every application made to it u/s 397 or 398 to the CG, and shall take into

consideration the representation, if any, made to it by the government before passing the final order

Q. 7 what are the grounds on which application can be made to the CLB u/s 397/398?

A

Section 397 Section 398

Any Member(s)

May apply to the CLB if

� The Affairs of the company

are being managed in a

manner oppressive to any

member(s) OR

� The affairs of the company

are being managed in a

manner which is Prejudicial

to the Public Interest.

If on receiving the application

CLB is satisfied that circumstances

are such that it is Just and

Equitable to Wind up the company,

but the winding up of the company

will rather be prejudicial to the

applicants then CLB may pass an

order under section 402.

Any Member(s)

May apply to the CLB,

(a)

if affairs of the company are being managed in

a manner:

� Prejudicial to the interests of the

company

OR

� Prejudicial to the public interest

(b) if there has taken place a material change

in the ownership or control of the company

and because of such change it is likely that the

affairs of the company will be managed in the

aforesaid manner

if the CLB is of the opinion that the affairs of

the company are being managed or likely to

be managed in the aforesaid manner then the

CLB may pass the suitable order under section

402



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Q.8 can the CLB look into the past acts of oppressio?

A. in general CLB does not have jurisdiction to look in to the past acts except :

(i) As per clause (f) of section 402 of the Companies Act, 1956, the CLB can set aside any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under sections 397 and 398 of the said Act, even though they are no longer continuing wrongs.

(ii) As per provisions of section 406 read with Schedule XI to the Companies Act, 1956, the CLB, on an application made to it under sections 397 and 398 of the said Act, has power to book the delinquent directors, managers and other office bearers of the company and to enforce the company's claim against them if they have misplaced or retained the company's money or have committed any misfeasance or breach of trust in relation to the company.

Q. 9 can the CLB look into the Past acts of oppression which has a continuous impact?

A. yes, term “ affairs are being conducted” include past and concluded acts which has a continuous

impact [ Sindhri Iron Foundry private limited]

Q. 11 whether illegal acts are acts of oppression ?

A. no, illegal acts are not per se oppression.

Q.12 whether removal of a member director by the majority shareholders is an act of oppression?

A NO (removal of director is matter of right under sec. 284)

Q13. Whether non declaration of dividend is oppression?

A declaration of dividend is not mandatory under co act. therefore if the co does not declare the

dividend in any year , therefore there is no oppression.

Q. 14. “Where a member is not given the notice of the general meeting” does this amount to

oppression?

A.yes , it was held by CLB that non delivery of notice to the member is oppressive to such member,

the CLB did not accept the UPC as proof of sending the notice as the circumstances indicated

otherwise. [ Allianz Securities Limited]

Q. 15. Whether giving shorter notice of the general meeting is oppression?

A. no, giving of shorter notice is prescribed under the provisions of the co. act [ ShantideviGaikwad]

Q. 16 can the majority shareholders file complaint against minority shareholders and claim relief under

the provisions of sec. 397/ 398?



9910965137, 9711284246

A. yes

Q. 17 what is deadlock? Whether it is oppression?

A. Deadlock is a situation in which no progress could be achieved , parties involved are equally

powerful therefore one party can not be oppressed by the other. Therefore deadlock is not

oppression.

Q.18 A Share Sale Agreement was executed by Chand, an NRI. The shares and transfer deed were

handed over to an escrow agent. The sale was subject to RBI permission. The shares were not

transferred for 6 years since RBI permission was not received. Chand, after waiting for a long period of

time, raises th e issue and complains of oppression in the capacity of a member. As per the agreement

the sale was unconditional. During the above period, chand did not exercise any right as

shareholder,nor did the company treat him as a member. Now, chand wants to sue the co for “

oppression” Discuss.

A NO, There is no oppression[ Mrs. JameelaBevivs Narmada Building Enterprises ]

Q.19. Can the CG appoint Director in a company to remove oppression & mismanagement?

A yes , under sec. 408 CG can appoint directors on the board of a company to remove oppression and

mismanagement.

Q.20 Can the CG appoint Additional Director in a company to remove oppression & mismanagement?

A if the CLB passes an order for adoption of Sec. 265 (proportional representation method), then until

the appointments are made by such method, CG may appoint persons as additional director until the

directors are appointed under sec. 265

Q.21 Can the CG appoint a person as director in a company to remove the oppression &

mismanagement, where such person is the relative of a director of such company?

A. yes , provisions of sec. 314 shall not apply as , sec 408 starts with the words “notwithstanding any

thing contained in the co act. therefore it has power to direct such appointment.

Q.22 Can the CG appoint a Director in a company to remove oppression & mismanagement for a period

of 5years?

A. no , only for 3 years at a time.

Q.22 Can persons not satisfying the criteria under section 399 make the application to the CLB ?

A. According to sec. 399(4)the central government may, if in its opinion circumstances exist which

make it just and equitable , authorize any member or members of the company to apply to the CLB

even if they do not satisfy the criteria under sec. 399(1)



9910965137, 9711284246

Q.22 Can member make the application under sec. 397 or 398 by taking the consent of other members

?

A. ACCORDING TO SEC. 399(3) where any member(s) of a company are entitled to make an

application in sec. 399(1), any one or more of them having obtained the consent in writing of the rest,

may make the application on behalf and for the benefit of all of them .



9910965137, 9711284246

COMPROMISE, ARRANGEMENT, AMALGAMATION & RECONSTRUCTION BY


Q.1 What is the difference between Compromise & Arrangement?

A. Compromise is always due to some disputes, whereas the arrangement is without any dispute.

Q.2 What is the procedure of compromise or arrangement?

A. SEC. 391 PROCEDURE FOR COMPROMISE/ ARRANGEMENT

� The company / member/ creditor/ liquidator may make an application to the court along with the Draft scheme, summon of the

judge and the affidavit.

� The court may by order fix the date and time of the class meeting and also appoint the chairman of the meeting.

� The members/creditors as the case may be shall approve the Compromise / Arrangement by :

o Majority in number&

o Holding 3/4th

by value amongst those who are present and voting.

� Within 7 days of the class meeting the chairman shall submit his report to the court.

� Within 7 days after the chairman has filed his report to the court, the company shall file the application to the court for sanctioning

the scheme along with 3 annexures :

o Latest Balance Sheet,

o Latest Audit Report,

o Statement of Pendency of investigation under earlier suits under section 235-251 and the like.

� The court may pass the order for sanctioning the scheme.

� The company shall file the copy of the order with ROC along with the copy of the scheme in form no. 21.

Q.3 Can a shareholder who is not a member make an application for compromise or arrangement?

A. only member can make an application under section391 .

Q.4What is the number of members by whom the scheme of compromise or arrangement shall be

approved?

A. Majority in number& 3/4th

in value amongst those who are present and voting.

Q.5 Whether approval of equity shareholders or preference shareholders shall be obtained?

A. Approval of both is required.

Q.6 Can the liquidator make an application for compromise or arrangement? Whether it is exclusive

right of the liquidator to make the application of compromise or arrangement in a company being

wound up?

A. liquidator can make the application,but it is not its exclusive right. Others can also file the application.

CS NEERAJ MUDGAL




9910965137, 9711284246

Q.7What is the procedure of amalgamation?

A. sec. 391 procedure given under Q 2 shall be followed and N.O.C. from official liquidator shall be

taken for dissolution of the company without winding up and N.O.C. from R.O.C./ C.L.B shall be taken in

case of a co. being wound up.

Q.8 What is the Share Exchange Ratio & how it is determined?

A. it is the ratio in which the shares of the transferor co are exchanged for the shares of the transferee

co.

It can be determined by 1. Prevailing Market price or 2. Yield Method or 3. NAV Method 4. Break Up

Value Method. [ C W T vs. MAHADEV JALAN]

Q 9 The notice of the class meeting for approval of amalgamation contains the share exchange ratio &

not the method of its calculation. Whether such notice is valid?

A. YES, such notice is valid. [ HINDUSTAN LEVER LIMITED]

Q10 Whether the share valuation report must be circulated to the members along with the notice of the

class meeting ?

A. NO, [ HINDUSTAN LE VER LIMITED]

Q 11 Can the two companies which have different object clause be amalgamated ?

A. YES [In re: McleodRussel]

Q 12 Can the holding co issue shares to its subsidiary co in the scheme of amalgamation?

A. YES, but such shares shall not carry the voting right. [Consolidated Coffee VsArun Kumar Aggarwal]

Q 13 Where the co has filed the application with the court for the purpose of approval of scheme of

amalgamation, can the company withdraw or modify the application by passing a resolution in the

EGM?

A. WITHDRAWL : NO. [ Centron Industrial Alliance Ltd. vs. PravinKantilalVakil]

Modification : can pass the resolution but it is at the discretion of the court to modify or not. [

PravinKantilalVakil Vs. Mrs. Rohini Ramesh Save]

Q 14 Can the employees object the scheme of the amalgamation?

A. yes, but it is the discretion of the court to accept the objection or not.[ HLL& Brook Bond Limited Vs.

Their Workman]



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Q 15 Can the CG make representation to the court , where an application is filed by a co with the court

for amalgamation?

A. YES [ SEC. 394A]

Q 16 What is the difference between effective date and appointed date?

A effective date is the date on which form no. 21 is filed with the ROC . Appointed date is the date on

which the assets and liabilities stands transferred from transferor co to transferee co.

Q 17 Can the court substitute its own share exchange ratio in place of the ratio specified in the scheme?

A. NO.[ PIRAMAL SPINNING AND WEAVING MILLS]

Q 18 Can the CG order the amalgamation of 2 or more companies?

A. YES. Under sec. 396 in the public interest.

Q 19 Certain persons are aggrieved by the amount of compensation mentioned in the draft order of

amalgamation notified by CG under sec. 396, can they object and file appeal for increasing the amount

of compensation?

A. YES , the can file the appeal to the CLB with in30 days from the date of publication of notification.

Q20 Can a foreign co be amalgamated in an Indian co.?

A. YES.

Q 21 Can an Indian co be amalgamated in a foreign co?

A. NO.

Q 22Two companies are amalgamated with each other, the employees of one co refuse to join the

amalgamated co. As a result they lost the employment. Now the employees want to claim the

compensation for loss of office. Can they do so.

A. contract of personal service do not get transferred automatically in the scheme of amalgamation like

other assets and liabilities. They can claim the compensation. [ Nokes vs. Doucaster Amalgamated

Colleries Ltd.]

Q 23 Can the court while approving the scheme of amalgamation approve the disposal of documents of

the amalgamating co.

A .NO.[SEC. 396A]

Q 24 What is the required Majority for takeover of a co under the co act 1956?



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A. not less than 9/10th

(90%) of the shares of which the transfer is involved,

And If acquirer is already holding more than one-tenth of the aggregate of the values of all the shares in the company then not less than nine-tenths in value of the shares (other than those already held as aforesaid) whose transfer is involved, are not less than three-fourths in number of the holders of those shares.

Q 25 Can the acquirer compel the dissenting shareholders to sell their shares to him?

A. Yes, the acquirer company can compel the dissenting shareholders to sell their shares to it by sending

the notice under sec. 395(1).

Q. 25A Can the dissenting shareholders compel the acquirer to take their shares?

A. Yes, the dissenting shareholders can compel the acquirer company to purchase their shares by

sending a positive reply to the notice under sec 395(2).

Q 26 What is the meaning of the phrase “ shares of which transfer is involved” under the provisions of

sec. 395(1).

A. which are not already held by acquirer

Q 27What is friendly takeover and hostile takeover?

A. TAKEOVER with the consent of the owner is called as friendly takeover and without the consent of

the owners is hostile takeover.

Q 28Explain the procedure of reconstruction in a co being wound up voluntarily?

A. reconstruction can be done with the approval of shareholders by S.R. [ 494/507]

Q 29Explain the procedure for arrangement with the creditors, in case of a company which is being

wound up ?

A.Arrangement with creditors can be done if it is sanctioned by a special resolution of the company and

acceded to by three-fourths in number and value of the creditors.



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INSPECTION & INVESTIGATION BY


Q.1 Who can do the inspection?

A.In terms of sec. 206 following are entitled to do inspection:

The registrar, Any other officer or statutory body authorized by the CG,

Q.2. What are the documents that can be inspected?

A.BOOK OF ACCOUNTS AND OTHER BOOKS AND PAPERS.

Q.3. Can the ROC seize the documents during inspection & when the ROC shall return the seized

documents?

A. YES, ROC can seize after taking the permission from the Special Court . ROC shall return within 180

days.

However he can again seize the documents for another 180 days. [sec. 209]

Q.4 What is investigation & what are the types of investigation?

A. Investigation is a form of deeper probe into the affairs of the company. it is a fact finding

exercise

� investigation on the report of the ROC u/s 208[sec. 210)]

� investigation on the opinion of the CLB[sec. 237(b) of CA 56]

� investigation on the application of the members 235(2) of CA 56

� investigation on special resolution [ sec. 210]

� investigation by the order of court[ sec. 210]

� investigation of ownership of company[ sec. 247 of CA 56]

Q.5 Can the member demand for investigation?

CS NEERAJ MUDGAL




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A..yes, in the case of a company having a share capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and

in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the companies register of members, Sec. 235(2) of CA 56.

Q.6 Can a member demand the investigation of the subsidiary company of their company?

A. YES, SAME CRITERIA AS ABOVE IN A.5

Q.7 Can the inspector during an investigation retain the documents presented before it & for how much

period?

A. YES, Retention is possible for a period of 180 days [ sec. 217]

Q.7A Can the inspector during an investigation SEIZE the documents?

A. YES,[ sec. 220]

Q.8 Can the CG itself investigate into the ownership of a company?

A. YES, [ sec. 247]

Q.9 During an investigation of a company it is found that certain persons are trying to take over the

company, how can the takeover be avoided?

A. application can be made to the CLB, it may pass an order declaring the transfer of shares as null and

void.[ sec. 250 of CA 56]

Q.10 Where a company is being investigated & the company passes special resolution for voluntary

winding up, whether the investigation is affected or not?

A. investigation shall remain unaffected.

Q.11 Can the legal advisor be compelled to deliver the copy of the written advices given by him to a

company which is being investigated?

ANO, privileged communication can not be required to be disclosed. [sec. 251 of CA 56]

Q.12 An employee is proposed to be terminated, as due to the disclosures made by him to the

authorities, an investigation of the company was ordered under the provisions of the Companies Act

1956, how can the company terminate the employee?

A. co can terminate the employee after taking the approval of CLB [ sec. 635 B of CA 56]



9910965137, 9711284246

Q.13 Can the Inspector investigate the connected companies or persons of a company under

investigation?

A. yes [ sec. 219]

Q.14 On the basis of the report of investigation the CG launched the prosecution against the person who

has been found guilty. However such persons challenged the prosecution on the ground that the CG

didn’t give notice to them before filing the suits against them. Whether the CG is required to give such

notice?

A.no ,[Titagarh Paper Mills Co. Ltd v. Union of India]

Q.15 Can the CG order the winding up of a company on the basis of the report of investigation?

A. yes [ sec 243 of CA 56]

Q.16 Can the CG file application under Sec-397 or 398 for grant of relief against oppression or

mismanagement of the company on the basis of report of investigation?

A. yes sec. 243 of CA 56

Q.17 Can the CG itself make an application on behalf of the company to recover the money & the

property misappropriated or wrongfully retained by the management of the company?

A. yes , sec 224(3)



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DIVIDEND BY

Q.1.Who declares the dividend?

A. Board of directors recommends the dividend and Shareholders declare the dividend.

Q.2.Can the shareholders declare dividend at a rate more than recommended by B.O.D.?

A. NO.

Q.3.Can the dividend be revoked after declaration?

A. in general once declared dividend shall not be revoked , however if the co ceases to be a going

concern or if the declaration is ultra vires then dividend cane be revoked.

Q.4.What are the sources of dividend?

A. sources of dividend

� Current financial year profit ( revenue profit) after providing for depreciation.

� Accumulated profits of previous financial years( revenue) after providing for the

depreciation.

� Amount provided by CG or SG for the payment of dividends in pursuance of a guarantee

given by that government.

Q.4.What are the conditions for payment of dividend out of past profits?

A. co(declaration and payment of dividend ) rules 2014

� rate of dividend shall not be more than average rate of dividend of last 3 years.

� Above condition will not apply if the co has not declared dividend in each of the 3 years.

� Maximum 1/10th

of paid up capital and free reserves can be withdrawn from the reserves

� Amount drawn shall first be utilized to set off the losses incurred in the financial year.

� Balance of reserves after the withdrawal shall not be less than 15 % of paid up share capital

� Carried over previous year losses and depreciation not provided in the previous year are set off

against the current year profit.

CS NEERAJ MUDGAL




9910965137, 9711284246

Q.5.Can the equal dividend be paid on shares while the paid up value of some shares is larger than on

others?

A. yes [if the AOA makes the provision for it.]

Q.6. Can the dividend be paid out of past years accumulated profits?

A. yes

Q.7. Can the dividend be paid out of the balance available in the Profit and Loss Account?

A. yes

Q.8 Can the dividend be paid without providing for depreciation?

A. no.[ sec. 123]

Q.10.What are provisions in relation to transfer of profits to reserves ?

A. a company is free to transfer the profit to reserves as it thinks fit sec. 123.

Q.11.How can a co transfer more than 10% of its profits to reserves ?

Aa company is free to transfer the profit to reserves as it thinks fitsec. 123.

Q.13. Can the dividend be paid in kind?

A. dividend shall be paid in cash only sec. 123

Q.14 Can the dividend be paid on new shares?

A. yes , proportionately.

Q. 15 Can the dividend be paid electronically?

A. Yes

Q. 16 In which court a shareholder complain against the co if it refuses to pay dividend to him?

A. in the court with in whose jurisdiction the registered office of the company is situated.[ Hanuman

prashadgupta vs. Hiralal]

Q. 17 Can the dividend be paid on the shares allotted on the last day of the financial year?

A. yes, proportionately.

Q. 18 Can a co pay interest out of capital?



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A yes, if the co obtains the approval of shareholders by S.R. or it has authority in the AOA and the CG

gives the approval, interest can be paid out of capital in case of companies having long gestation period.

[sec. 208 of CA 56]

Q. 19 What is period over which the interest out of capital can be paid?

A. for such period as may be decided by the CG , such period shall not go beyond the half year next after

the half in which the construction is completed. [sec. 208 of CA 56]

Q. 20 Whether payment of interest out of capital is reduction of capital?

A no. [sec. 208 of CA 56]

Q 21 Can a co keep the payment of dividend in abeyance ?

A yes sec. 126

Q 22 What are the amounts that are transferred to the IEPF(investor Education and Protection Fund)?

A. sec. 205C of CA 56 There shall be credited to the Fund the following amounts, namely:- (a) amounts in the unpaid dividend accounts of companies: (b) theapplication moneys received by companies for allotment of any securities and due for refund: (c) matured deposits with companies: (d) matured debentures with companies: (e) theinterest accrued on the amounts referred to in clauses (a) to (d): (f) grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund: and (g) theinterest or other income received out of the investments made form the Fund: Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they become due for payment.

Q 23 Can the amount once transferred to the IEPF be recovered ?

A. NO.

Q. 24 What are the penalties for non-payment of dividend?

A. sec 127 of C.A . 2013

director : if knowingly party to the default , shall be punishable with imprisonment upto 2 years and

fine of rs. 1000 per day

Co : shall be liable to pay interest at the rate of 18% p.a.



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ACCOUNTS

BY


Q.1. WHAT IS THE MEANING OF BOOKS OF ACCOUNTS UNDER THE CO ACT 2013?

Asec 2(13) Accounts shall be prepared with respect to the following:

� Receipt and Payment

� Sales and Purchase

� Assets and Liabilities

� Cost accounts if the company is a manufacturing, mining, production or processing

company(MMPP).

Q.2 WHAT IS THE PLACE OF MAINTENANCE OF BOOKS OF ACCOUNTS OF THE CO.?

AThe Accounts shall be maintained at the registered office of the company or such other place

as may be decided by the B.O.D(Other place shall be intimated to ROC with in 7 days) sec. 128

Q.3 CAN A CO KEEP ITS BOOKS OF ACCOUNTS AT A PLACE OTHER THAN ITS REGISTERED OFFICE?

A yes

Q.3 CAN A CO KEEP ITS BOOKS OF ACCOUNTS OUTSIDE INDIA?

A yes

Rule 4 OF CO (ACCOUNTS) RULES 2014 financial information maintained out sideindia

The summarised returns of books maintained outside India shall be sent to RO

on Quarterly basis.

These can be inspected by Director.

OTHER INFORMATION

Any other information relating to books maintained outside India May be demanded by director and

The company shall give such information within 15 days

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Such information can be demanded by director himself and not through any agent

Q 4CAN THE MEMBER INSPECT THE BOOKS OF ACCOUNTS OF THE CO?

A Co act does not give the member right to inspect , however if the AOA give power then member

can inspect the books of accounts of the co. (reg. 89 of table F gives the power to member to inspect)

Q 5 CAN THE CO REFUSE TO ALLOW INSPECTION OF ACCOUNTS BY A DIRECTOR?

A co act does not give the absolute right to the director to inspect , co can refuse if the director acts

malafide.

Q 6 WHO IS RESPONSIBLE FOR KEEPING BOOKS OF ACCOUNTS OF A COMPANY?

AManaging Director, whole time director(in charge of finance), CFO and any person charged

by Board.

In case of Default Punishment : imprisonment upto1 yr or fine 50000-500000 RS or both

Q 8 WHAT IS A FINANCIAL YEAR? CAN A CO DECIDE TO HAVE ITS FINANCIAL YEAR FOR A PERIOD OF

MORE THAN 12 MONTHS?

Afinancial year means the period from 1st

april to 31st

march.

If the company is incorporated on 1st

jan or after then first financial year shall be from the date of

incorporation till the 31st

march of the next year. Then from 1st

april to 31st

march.

However a company which have a holding or subsidiary company registered outside india then for the

purpose of consolidation of financial statements with the permission of tribunal it can have different

financial year. Sec 2(41)

Q 9 what are financial statements (FS)?

A FS includes:

� Balance sheet

� P&L or Income and expenditure Account

� Cash flow statement

� Statement of changes in equity,

� Explanatory notes to Financial statements

OPC, Small company, Dormant Company need not prepare Cash flow statement. SEC 2(40)

Q 9 what are provisions for preparation of financial statements (FS)?



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AFinancial statements section 129

F/s shall be prepared according to Schedule III

F/s shall be prepared according to AS.

If AS are not complied with then F/s shall disclose the reasons for deviation and financial effect of such

deviation

Insurance co , Banking co , Electricity co and other co for which separate form of F/S has been

prescribed under law governing them shall prepare their F/s accordingly .

If the co has subsidiary co then it shall also prepare CFS of co and all subsi co.

A statement containing the salient features of F/S of subsi co shall be prepared in Form AOC -1

And shall be attached to F/s of the co.

F/S , CFS Shall be laid before AGM and adopted

Subsi co shall include associate company and JV ( for the purpose of consolidation)

FS shall include notes annexed to or forming part of. FS

CG May grant exemption from the requirements of this section.

Default :

MD, WTD (in charge of finance), CFO and any person charged by board

Punishment : imprisonment upto1 yr or fine 50000-500000 RS or both

Q 9 what are provisions relating to Accounting Standards (AS)?

AMeaning of AS Sec 133

AS shall be notified by CG in consultation with NFRA on the recommendation of ICAI

Rule 7

Until such AS. Are notified , AS notified under. CA 56 would be the AS.

Non compliance of AS

If AS are not complied with then F/s shall disclose the reasons for deviation and financial effect of such

deviation ( sec 129)

MD, WTD (in charge of finance), CFO and any person charged by board

Punishment : imprisonment upto1 yr or fine 50000-500000 RS or both (sec 129)

BOD shall give explanation on Non compliance of AS in its Board Report in DRS

(Sec 134)

Auditor shall state in its Report that BS and P&L are in accordance with AS ( sec 143)

Q 9 CAN THE CO PLACE THE UNAUDITED ACCOUNTS BEFORE THE AGM?

ANo, Only Audited Accounts can be placed in the A.G.M. sec 134(7)



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Q 10 CAN THE BOD OF A CO REVISE THE ACCOUNTS WHICH HAVE ALREADY BEEN ADOPTED BY

MEMBERS?

AIn general, the accounts can not be revised as once adopted they become final. However to comply

with any technical requirements of any law e.g. Tax laws so as to give true and fair view , accounts

already adopted can be revised. The revised accounts shall be adopted in the EGM .

Q. 11 CAG MADE ADVERSE REMARKS IN ITS AUDIT REPORT OF A GOVERNMENT COMPANY . WHETHER

THE BOD OF SUCH CO SHALL GIVE EXPLANATION REGARDING SUCH ADVERSE REMARKS?

A NO.

Q 14 WHO CAN AUTHENTICATE THE FS OF A CO?

Asec 134

� Chairperson authorized by BOD or

� 2 directors , one of whome shall be MD, and

� CEO if director, and

� CFO , and

� CS

In case of OPC by one director.

Q 15CAN THE COMPANY SECRETARY AUTHENTICATE THE ACCOUNTS OF A CO?

A yes.

Q 16 WHAT IS THE BOARD REPORT? WHAT ARE THE CONTENTS OF THE BOARD REPORT?

A it is the report prepared by the Board of Directors of every co. sec. 134 provides the contents of the

Board Report.

Q 17 WHO CAN SIGN THE BOARD REPORT?

A

� Chairperson authorized by BOD or

� 2 directors , one of whome shall be MD, or

� Director , if there is only one director



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Q 18 WHETHER THE NAMES OF EMPLOYEES OF A CO ARE DISCLOSED IN THE BOARD REPORT?

A no

Q 19 WHAT IS DIRECTORS’ RESPONSIBILITY STATEMENT?

AThe Directors’ Responsibility Statement shall state that—

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis; and

(e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively

Q 20 WHETHER AUDITORS ARE RESPONSIBLE FOR THE CONTENTS OF THE BOARD REPORT?

A NO.

Q 21 WHO ARE THE PERSONS TO WHOM THE COPIES OF THE ACCOUNTS ARE CIRCULATED?

� Every member of the company whether entitled to receive notice or not( including the

Preference shareholders)

� Debenture Trustee

� All other persons entitled to receive the notice of the AGM. E.g. auditors.

Q 22 CAN A NON MEMBER DEPOSITOR DEMAND THE COPIES OF ACCOUNTS ?

A yes.

Q 23 WHERE THE CO HOLDS AGM, HOWEVER THE FS ARE NOT ADOPTED IN IT AND THE MEETING IS

ADJOURNED. WHETHER THE CO IS REQUIRED TO FILE THE UNADOPTED FS?

AFS shall be filed even if they are not adopted at the AGM , within 30 days. The ROC shall treat them

as provisional FS.



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Further when the FS are adopted in the Adjourned AGM, then the adopted FS shall be filed with ROC

within 30 days sec. 137

Q 24 IS IT MANDATORY TO FILE THE ACCOUNTS EVEN IF THE AGM IS NOT HELD?

AYes, accounts must be filed with in 30 days from the last date of holding the AGM. Sec. 137

Q 25 IS IT MANDATORY TO FILE THE ACCOUNTS EVEN IF THE ACCOUNTS ARE NOT ADOPTED?

AYes.

Q 25 IS INTERNAL AUDIT COMPULSORY?

A sec. 138 Yes.

For the following specified companies:

Listed co.

Pubic co with

� PUC 50 crores or more in the preceding F/Y, or

� Turnover 200 crores or more in the preceding F/Y, or

� Outstanding loans or borrowings from banks or PFI more than 100 crores at any point of time in

the preceding F/y

� Outstanding deposit of 25 crores or more at any point of time in preceding F/Y

Private co with

� Turnover 200 crores or more in the preceding F/Y, or

� Outstanding loans or borrowings from banks or PFI more than 100 crores at any point of time in

the preceding F/y

Internal audit can be done by CA, CMA or any other person, whether internal or external.



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AUDIT

BY


Q 1 Who can be an auditor?

AIn terms of section 141 of the act following can be appointed as the auditor:

� CA holding the certificate of practice.

� Firm , of which majority of the partners are qualified for appointment.

Q 2 can LLP be appointed as auditor?

AIn terms of section 141, LLP can be appointed as auditor.

Q 3 who can not be appointed as auditor?

AIn terms of section 141(3) following can not be appointed as auditor:

SUBSUBSUBSUB----SECTION 3SECTION 3SECTION 3SECTION 3

(a) a body corporate other than a Limited Liability Partnership

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding 1 lac (rule 10)

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of 5 lac rs.(rule 10); or

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(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for an amount in excess of 1lac rs. (rule 10)

(e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;

(f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel;

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

RULE10(4)of Companies(Audit and Auditors) Rules 2014

“business relationship” shall be construed as any transaction entered into for a commercial purpose,

except -

(i) commercial transactions which are in the nature of professional services permittedto be rendered by an auditor or

audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under

those Acts;

(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price - like

sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the

business of telecommunications, airlines, hospitals, hotels and such other similar businesses.

[Sec 2 (51)]“key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the Managing Director or the Manager,

(ii) the Company Secretary;

(iii) the whole time director;

(iv) the Chief Financial Officer,and

(v) such other officer as may be prescribed;



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(i) any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144.

Q 4 what are the grounds of vacation of office of the auditor?

AWhere a person appointed as an auditor of a company incurs any of the

disqualificationsmentioned in sub-section (3) after his appointment, he shall vacate his

office as such auditor and such vacation shall be deemed to be a casual vacancy in the

office of the auditor.

Q 5 what procedure is followed for appointment of the auditor?

Abefore appointment is made, the written consent of the auditor, and a certificate from himthat the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor: the certificate shall also indicate whether the auditor satisfies the criteria provided in section 141: the company shall inform the auditor concerned ofappointment, and also file a noticeFORM

ADT-1of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed.

Q 6what will happen if the relative of the auditor acquires the shares of face value of rs. 3lac after the

appointment of auditor ?

Athe corrective action to maintain the limits as specified in rule 10 shall be taken by the auditor within sixty days of such

acquisition or interest

Q 7 If the auditor takes the audit fees in advance on progressive basis where as the audit work will be

completed in future, whether he is qualified to be an auditor?

AYes.

Section 144 (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; (f) investment banking services; (g) rendering of outsourced financial services; (h) management services; and (i) any other kind of services as may be prescribed.



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Q.8 If the auditor purchases the goods on credit from the auditee company, whether he is qualified?

Aif the value is more than 5 lac , then he shall be disqualified.

Q.9 what is the ceiling limit on no of companies that can be audited by an auditor?

A20

Q.10 Whether the ceiling limit is applicable in respect of the branch audit?

Ano

Q. 11 who appoints the first auditor of a co ?

A Board of Directors shall appoint the first auditor with in 30 days of registration of company.

Q. 12 Can the General meeting appoint the first auditor of a co ?

Ano, however if the Board of Directors does not appoint the first auditor with in 30 days of

registration , then GM can appoint the first auditor within 90 days at an EGM.

Q. 13 what is the period of office of first auditor ?

Afrom the date of appointment till the conclusion of first AGM.

Q 14 who appoints the subsequent Auditor ?

Ashare holders in AGM .

Q 15 what is the period of office of the subsequent Auditor ?

Afrom the conclusion of AGM of appointment till the conclusion of 6th

AGM( rule 3)

Q 16 whether the appointment is required to be ratified in the intervening AGM ?

AYES

Q 17 what will happen if the shareholders do not ratify the appointment in 2nd

AGM ?

Aif the appointment is not ratified by the members of the company, the Board of Directors shall appoint another individual or

firm as its auditor or auditors after following the procedure laid down in this behalf under the Act. (rule 3)

Q 18 can the auditor be appointed or reappointed for more than 5 years ( What is the rotation of

auditor ) ?

A According to section 141(2) listed company or a specified company shall not appoint or re-appoint— (a) an individual as auditor for more than one term of five consecutive years; and



9910965137, 9711284246

(b) an audit firm as auditor for more than two terms of five consecutive years:

� an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

� an audit firm which has completed its term under clause (b), shall not be eligible for

re-appointment as auditor in the same company for five years from the completion of such term:

� audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall not be appointed as auditor of the same company for a period of five years:

However every company, existing on or before the commencement of this Act which is

required to comply with provisions of this sub-section, shall comply with the requirements of

this sub-section within three years from the date of commencement of this Act

Q. 19 what is the meaning of specified company?

ARULE 5 , company (other than small company and OPC ):

� all unlisted public companies having paid up share capital of rupees ten crore or more;

� all private limited companies having paid up share capital of rupees twenty crore or more;

� all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having

public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more

Q. 20 what is the manner of rotation of auditor?

A The Central Government has prescribed the manner in which the companies shall

rotate their auditors in RULE 6

Q. 21 when will an auditor existing on the commencement of the Companies Act 2013 rotate?

A in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as

auditor prior to the commencement of the Act shall be taken into accountfor calculating the period of five consecutive years or

ten consecutive years, as the case may be ( Rule 6)

However the requirements of rotation need to be complied with in 3 years from the commencement of this act.(transition period).

Provisions of rotation commenced from 1.4.2014, therefore 3 years shall be calculated from 1.4.2014.

Q. 22 A company wants to appoint a ca firm as its auditor which is working under the same brand name

as the audit firm which is retiring on the expiry of its term?

Athe incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit

firmunder the same network of audit firms. (Rule 6)

Q. 23 what is the meaning of the term SAME NETWORK?

A (Rule 6) Explanation. I –



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the term “same network”includes the firms operating or functioning, hitherto or in future, under the same brand name, trade

name or common control.

Q. 24 Ram is the partner in the firm which is auditor of a company. He certifies the financial statements

of the company. Later on Ram resigns from the firm and joins another firm. Can another be appointed as

the auditor of the company?

A (Rule 6) Explanation. II–

(b) if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm

and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years

Q.25 the auditor of the company resigns on the completion of 4 years , can it be appointed for 5 years

after 1 year ?

A (Rule 6) Explanation. II-.

(a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation;

Meaning of consecutive years

Consecutive years shall mean all the preceding financial years for which the individual auditor has been the auditor until there has

been a break by five years or more

Therefore, after the gap of one year , the auditor can be appointed for another one year and it shall be

treated as completion of 5 consecutive years. Thereafter auditor can not be appointed for 5 years.

Q.26 can the co appoint more than one auditors ?

A yes. The members may resolve that the audit shall be conducted by more than one auditor.(sec 139)

Q. 27 can the company provide for rotation of the auditing partners and his team?

AYes. The members may resolve that in the audit firm appointed by it, the auditing partner and

his team shall be rotated at such intervals as may be resolved by members (sec. 139)

Q.28 The auditor of a co died in a car accident, how can the casual vacancy be filled ?

Athe casual vacancy can be filled by the Board of Director within 30 days.(sec. 139)

Q.2 9 The auditor of a co resigns, how can the casual vacancy be filled ?

AIf the vacancy is due to the resignation then it shall be filled by the Board of Directors, and such

appointment shall also be approved by the shareholders within 3 months of the recommendation of

the Board.

Q 30 what is the tenure of the auditor in casual vacancy?

Athe auditor appointed to fill the casual vacancy shall hold the office till the conclusion of the next

Annual general Meeting. (Sec. 139)



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Q. 31 who appoints the first auditor of government company or company owned or controlled by

central government or state government?

A(Sec. 139)

first auditor shall be appointed by CAG( Comptroller and auditor general of india) within 60 days from

the date of registration

If the CAG does not appoint then the Board of director shall appoint within 30 says.

If the Board fails to appoint then, the members shall appoint in Extra-ordinary General Meeting within

60 days.

First auditor shall hold the office till the conclusion of the first annual general meeting.

Q. 32 who appoints the subsequent auditor of government company or company owned or controlled

by central government or state government?

A(Sec. 139)

Subsequent Auditor shall be appointed by CAG( Comptroller and auditor general of india) within 180

days from the commencement of the financial year.

The auditor shall hold the office till the conclusion of the Annual General Meeting.

Q.33 who fills the casual vacancy of auditor in government company or company owned or controlled by

central government or state government?

A(Sec. 139)

The casual vacancy shall be filled by by CAG( Comptroller and auditor general of india) within 30 days.

If the CAG does not fill the vacancy within 30 days then Board shall fill the vacancy within next 30

days.

Q. 34 can the retiring auditor be reappointed at the AGM?

AYes. (Sec 139)

The retiring auditor can be reappointed if

(a)he is not disqualified for re-appointment;

(b) he has notgiven the company a notice in writing of his unwillingness to be re-appointed; and



9910965137, 9711284246

‘

(c) a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.

Q. 35 who will be the auditor if the auditor is not appointed or reappointed at AGM?

A Sec. 139

Where at any annual general meeting, no auditor is appointed or re-appointed, the

existing auditor shall continue to be the auditor of the company

Q. 36 can the retiring auditor be stopped from being reappointed at the AGM?

AYes.

If the special notice of appointing another person as auditor in his place is given . or a special notice is

served upon the co for not reappointing the retiring auditor. AND

The company passes Special Resolution in the meeting. [sec 139(9)(c) and sec. 140(4)]

However , this procedure need not be followed if the auditor has completed his tenure.

Q. 37 what is the meaning of special notice and who can give the special notice?

Aas per section 115 and rule 23 of companies ( management and administration) rules 2014,

Special notice can be given by

� Member having minimum 1% voting power or

� Member having shares of paid up value not less than 5 lacsrs.

Special notice means a notice which is given min 14 days before the meeting and not earlier than 3

months.

Q.38 can the auditor be removed before the expiry of his tenure ?

AYes. (Sec. 140 and Rule 7)

Company can remove the auditor by taking the approval of Central Government and by passing

Special resolution.

Application shall be made to CG in form ADT-2 within 30 days of Board Meeting in which the removal

is proposed

The company shall pass special resolution within 60 days of receipt of approval of CG.



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Q. 39 can the auditor resign ?

A Sec. 140 and Rule 8

yes, the auditor can resign.

The auditor shall file to the ROC form ADT-3 within 30 days of resignation , indicating the reasons.

In case of auditor of government company or company owned or controlled by central government or

state government, it shall also be filed with CAG.

If the auditor does not file the form, he shall be liable to fine minimum 50,000 and maximum 5 lacs.

Q.40 Who fixes the remuneration of the auditor ?

AB O.D- if it makes the appointment

G.M.- if it makes the appointment

G.M. -if CAG makes the appointment

Q. 41 What is the meaning of remuneration of the auditor ?

A Sec. 142

The remuneration shall, , include

� fee payable to an auditor

� the expenses, if any, incurred by the auditor in connection with the audit of the

company and

� any facility extended to him

but does not include any remuneration paid to him for any other service rendered by him at

the request of the company

Q.42 Discuss the provisions of branch audit?

A Sec. 143

Where a company has a branch office, the accounts of that office shall be audited either by the

� auditor appointed for the company or � by any other person qualified for appointment , or

where the branch office is situated outside India, the accounts of the branch office shall be audited either by

� the company’s auditor or � by an accountant or by any other person duly qualified to act as an auditor of the

accounts of the branch office in accordance with the laws of that country



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branch auditor shall prepare a report on the accounts of the branch examined by him and send it to the auditor of the company

Q. 43 can CAG conduct Supplementary Audit ?

ASec. 143 The CAG can conduct a supplementary audit within sixty daysfrom the date of receipt of the audit report from the auditor.

Q. 44 can CAG give comment or supplement on auditor’s report ?

ASec. 143 ,yes. The CAG can comment upon or supplement on the auditor’s report anycomments or supplement given by the CAG shall be sent by the company to every

person entitled to receive copies of audited financial statementsand

also be placed before the annual general meeting

Q 45 can the CAG conduct test audit?

ACAG may , if he considers necessary, by an order, cause test audit to be conducted of the accounts company and the provisions of section 19A of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the report of such test audit.

Q 46 whether the auditor is required to report about the fraud. ?

ASec. 143 and Rule 13

if an auditor of a company has reason to believethat an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately but not later than sixty days of his knowledge report the matter to the Central Government and in form ADT -4 . These provisions shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively.

If any auditor, cost accountant or Company Secretary in practice do not report about

fraud, he shall be punishable with fine which shall not be less than one lakh rupees but

which may extend to twenty five lakh rupees

Q 47 Who signs the audit report?

ASec 145 The person appointed as an auditor of the company shall sign the auditor’s

report

Q. 48 Whether the auditor is required to attend the general meeting ?



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ASec. 146 the auditor shall, unless otherwise exempted by the company, attend either by

himself or through his authorised representative, who shall also be qualified to be an

auditor, any general meeting

All notices of, and other communicationsrelating to, any general meeting shall be

forwarded to the auditor of the company

Q 49 What are punishments for contravention of provisions relating to audit?

A.. Sec. 147 (1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one yearor with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, orwith both. (2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees: Provided that if an auditor has contravened such provisions knowingly or wilfullywith the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one yearand with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees. (3) Where an auditor has been convicted under sub-section (2), he shall be liable to—

(i) refund the remuneration received by him to the company; and

(ii) pay for damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report.

(4) The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section (3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification. (5) Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.



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FOREIGN COMPANY BY

Q 1What is a foreign co. ?

A Sec. 2(42)

Foreign company means a company registered outside AND having PLACE OF BUSINESS in India

Q 2 what is india controlled foreign co. ?

A. in terms of section 379, company incorporated outside India And having a place of business

in India in which at least 50 % of the PUC (equity or preference or partly in both) is held by

Indian Citizens or bodies corporate incorporated in India.

it shall be treated as an Indian company in respect of its Indian business.

Q 3 foreign co files its documents with which ROC?

A. 1. ROC DELHI

Q. 4 what are the documents required to be filed by a foreign co ?

A.(a) the charter, statutes, or memorandum and articles of a foreign company or other instrument constituting or defining the constitution of a foreign company; or (b) the registered or principal office of a foreign company; or (c) the directors or secretary of a foreign company; or (d) the name or address of any of the persons authorised to accept service on behalf of a foreign company; or (e) the principal place of business of the company in India; Q.5 what is the time limit for intimating any alteration in the information filed with ROC?

A.Prescribed time

within 30 days of the alteration

Q.6 where a notice or service be served on the foreign co ?

A. any notice is addressed to any person whose name has been delivered to the Registrar (by hand or post or electronic mode)

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Q.7 what are the penalties if the foreign co does not file the documents required to be filed?

A co shall be liable to a fine 1 lac -3 lac and upto 50000 per day in the case of continuing offence .

Officer in default : imprisonment upto 6 months or fine 25000-500000 or both.

Further the co shall not be entitled to file any case until it complies with the provisions .

Q.8 what are the books of accounts to be maintained by a foreign co.?

A sec. 381

World Accounts

All business account as filed in the country of incorporation.

Indian Business Account

in respect of business done in india. ( Schedule III and chapter IX)

Q. 9 can a foreign co issue prospectus In india

A. YES [ SEC. 387]



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GOVERNMENT COMPANY BY

Q.1 What is a government co ?

A.Sec. 2(45):

(a)A government company is any company in which at least 51% of the PUC is held by:

� Central Government

� State Government

� Jointly by both of them.

(b) any company which is subsidiary of a government company is also a government company.

* Paid Up Capital includes both the equity and preference share capital.

Q.2 who does the audit of government co.?

A. CAG( COMPTROLER AND AUDITOR GENERAL OF INDIA)

Q.3 who has to prepare the annual report of the government co?

A. Annual Report of a Government Company sec. [394/395]

The annual report shall be prepared by thecentral government within 3 months of the AGM

and shall be laid before both the houses of the parliament in case of the CG. If the government

is SG then before State Legislature.

Following documents shall be placed:

� Annual report

� Audit Report

� Any comments or supplement to the Audit Report.

If only State Government is the shareholder then report shall be prepared by it.

Q.5 can the government co revise its audited accounts?

A. YES

Q.6 whether BOD of the government co are required to give explain on the adverse comments made by

C.A.G.?

A. no

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COMPETITION ACT 2002 BY

Q.1 whether shares are goods for the purpose of competition act 2002?

A YES. SEC. 2(i)

Q2 whether a person purchasing the goods for resale purpose is a consumer under the competition

act?

A. yes sec. 2(f)

Q 3 whether a govt department supplying water for irrigation to the agriculturists after levying charges

for water supplied ( and not a water tax) can be considered as an enterprise. ?

A. yes. Sec. 2(h)

Q.4 what is Relevant Market ?

A. Sec. 2(r)"relevant market"

means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets; Sec. 2(s)"relevant geographic market" means a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas;

Sec. 2(t)"relevant product market" means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use;

Q.5 what is CCI and how its Chairperson and other members are appointed?

A sec. 8

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The Commission shall consist of a Chairperson and not less than two and not more than 6 otherMembers

to be appointed by the Central Government

The Chairperson and every other Member shall be a person of ability, integrity and standing and who, has been, or is qualified to be, a judge of a High Court; or, has special knowledge of, and professional experience of not less than fifteen years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the opinion of the Central Government, may be useful to the Commission. The Chairperson and other Members shall be whole-time Members.

Q.6 a judge of H/C who is of 61 years of age. Can he be appointed as CCI Chairperson and for what

period?

A.yes, for period of 4 years.{max. age limit 65 years]

Q.7 can a member be removed from CCI ? how can the vacancy be filled?

A. the Central Government may, by order, remove the Chairperson or any other Member from his office if

such Chairperson or Member, as the case may be,—

(a) is, or at any time has been, adjudged as an insolvent; or

(b) has engaged at any time, during his term of office, in any paid employment, or

(c) has been convicted of an offence which, in the opinion of the Central Government, involves

moral turpitude; or

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as

a Member; or

(e) has so abused his position as to render his continuance in office prejudicial to the public interest; or

(f) has become physically or mentally incapable of acting as a Member.

no Member shall be removed from his office on the ground specified in clause (d) or clause (e) of that subsection unless the Supreme Court, on a reference being made to it in this behalf by the Central Government, has, on an inquiry, held by it in accordance with such procedure as may be prescribed in this behalf by the Supreme Court, reported that the Member, ought on such ground or grounds to be removed.

Q. 8 A member wants to challenge a decision of CCI given against him on the grounds that the CCI is not

properly constituted, as one of the member is having experience of only 12 years and therefore

disqualified to be member. Will he succeed?

A. no.



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no act of CCI shall be invalid merely by reason of vacancy or defect in the constitution of the CCI or

defect in the appointment of any member of CCI or irregularity in the procedure of CCI not affecting the

merit of the case.

Q.9 Mr. L a member of CCI has acquired such financial interest as is likely to affect prejudicially his

functions as a member of the CCI and the CG wants to remove him. can the CG do so and how?

A. yes, but CG shall refer the case to Supreme Court and if the Supreme Court declares that the person

ought be removed then he can be removed by CG.

Q. 10 Mr. K ceased to be a member of CCI on 31 march 2007. Can he join the following from 1st

july

2007:

� HLL ltd , whose case was disposed off by CCI under competition act 2002 in feb. 2007

� Lic

A HLL ltd : NO

LIC: YES. SEC. 12

Q. 11 can the CCI call an EXPERT of a field , while deciding a case before it?

A. YES [ SEC.36]

Q.12 Can CCI inquire the matters covered under agreements made between INDIAN party and

FOR EIGN party outside India, which are having adverse effect on the competition in India?

A. YES SEC. 32.

Q.13 where contract provides that a purchaser shall not deal in the goods of persons other than the

seller, whether the contract is valid?

A it is vertical anti competitive agreement and shall be valid if it does not have appreciable adverse

effect on competition in india. Sec.3(4)

Q.14 where a contract provides that the purchaser shall not sell the goods outside the city of Agra,

whether the contract is valid?

A it is vertical anti competitive agreement and shall be valid if it does not have appreciable adverse

effect on competition in india. Sec.3(4)

Q.15. where a contract provides that the purchaser shall sell the goods at a price printed on the goods

however he is allowed to sell at a price lower than the price lebel, whether the contract is valid ?

A it is not resale price maintenance as the person is allowed to sell at price below the price lebel. It is not

covered in sec. 3(4). Therefore it is valid.



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Q. 16 Paint manufacturers have made an oral understanding to control the paint prices, though not

intended to be legally enforced, is it an agreement and a valid agreement?

A any understanding is agreement for the purpose of the competition act and is to control the price

between manufacturers , therefore it is horizontal anti competitive agreement and is void.

Q.17. can the CCI direct the Division of an enterprise enjoying dominant position?

A yes. Sec. 28 , by passing a written order.

Q.18 what is combination?

A. see assignment.



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SECURITIES CONTRACTS( REGULATION ) ACT 1956 BY

Q.1 are there any persons or transactions to which this act does not apply?

A. The does not apply to the following:

� The government

� The RBI

� Local authorities

� Any corporation set up by special law.

� any person who has effected any transaction with or through the agency of any such authority

as is referred to in this clause

� any convertible bond or share warrant or any option or right in relation thereto,

� where the exemption has been given by the CG

Q.2. can the CG withdraw the recognition of the Stock Exchange ?

A. Power of CG to withdraw the recognition of the STX SEC. 5

The CG may by in the public interest or in the interest of trade, by written notice and specifying the

reasons and after giving a ROOBH to the Governing Body, withdraw the recognition of the STX.

Contracts up to the date of withdrawl shall be valid.

Q. 3 can the CG supercede the governing body of the stock exchange?

A. Power of CG to SUPERCEDE the Governing Body of the STX [Sec. 11]

The CG may by notification intimate that it is considering the Supercession of the governing body of the

STX. It shall give a ROOBH to the governing body of STX. If still satisfied about supercession ,it may by

NIOG declare the Governing Body as superceded.

CG may appoint the new governing body to perform the functions of STX. And order the property to vest

in the stx.

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Q.4 can the CG make or amend the rules of a Stock Exchange ?

A. Power of CG(SEBI) to make or amend the rules of STX [sec.8]

The CG is empowered to make or amend all or any of the rules of STX related to the matters specified

in section 3 ( the governing body of such stock exchange, the powers and duties of the office bearers

of the stock exchange, membership of STX, the procedure for the registration of partnerships )

STX shall make or amend the rules with in 2 months .Otherwise the sebi may itself make or amend the

rules,. the rules shall be valid as if the same were made or amended by the recognized stock exchange

itself.

Q. 5 can the stock exchange put the restriction on the voting rights of the members?

A. Power to put restriction on the rights of the member [ Sec. 7]

a recognised stock exchange is empowered to amend rules to provide for all or any of the following

matters:

(a)Restriction of voting right to members only.

(b)Regulation of voting rights by specifying that each member is entitled to one vote only irrespective of

number of shares held.

(c)Restriction on right of members to appoint proxy.

Q. 6 what is a clearing corporation ?

A. Establishment of Clearing Corporation [ sec. 8A]

A recognized stock exchange may, with the prior approval of the Securities Exchange Board of India,

transfer the duties and functions of a clearing house to a clearing corporation, being a company incorporated under the Companies Act, 1956 for the purpose of:

(a) The periodical settlement of contracts and differences there under

(b) The delivery of, and payment for, securities;

(c) Any other matter incidental to, or connected with, such transfer

Sebi may grant the approval if it is in the interest of trade/public.

Q.7 how can the Stock Exchange establish additional trading ring?

A. Additional Trading floor [ sec. 13A]

Additional Trading Floor' means a trading ring or trading facility offered by a recognized stock exchange

outside its area of operation.



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a Stock Exchange may establish additional trading floor with the prior approval of the Securities

Exchange Board of India.

Q.8 can the CG suspend the Trading of STX?

A. Power to Suspend Trading of the STX [Sec. 12]

Central Government is vested with power to suspend business in case of emergency for a period not

exceeding 7 days by notification in Gazette. Central Government also have power to extend this period

by a like notification. However, extension can be ordered by the Central Government only after giving

the ROOBH to the Governing Body of the STX..

Q. 9 what is the process of corporatization and demutualization?

A. Corporatization and Demutualisation [ sec. 4B]

� All recognised stock exchanges shall, within the time specified by the Securities and Exchange

Board of India, submit a scheme for corporatisation and demutualisationfor its approval:

� On receipt of the scheme , the Securities and Exchange Board of India may, make enquiry and

obtaining further information, and if it is satisfied that it would be in the interest of the trade

and also in the public interest, then it may approve the scheme with or without modification.

� Where the scheme is approved , the scheme so approved shall be published immediately by—

� the Securities and Exchange Board of India in the Official Gazette;

� the recognised stock exchange in such two daily newspapers circulating in India, as may be

specified by the Securities and Exchange Board of India,

and upon such publication, the scheme shall have effect and be binding on all persons and authorities.

Q.10 can a co file appeal if the listing permission is not given?

A. Right to appeal against refusal of Listing permission by STX [ Sec. 22A]

Where a co makes an application for listing permission to a STX and the Permission is refused then

The Appeal may be made to SAT within

� 15 days of receipt of reasons of refusal, if the Stock Exchange has furnished the reasons for refusal to the company.

� Within 15 days from the expiry of specified time.(specified time means 10 weeks from the

date of closure of subscription list., if no refusal is communicated by STX)

Any person aggrieved by the decision of the SAT may file the appeal to the Supreme Court within 60 days from the date of order of SAT.

Q. 11 what is Spot Delivery Contract?

A. Spot Delivery Contract[sec.2(i)] spot delivery contract” means a contract which provides for,—



9910965137, 9711284246

(a) actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for the despatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality;

(b) transfer of the securities by the depository from the account of a beneficial owner to the account of another beneficial owner when such securities are dealt with by a depository;]

Q.12 where can the appeal be filed against the order of Securities Appellate Tribunal?

A. Sec. 22F.Any person aggrieved by any decision or order of the Securities Appellate Tribunalmay file

an appeal to the Supreme Courtwithin sixty days from the date of communication of the decision or order

of the Securities Appellate Tribunal to him on any question of law arising out of such order: Providedthat the Supreme Court may, if it is satisfied that the appellant was preventedby sufficient cause

from filing the appeal within the said period, allow it to be filed within a further period not exceeding

sixty days

Q.13who does the compounding under this Act?

A. AN offence for which imprisonment is not provided or if provided but it is optional (ie fine

or imprisonment) is an offence which can be compounded.

Under SCRA 1956 , Securities Appellate Tribunal does the compounding of the offences .

Title to dividends: [Section 27]

a holder of security can legally receive and retain any dividend declared by the company even if he

has transferred the security for valuable consideration. However, he (i.e. holder of security who is a transferor) cannot receive or retain the dividend if the transfer deed with all other documents required for transfer are lodged with the company within 15 days of the date on which the

dividend became due.



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BANKING ( REGULATION ) ACT 1949 BY

BANKING REGULATION ACT 1949

Q.1 can a non banking co use the word banking as part of its name?

A. no.

Mandatory to use the words bank, banker ,banking or banking co. [sec.7]

Above mentioned words are mandatorily required to be used as part of the name by a company carrying

on the business of banking. Others cannot use these words.

However for a subsidiary of a banking company and an association of banks, this section is not

applicable.

Q.2 can a banking co hold an immovable property acquired from a client permanently ?

A. no

Disposal of Non-Banking assets(sec.9)

A Banking Co may hold the immovable property FOR A PURPOSE OTHER THAN OWN USE for a period

of 7 years from the date of acquisition and for an extended period upto 5 year with the permission of

RBI.

Q.3 state the composition of Board of Directors of A banking co ?

A.

Board of Directors to include persons with professional or other experience [10A.]

Minimum fifty-one per cent of the total number of members of the Board of Directors of a banking

company shall consist of persons, who- shall have special knowledge or practical experience in respect

of one or more of the following matters, namely,- accountancy,agriculture and rural economy,banking,

co-operation, economics,finance,law,small-scale industry, any other matter the special knowledge of,

and practical experience, which would, in the opinion of the Reserve Bank, be useful to the banking

company:

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However out of the aforesaid number of Directors, not less than two shall be persons having special

knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-

scale industry AND

shall not have substantial interest in any company, not being a company registered under section 25 of the Companies Act, 1956 or any firm, which carries on any trade, commerce or industry and which, in either case, is not a small-scale industrial concern, or

shall not be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern.

Q. 4 what is the minimum amount of profit that must be transferred to reserve fund every year by a banking co?

A. Reserve Fund [Sec. 17]

Every banking co shall transfer to its reserve fund min. 20% of its profits before declaring the dividend. However CG may give exemption if the balance of reserve fund and securities together is not less than paid up capital of the co.

Q. 5 what are the requirements of maintaining Cash Reserve?

A.CASH RESERVE.[Sec. 18]

Every banking company, not being a scheduled bank, shall maintain in India by way of cash reservea sum equivalent to at least such per cent of the total of its demand and time liabilities in India as may be specified by RBIas on the last Friday of the second preceding fortnight and shall submit to the Reserve Bank before the twentieth day of every month a return showing the amount so held on alternate Fridays during a month with particulars of its demand and time liabilities in India on such Fridays or if any such Friday is a public holiday, at the close of business on the preceding working day.

Q.6. can the rate of interest charged by the bank be challenged in the court of law?

A. Rates of interest charged by banking companies not to be subject to scrutiny bycourts. [Sec

21A.] —

a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.

Q.7. how can the terms and conditions of appointment of MD of a banking co be amended ?

A. yes. Amendments of provisions relating to appointments of managing directors, etc., to be subject

to previous approval of the Reserve Bank. [Sec. 35B ]—

appointment or re-appointment or termination of appointment or remuneration of a chairman, a

[managing director or any other director, whole-time or otherwise or of a manager or a chief executive



9910965137, 9711284246

officer by whatever name called, shall not have effect unless approved by the Reserve Bank; and

provisions of co act shall not apply.

If the appointment or reappointment is found to be invalid then the acts done upto such date shall be

valid and after such date the acts shall be invalid.

Q.8 can the RBI remove MD of the banking co?

A Power of Reserve Bank to remove managerial and other persons from office.[Sec. 36 AA] —

RBI may in the public interest or for preventing the affairs of a banking company being conducted in a

manner detrimental to the interests of the depositors or for securing the proper management of any

banking company it is necessary so to do

By order remove

[any chairman, director,] chief executive officer (by whatever name called) or other officer or employee

of the banking company.

The removed person shall be disqualified for a period upto 5 years in future to hold similar position in

any Banking co.

The aggrieved person may make an appeal within 30 days of RBI order to CG.

The decision of the Central Government on such appeal, and subject thereto, the order made by the

Reserve Bank under sub-section (I), shall be final and shall not be called into question in any court.

RBI may appoint a suitable person in place of the removed person.

Q. 9 can the RBI appoint additional directors on the BOARD of a banking co?

A. Power of Reserve Bank to appoint additional directors, [36AB.]

RBI may, in the interest of banking policy or in the public interest or] in the interests of thebanking

company or its depositors, appoint one or more additional director for a period of 3 years at a time and

may extend the time in future upto 3 years at a time. Such director shall not incur any liability, shall not

be liable to hold the qualification shares and shall not be considered in total no of directors of the

banking co.

Q. 10 can the Central Government acquire the undertaking of the banking companies?

A. Power of Central Government to acquire undertakings of banking companies in certain cases[36AE]

RBI may, in the interests of the depositors of such banking company, or in the interest of banking policy,

or for the better provision of credit generally or of credit to any particular section of the community or

in any particular area,

by order and after give a reasonable opportunity of showing cause against the proposed action



9910965137, 9711284246

acquire the undertaking of any banking co.

such undertaking may vest in the CG or in any other banking co. all the assets and liabilities and

documents etc. shall get transferred to the CG or any other banking co as the case may be.

Q.11 can the shareholders of acquired bank object the amount of compensation?

A. sec. 36AG. Compensation to be given to shareholders of the acquired bank.

If the amount of compensation offered is not acceptable to any person to whom the compensation is

payable, such person may, before such date as may be notified by the Central Government in the Official

Gazette, request the Central Government in writing, to have the matter referred to the Tribunal

Q. 12 what are the provisions of doing inspection under the banking regulation act 1949?

A.. Inspection. [Sec.35]

the Reserve Bank at any time may, and on being directed so to do by the Central Government shall,

cause an inspection to be made of any banking company and its books and accounts;

the Reserve Bank, at any time, may also cause a scrutiny to be made by any one or more of its officers,

of the affairs of any banking company and its books and accounts; and

Central Government, if it is of opinion after considering

the report that the affairs of the banking company are being conducted to the detriment of the interests

of its depositors, may, after giving reasonable opportunity to the banking company to make a

representation in connection with the report, by order in writing—

prohibit the banking company from receiving fresh deposits;

direct the Reserve Bank to apply under section 38 for the winding up of the banking company:



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PREVENTION OF MONEY LAUNDERING ACT 2002 BY

Money Laundering [ sec.2(1)(p) & 3]

Whosoever directly or indirectly attempts to indulge orknowingly assists or knowingly is a party or is

actually involved in any process or activity connected with the proceeds of crime and projecting it as

untainted property shall be guilty of offence of money-laundering.

Proceeds of Crime[sec. 2(1)(u)]

"proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a

result of criminal activity relating to a scheduled offence or the value of any such property;

Punishment for money-laundering.[Sec.4]

Whoever commits the offence of money-launderingshall be punishable with rigorous imprisonment for

a term which shall not be less than three years but which may extend to seven years and shall also be

liable to fine which may extend to five lakh rupees:

In case of offences in paragraph 2 of Part A of the Schedule, imprisonment may extend to 10 years

Q.1. What is the duty of banking companies under the prevention of money laundering act 2002?

A. Banking companies, financial institutions and intermediaries to maintain records.—

Sec.12

(1)Every banking company, financial institution and intermediary shall—

(a) maintain a record of the prescribed transactions, whether such transactions comprise of a single

transaction or a series of transactions within a month

(b)furnish information of transactions referred to in clause (a) to the Director within such time as may

be prescribed;

(c)verify and maintain the records of the identity of all its clients, in such manner as may be prescribed:

The records referred to in sub-section (1) shall be maintained for a period of FIVE years.

Q. 2 can the director impose fine on banking companies?

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9910965137, 9711284246

A.Powers of Director to impose fine. [Sec. 13] --

If the Director, in the course of any inquiry, finds that a banking company, financial institution or an

intermediary or any of its officers has failed to comply with the provisions contained in section 12, then,

he may, by an order, levy a fine on such banking company or financial institution or intermediary which

shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.

Q3 where appeal can be filed against the order of director?

A. Appeal to Appellate Tribunal. [Sec. 26]-- theDirector or any person aggrieved by an order made by

the Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal.

Any banking company, financial institution or intermediary aggrieved by any order of the Director made

under section 13, may prefer an appeal to the Appellate Tribunal.

Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order

made by the Adjudicating Authority or Director is received.

the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass

such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and

endeavour shall be made by it to dispose of the appeal finally within six months from the date of filing of

the appeal.

Q.4 where can the appeal be filed against the order of Appeal to the appellate Tribunal?

A. Appeal to High Court. [Sec. 42]-- Any person aggrieved by any decision or order of the

AppellateTribunal may file an appeal to the High Court within sixty days from the date of communication

of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of

such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause

from filing the appeal within the said period, allow it to be filed within a further period not exceeding

sixty days.



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SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSESTS AND

ENFORCEMENT OF SECURITY INTEREST ACT, 2002

BY

“An Act to regulate securitization and reconstruction of financial assets and enforcement ofsecurity

interest and for matters connected therewith or incidental thereto”.

Sec 2(v)"reconstruction company" means a company formed and registered under the Companies Act,

1956 (1 of 1956) for the purpose of asset reconstruction;

Sec.2(z)"securitisation"means acquisition of financial assets by any securitisation company or

reconstruction company from any originator, whether by raising of funds by such securitisation

company or reconstruction company from qualified institutional buyers by issue of security receipts

representing undivided interest in such financial assets or otherwise;

Sec. 2(o)"non-performing asset"means an asset or account of a borrower, which has been classified by a

bank or financial institution as sub-standard, doubtful or loss asset,--

(a) in such authority or body;

(b) in any other case, in accordance with the directions or guidelines relating to assets

classifications issued by the Reserve Bank;

Q. 1 in which case this section shall not apply?

A. Provisions of this Act not to apply in certain cases[Sec 31]

The provisions of this Act shall not apply to--

(a) a lien on any goods, money or security ;

(b) a pledge of movables

(c) creation of any security in any aircraft

(d) creation of security interest in any vessel

(e) any conditional sale, hire-purchase or lease or any other contract in which no security

interest has been created;

(f) any rights of unpaid seller

(g) any properties not liable to attachment

(h) any security interest for securing repayment of any financial asset not exceeding one

lakh rupees;

CS NEERAJ MUDGAL




9910965137, 9711284246

(i) any security interest created in agricultural land;

(j) any case in which the amount due is less than twenty per cent of the principal amount

and interest thereon.

Q.2 what is the procedure for registration of securitization or reconstruction co?

A. Registration of securitisation companies or reconstruction companies [Sec.3]

securitisation company or reconstruction company shall not commence or carry on the business of

securitisation or asset reconstruction without--

(a) obtaining a certificate of registration and

(b) having the owned fund of not less than ( fifteen per cent of total financial assets

acquired orRs 100cr which ever is less). However it shall not be less than rs. 2 crores.

Registration procedure

co shall make an application for registration to the Reserve Bank.

Conditions to be satisfied

(a) company has not incurred losses in any of the three preceding financial years;

(b) company has made adequate arrangements for realisation of the financial assets

acquired for the purpose of securitisation or asset reconstruction and shall be able to

pay periodical returns and redeem on respective due dates on the investments made in

the company by the qualified institutional buyers or other persons;

(a) that the directors of securitisation company or reconstruction company have adequate

professional experience in matters related to finance, securitisation and reconstruction

that the board of directors of such company, does not consist of more than half of its

total number of directors who are either nominees of any sponsor or associated in any

manner with the sponsor or any of its subsidiaries;

(b) that any of its directors has not been convicted of any offence involving moral turpitude;

(c) that a sponsor, is not a holding company of the securitisation company or

reconstruction company, as the case may be, or, does not otherwise hold any

controlling interest in such company;

(d) that securitisation company or reconstruction company has complied with or is in a

position to comply with prudential norms specified by the Reserve Bank.

(e) that company has complied with one or more conditions specified in the guidelines

issued by the Reserve Bank for the said purpose.

Grant of certificate of registration



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The Reserve Bank may, after being satisfied that the conditions are fulfilled, grant a certificate of

registration to commence or carry on business of securitisation or asset reconstruction, subject to such

conditions which it may consider, fit to impose.

RBI may also reject the application after giving an opportunity of being heard to the applicant.

Any substantial changes and changes in the location of registered office shall be done only with the

approval of RBI.

Q3. On what grounds certificate of registration be cancelled?

A. Sec 4. Cancellation of certificate of registration

The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a

reconstruction company, if such company--

a. ceases to carry on the business of securitisation or asset reconstruction; or

b. ceases to receive or hold any investment from a qualified institutional buyer; or

c. has failed to comply with any conditions subject to which the certificate of registration has been

granted to it; or

d. at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (3) of

section 3; or

e. fails to--

a comply with any direction issued by the Reserve Bank under the provisions of

this Act; or

b maintain accounts in accordance with the requirements of any law or any

direction or order issued by the Reserve Bank under the provisions of this Act;

or

c submit or offer for inspection its books of account or other relevant documents

when so demanded by the Reserve Bank; or

d obtain prior approval of the Reserve Bank required under sub-section (6) of

section 3:

Q. 4 can appeal be filed against the cancellation?

A.Appeal to Central government

A securitisation company or reconstruction company aggrieved by the order of cancellation of certificate

of registration may prefer an appeal, within a period of thirty days from the date on which such order

of cancellation is communicated to it, to the Central Government:

PROVIDED that before rejecting an appeal such company shall be given a reasonable opportunity of

being heard.



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Q 5. what is the procedure of enforcement of security interest ?

A. Sec. 13 Enforcement of security interest

� any security interest created in favour of any secured creditor may be enforced, without the

intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.

� Where any borrower, who is under a liability to a secured creditor under a security agreement,

makes any default in repayment of secured debt or any instalment thereof, and his account in

respect of such debt is classified by the secured creditor as non-performing asset, then, the

secured creditor may require the borrower by notice in writing to discharge in full his liabilities

to the secured creditor within sixty days from the date of notice failing which the secured

creditor shall be entitled to exercise all or any of the rights under sub-section (4).

� The notice referred to in sub-section (2) shall give details of the amount payable by the

borrower and the secured assets intended to be enforced by the secured creditor in the event of

non-payment of secured debts by the borrower.

In case the borrower fails to discharge his liability in full within the period specified in sub-section (2),

the secured creditor may take recourse to one or more of the following measures to recover his secured

debt, namely:--

(a) take possession of the secured assets of the borrower including the right to transfer by

way of lease, assignment or sale for realising the secured asset;

(b) take over the management of the business of the borrower including the right to

transfer by way of lease, assignment or sale for realising the secured asset:

(c) appoint any person (hereafter referred to as the manager), to manage the secured

assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured

assets from the borrower and from whom any money is due or may become due to the

borrower, to pay the secured creditor, so much of the money as is sufficient to pay the

secured debt.

If the dues of the secured creditor together with all costs, charges and expenses incurred by him are

tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset

shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for

transfer or sale of that secured asset.



9910965137, 9711284246

SEBI(ISSUE OF CAPITAL

& DISCLOSURE

REQUIREMENTS)REGU

LATION 2009 Exam coverage: 8 MARKS

BY


“NOBODY CAN TAKE YOU SO MUCH IN DEPTH IN SEBI REGULATIONSSEBI REGULATIONSSEBI REGULATIONSSEBI REGULATIONS AS

NEERAJ MUDGAL SIR CAN”

Q.1. WHAT IS THE PURPOSE OF THESE REGULATIONS?

AThese regulations are made by SEBI to regulate the issue of securities by the listed issuer or to be

listed issuer

Q.2 WHAT ARE THE ISSUES REGULATED BY THESE REGUALATIONS?

Afollowing issues are regulated by these regulations:

CS NEERAJ MUDGAL BEST & EXCLUSIVE FOR CA FINAL LAWCA FINAL LAWCA FINAL LAWCA FINAL LAW



9910965137, 9711284246

� public issue;

� rights issue, where the aggregate value of specified securities offered is fifty lakh rupees or

more;

� a preferential issue;

� an issue of bonus shares by a listed issuer;

� a qualified institutions placement by a listed issuer;

� an issue of Indian Depository Receipts.

Q.3 WHAT IS THE MEANING OF PUBLIC ISSUE, WHAT ARE ITS TYPES?

AAn issue in which the specified securities are offered to the public is called as Public Issue.

INITIAL PUBLIC OFFER(IPO) when an issuer makes the offer to public for the first time it is I.P.O

FURTHER PUBLIC OFFER(FPO)when an issuer makes the offer to public after I.P.O( 2nd

3rd

4th

….)

Q 4 WHAT ARE THE CONDITIONS FOR I.P.O?

ARegulation 26 provides the following conditions for making an I.P.O:

Issuer must satisfy all the 5 conditions given below

(1)It has Net tangible asset(min)-3cr.Rs. In each of the 3 preceding full year.(of 12 month each).

Out of which Max. 50% can be held in monetary assets, otherwise the issuer shallmakefirm

commitment. to use the excess Monetary assets in business/project.

Limit of 50% shall apply toFRESH ISSUE and not toOFFER FOR SALE

(2)The issuer shall have min AVG. Pre-Tax operating Profit of rs. 15 cr calculated on restated and

consolidated basis during 3 most profitable years out of 5 preceding years.

(3)The issuer shall have rs. 1 cr. Net worth in each of the preceding 3 full year of (12 months)

(4)Issue size in the same financial year can be up to 5 times the pre-issue. Networth of the issuer.

(5)If the issuer has changed its namein preceding 1 year, then min. 50% of the revenue for the preceding

1 full year has been earned by it from the activity indicated by new name.

Q 5CAN THE ISSUER MAKE IPO IF IT DOES NOT SATISFY ANY OR ALL OF THE ABOVE CONDITIONS?

ARegulation 26 provides a second option. If the issuer does not satisfy the conditions mentioned in

Q.4 then it can make IPO if it satisfies the following conditions :

(1) issue is made through “Book Building Process”

(2) Min 75% of the of Net offer to Public (NOTP) is allotted to Q I B .

Q 6 WHAT ARE THE CONDITIONS FOR F.P.O ?



9910965137, 9711284246

A an issuer is required to satisfy only condition no. 4 and 5 in Q 4. If it does not satisfy these conditions

and issue can be made by following the conditions in Q 5.

Q 7 WHAT IS OFFER FOR SALE ?

A in a public issue the issuer has 2 options either to issue new shares, which is called as fresh issue or

alternatively it can offer the existing shares to be sold to the public , which is called as “offer for sale.

Q 8 IS THERE ANY CONDITION FOR OFFERING THE EXISTING SHARES TO THE PUBLIC?

Athe existing shares must be held for a period of 1 year, prior to the date of filing the draft prospectus

with sebi.

Q 9 IS THERE ANY EXCEPTION TO THE 1 YEAR HOLDING PERIOD RULE ?

Ayes, there are 3 exceptions :

If the shares offered for sale are received in conversion of the compulsorily convertible securities,

then the holding period of C.C.S shall also be considered in calculation of 1 year.

If the securities are offered for sale by 1. Government Co/2. Statutory Authority/3. Statutory

Corporation/4. Any Special Purpose Vehicle which is owned or controlled by any of 1,2,3. And the

entity is engaged in infrastructure sector , the requirement of one year shall not apply.

If the securities offered for sale are acquired under the scheme of compromise/ arrangement u/s 391

or amalgamation u/s 394 and the earlier invested capital was held for 1 year prior to the approval of

the scheme, then the requirement of 1 year shall not apply.

Bonus shares issued out of free reserves and securities premium account on the securities held for

one year or more before filing the draft offer document with sebi.

Q 9A Is The Public Issue 100% Offered To The Public?

ANo, A public issue is one in which some portion of the issue is offered to the public and the rest to

the others.

Q 10 WHAT IS THE MINIMUM PORTION IN A PUBLIC ISSUE THAT MUST BE OFFERED TO THE PUBLIC ?

Ain Regulation 41 the issuer has 2 options

Option 1

Min. 25 % of Post issue capital shall be offered to Public (in case of IPO)

Min. 25% of issue size shall be offered to public (in case of FPO)

Option 2

Min. 10% of Post issue capital shall be offered to Public (IPO)

Min. 10% of issue size shall be offered to public (FPO)

Post issue capital of the company is more than rs. 4000 cr.



9910965137, 9711284246

Co shall increase its public shareholding to at least 25% with in a period of 3 years from the date

of listing of securities.

Q. 11 IN A PUBLIC ISSUE WHAT ARE THE OTHER CATEGORIES TO WHOME THE OFFER IS MADE ?

Aother than public, the offer may be made to promoter, Qualified institutional Buyer, employees,

existing shareholders etc.

Q 12 IS THERE ANY MINIMUM AMOUNT THAT MUST BE CONTRIBUTED BY THE PROMOTERS ?

Ain regulation 32 following limits are prescribed:

In case of IPO Minimum 20 % of the Post Issue Capital shall be contributed by promoters.

In case of FPO the issuer has option Minimum 20 % of the Post Issue Capital

Minimum 20% of the Issue Size

�Criteria 1. 20% of post issue capital �Criteria 2 20% of proposed issue size

Q 13IN THE POST ISSUE CAPITAL CRITERIA OLD AND NEW SHARES ARE CONSIDERED IN PROMOTER

CONTRIBUTION, ARE THERE ANY OLD SHARES WHICH CAN NOT BE CONSIDERED ?

AYES, in regulation 33 , following can not be considered in the promoter contribution

1. specified securities acquired in last 3 years :

� Acquired for consideration other than cash

� Acquired in a bonus issue (out of revaluation reserves or unrealized profits.)

� Acquired in a bonus issue (against the eq. sh. Which are itself ineligible for PC.)

2. Specified securities acquired by promoters during last 1 year at a price lower than that offered to

public in Public issue (may be considered if they pay the difference)

3.specified securities pledged with the creditor.

Q 14 CAN THE PROMOTERS SELL THE SHARES ACQUIRED IN PROMOTER CONTRIBUTION CATEGORY ?

ANO, In regulation 35 the promoter shall hold the shares for the following period:

Minimum Promoter Contribution : for a period of 3 years

New and old

shares are

considered

Only new

shares are

considered



9910965137, 9711284246

Excess Promoter Contribution : for a period of 1 year.

The period is called as lock-in period.

Q 15 WHAT IS THE TIME LIMIT OF MAKING THE CONTRIBUTION BY THE PROMOTERS ?

Athe min. P.C. shall be brought at least one day before the opening of the issue and shall be kept in

Escrow Account.

If the amount of Min. P.C. is more than 100 cr then only 100 cr. Shall be brought 1 day before the

opening of the issue, and the remaining amount shall be brought proportionately on calls made by the

company

Q 16 WHAT ARE THE PROVISIONS FOR PRICE DETERMINATION IN A PUBLIC ISSUE?

AIn Regulation 28 there are 2 methods:

� Price may be determined in consultation with the Lead Merchant Banker or

� Pricemay be decided by Book Building Process

Q 17 CAN DIFFERENT PRICES BE DETERMINED FOR DIFFERENT CATEGORIES OF INVESTORS IN A

PUBLIC ISSUE?

A YES, in regulation 29 following provisions are given:

� Retail Individual Investors or retail individual shareholders or employees may be offered at a

price lower than the price offered to other categories.

� In an issue by Book Building Process, Anchor Investor shall not be offered at lower price as

compared to other categories.

� In a composite issue, the public issue price and right issue price may be different.

Q 18 WHAT IS PRICE BAND?

ARegulation 30 : in a book built issue, price is not mentioned, a range of minimum and maximum

price is specified which is called as PRICE BAND. In a price band the minimum price is called as the

floor price and the maximum price is called as cap price. Cap price may be 20% more than the Floor

price.

Q 19 CAN THE PRICE BAND ONCE FIXED BE REVISED?

A YES, FLOOR PRICE CAN BE INCRESAED OR DECREAESD BY 20% .

Q 20 CAN THE FACE VALUE OF SHARE BE FIXED AT LESS THAN 10 RUPEES ?

ARegulation 31 - there are 2 possibilities

� If the issue price is rs. 500 or more than the face value can be less than 10 but can not be less

then rs. 1.

� If the issue price is less than rs. 500 than the face value shall be rs. 10.



9910965137, 9711284246

Q 21IS THERE ANY MINIMUM AMOUNT FOR MAKING THE APPLICATION IN A PUBLIC ISSUE ?

A Regulation 49-Minimum application size shall be within the range of 10 thousands to 15 thousands rs.

Q 22 IS THERE ANY MINIMUM AMOUNT THAT MUST BE RECEIVED IN A PUBLIC ISSUE?

A yes, Regulation 14 provides that minimum 90% of the issue size must be received. This is called as

minimum subscription(MS).

Q 23 IS THERE ANY TIME LIMIT FOR RECEIVING THE MINIMUM SUBSCRIPTION ?

A In Regulation 14- there are 2 possibilities

If the issue is not underwritten : the MS must be received before the closure of issue. Otherwise the

application money received shall be refunded wihin 15 days from the closure of the issue. After 15

days a penalty in the form of interest shall be imposed at the rate 15% p.a.

If the issue is underwritten : if the issue is underwritten then any deficiency may be subscribed by the

underwriter with in 60 days of the closure of the issue, otherwise the application money received

shall be refunded within next 10 days i.e. upto 70th

day. After that a penalty in the form of interest

shall be imposed at the rate 15% p.a.

Q 24 IS THERE ANY MINIMUM AND MAXIMUM PERIOD FOR WHICH THE ISSUE MUST REMAIN OPEN ?

AYes, the issue shall remain open for minimum 3 days and maximum 10 days.

Q 25 IS THERE ANY MINIMUM NO OF PERSONS TO WHOM THE SHARES MUST BE ALLOTTED?

A. Yes, in regulation 26(4), the there must be minimum 1000 prospective allottes.

Q. 26 IS THERE ANY ALTERNATIVE METHOD OF APPLYING IN A PUBLIC ISSUE ?

A. yes, Sebi has introduced an alternative system of applying in a public issue i.e. ASBA

Regulation 2(d)“Application Supported by Blocked Amount (ASBA)” means an application for

subscribing to a public issue or rights issue, along with an authorisation to Self Certified Syndicate Bank

to block the application money in a bank account;

Q.27 WHAT IS BOOK BUILDING ?

A. Regulation 2(f)“book building” means a process undertaken to elicit demand and to assess the price

for determination of the quantum or value of specified securities or Indian Depository Receipts, as the

case may be, in accordance with these regulations;

Q 28. WHO IS A RETAIL INDIVIDUAL INVESTOR ?

A.Regulation 2 (ze) “retail individual investor” means an investor who applies or bids for specified



9910965137, 9711284246

securities for a value of not more than Two lakh rupees;

Q 29. WHO IS A RETAIL INDIVIDUAL SHAREHOLDER ?

A.Regulation 2 (zf) “retail individual shareholder” means a shareholder of a listed issuer, who applies or

bids for specified securities for a value of not more than Two lakh rupees;

Q 30. WHO IS A QUALIFIED INSTITUTIONAL BUYER ?

A.Regulation 2 (zd) “qualified institutional buyer” means:

� a mutual fund, venture capital fund and foreign venture capital investor ;

� a foreign institutional investor and sub-account ;

� a public financial institution

� a scheduled commercial bank;

� a multilateral and bilateral development financial institution;

� a state industrial development corporation;

� an insurance company

� a provident fund with minimum corpus of twenty five crore rupees;

� a pension fund with minimum corpus of twenty five crore rupees;

� National Investment Fund

� Insurance fund set up by and managed by Army, Navy or Airforce of Union of India.

� insurance funds set up and managed by the Department of Posts, India.

Q 31. WHAT IS GREEN SHOE OPTION ?

A.Regulation 2 (zf) “green shoe option” means an option of allotting equity shares in excess of the

equity shares offered in the public issue as a post-listing price stabilizing mechanism;

In Regulation 45 the process of stabilization through Green Shoe Option is provided.

The shares are borrowed from the promoter or the pre-issue share holders(in case of FPO the pre-issue

shareholder must be having more than 5% capital). These shares are over allotted to the public along

with the shares to be allotted. Maximum over allotment can be up to 15 % of the issue size. A

Stabilisation Agent(SA) is appointed , who sells and purchases the shares of the company to stabilize the

price . the maximum period of stabilisation can be 30 days. After the expiry of stabilisation period, the

SA returns the shares to the persons from whom they were borrowed within 2 days and if SA fails to

return, then the issuer shall return with in next 3 days.

Q 32. WHAT IS A BONUS ISSUE ?

A.Regulation 92

� It has authority in AOA.

� no default is committed by co. in payment of int./principle amount of Fixed Deposits /DEBT

SECURITIES.

� no default is committed by co. in payment of statutory due to employee(PF , gratuity & bonus.)



9910965137, 9711284246

� partly paid shares(if any) are made fully paid.

REG.93If any compulsorily convertible debt. Instruments are due to conversion at the time of

bonus issue then make reservation for the same.

REG.94

Free reserve

Sources

SPA(cash only)

REG.95

With in 15 days from the BM(if approval of shareholders is

not required for capitalization.)

Completion of bonus issue

With in 2 months from BM (if approval of shareholders is required)

Once announced Bonus issue can not be withdrawn.

Q. 33WHAT IS A RIGHT ISSUE ?

A. Right issue is the issue in which the Equity shares are offered to the existing shareholders only.

Following provisions are noteworthy in Regulation 52,53,54,55:

The issuer shall announce the record date. The issuer shall dispatch the Abridged Letter of Offer

(ALOO) and Application form to the the shareholders atleast 3 days before the issue opens. The issuer

shall make an advertisement in news papers at least 3 days before the issue opens. The issue shall

remain open minimum 15 days and maximum 30 days. The existing shareholders may apply while the

issue is open on the application form. If the application form is not received,then duplicate application

form may be obtained from the specified centers. If the duplicate application form can not be

obtained then the shareholder may apply on plain paper.

The existing shareholder has right to renounce the shares in favour of any other person. However if an

application is made on plain paper then the shareholder shall not have the right to renounce.

If the application is made on application form as well as on duplicate form,both are liable to be

rejected.

An issuer shall not withdraw the right issue after declaration of the record date, but if it withdraws

,then the issuer shall be debarred from making an application to the stock exchange for listing of its

securities in the next 12 months from the record date.

Q 34. WHAT IS PREFERENTIAL ISSUE ?



9910965137, 9711284246

A. Regulation 2(z)

“preferential issue” means an issue of specified securities by a listed issuer to any select person or

group of persons on a private placement basis and does not include an offer of specified securities made

through a public issue, rights issue, bonus issue, employee stock option scheme, employee stock

purchase scheme or qualified institutions placement or an issue of sweat equity shares or depository

receipts issued in a country outside India or foreign securities;

Following provisions are noteworthy in regulation 72

� Co shall pass SR

� Existing holding of the proposed allotter must be in DEMAT form.

� The securities of listed issuer must be in compliance of “continuous listing” as specified

in listing agreement.

� PAN of all the allotees must be obtained.

� Issue cannot be made to any person who has sold the securities of the co. during

preceding 6 months before relevant date.(board may grant relaxation)

Q 35. WHAT ARE THE PROVISIONS FOR PRICING IN A PREFERENTIAL ISSUE ?

A.


� (S)(r)(1)If the shares are listed for 6 months or more as on the relevant date.

price shall be Atleast higher of 1 OR 2

1. 26 WEEKS AVERAGE PRICE

2. 2 WEEKS AVERAGE PRICE

26 weeks 26 weeks

Highest closing+ lowest closing.

Price.Price.

------------------------------------------

52

2 weeks 2 weeks

highest closing+ lowest

price. Closing

price.

-------------------------------

4



9910965137, 9711284246

� (S)(r)(2)If shares are listed for less than 6 months as on the relevant date

*On completion, the price shall be recomputed as per s(r)(1). If the recomputed price is more than its

previous price than the difference shall be paid by the allottees.

Q 36. IS THERE ANY LOCK IN PERIOD FOR SHARES IN THE PREFERENTIAL ISSUE?

A. yes,


Shares allotted to promotersupto 20% of total capital shall be locked in for 3 years

More than 20% shall be locked in for 1 year

Shares allotted to persons other than promoter shall be locked in for 1year

Entire pre-issue shareholding of allottes shall be locked in from the relevant date to the date of

allotment and from the date of allotment for 6 months.

Q 37. WHAT IS QUALFIED INSTITUTIONS PLACEMENT (QIP)?

A. QIP mean allotment of securities by a listed issuer to QIB on private placement basis.

Following provisions are noteworthy in regulation 80 to 91:

� Co passes SR

� Equity shares of the same class have been listed on a Recognised Stock Exchange for a period

of 1 year prior to the date of issue of notice of General Meeting to pass a Special Resolution.

� Issuer satisfies the requirement of minimum public shareholding.

� The merchant banker furnishes a “Due Dilligence Certificate” to each stock exchange where

the equity shares of the same class are listed

Price shall be at least higher of

� Price at which shares were

issued in IPO

� Avg. of x weeks closing. Price+ x

weeks lowest closing price

----------------------------------

2x

� 2 weeks highest closing price+2

weeks lowest closing pirce

---------------------------------

4



9910965137, 9711284246

� Price shall be determined by 2 weeks average price method

� A discount of 5% may be given in price with the approval of shareholders

� Issuer shall not allot the partly paid up securities

� Minimum 10% of the securities offered shall be allotted to the Mutual fund

� Allotment shall not be made to the QIB promoter or QIB related to promoter

� No application shall be withdrawn after the closure of the issue

� Minimum No. of allottes shall not be less than :

---2 , if the issue size is less than or equal to 250 cr. Or

---5, if the issue size is more than 250 cr.

� No single allottee shall be allotted more than 50 % of the issue size.

� Allotment shall be completed within 12 months of date of passing the SR.

� New QIP shall not be made for a period of 6 months from the date of previous QIP.

� Maximum amount that can be raised in QIP in same financial year shall not exceed 5 times the

networth of the issuer.

� The securities allotted in QIP can not be sold outside the STOCK EXCHANGE for a period of 1

year from the date of allotment

Q 38. WHAT IS INDIAN DEPOSITORY RECEIPTS (QIP)?

A. following provisions are note worthy in regulation97 to 101:

� Issuing co is listed in its home country

� Issuing co is not prohibited to issue securities

� Issuing co has track record of compliance with securities market regulations in its home

country

� Issue size shall not be less than 50 cr.

� Minimum application amount shall be rs. 20000/-

� 50% of the IDR issued shall be allotted to the QIB

� Remaining 50% may be allotted to others

� 30% of the IDR being offered shall be available to Retail individual investor

� The merchant banker shall file due diligence certificate to the SEBI.

Q. 39 WHO IS AN ANCHOR INVESTOR?

A. Following provisions are noteworthy in the sch. XI of the regulations

� An Anchor Investor shall make an application of a value of at least Rs. 10 crore in the public

issue.

� Allocation to Anchor Investors shall be on a discretionary basis and subject to a minimum

number of 2 such investors for allocation of uptoRs. 250 crore and 5 such investors for allocation

of more than Rs. 250 crore.

� Upto thirty per cent. of the portion available for allocation to qualified institutional buyers shall

be available to anchor investor(s) for allocation/allotment (“anchor investor portion”).

� One-third of the anchor investor portion shall be reserved for domestic mutual funds.



9910965137, 9711284246

� The bidding for Anchor Investors shall open one day before the issue opening date.

� Allocation to Anchor Investors shall be completed on the day of bidding by Anchor Investors

� If the price fixed as a result of book building is higher than the price at which the allocation is

made to Anchor Investor, the Anchor Investor shall bring in the additional amount. However, if

the price fixed as a result of book building is lower than the price at which the allocation is made

to Anchor Investor, the excess amount shall not be refunded to the Anchor Investor and the

Anchor Investor shall take allotment at the price at which allocation was made to it.

� There shall be a lock-in of 30 days on the shares allotted to the Anchor Investor from the date of

allotment in the public issue.



9910965137, 9711284246

FOREIGN EXCHANGE MANAGEMENT ACT 1999

BY

Q 1 WHAT IS PURPOSE OF THIS ACT?

A The act has been enacted with a view to facilitate external trade and payments and for promoting the orderly

development and maintenance of foreign exchange markets in India.

Q 2 IS THERE ANY BASIS OF APPLICATION OF THIS ACT?

A this act is applicable on the basis of residential status. The classifies the persons in to two categories

:1. Person Resident in India(PRI) 2. Person Resident outside India(PROI)

Q 3 WHO IS A PRI?

A Sec. 2(v)

� any person or body corporate registered or incorporated in india.

� any office, branch or agencyin india owned or controlled by a PROI

� any office, branch or agency outside indiaowned or controlled by a PRI.

An individual who satisfies the following conditions shall be treated as PRI :

Individual satisfies the conditions given below in the previous Financial year :

� He resides in india for 183 days or more,

� For the purpose of employment, business or vocation or with the intention to stay in india for uncertain

period

� He does not leave india for employment, business or vocation or with the intention to stay outside india for

an uncertain period .

Then the individual obtains the status of PRI from the 1st day of the next financial year i.e. current financial year.

So long as the individual does not leave india for employment, business or vocation or with the intention to stay

outside india for an uncertain period, he remains PRI. However as soon as he leaves india for employment, business

or vocation or with the intention to stay outside india for an uncertain period, he looses the status of PRI and

becomes PROI.

Q 3 WHO IS A PROI?

A Sec. 2(W) It means a person who is not resident in india

CS NEERAJ MUDGAL




9910965137, 9711284246

Q 4 WHAT CURRENCY?

A Sec. 2(h)

It includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers’cheques, letters of

credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by

the Reserve Bank.

Further it has been notified by RBI that debit cards, ATM cards or any other instruments by whatever name called

that can be used to create a financial liability as currency. Therefore all the rules and regulations shall apply to the

credit cards, ATM cards, Debit cards etc.

Q.5 WHAT IS TRANSFER?

A. Sec. 2(ze) Transfer includes sale, purchase,exchange, mortgage,pledge,gift,loan or any other form of transfer of

right, title, possession or lien.

Q.6 IS THERE ANY CLASSIFICATION OF TRANSACTION IN THE ACT ?

A transactions are classified in to two categories : 1 current account transaction 2 capital account

transaction

Q.7 WHAT IS CURRNET ACCOUNT TRANSACTION?

ACURRENT ACCOUNT TRANSACTION [sec. 2(j) read with sec. 5]

Current Account Transaction means a transaction other then a capital account transaction and includes:

� Payments due in connection with foreign trade, other business, services, and short-term banking and credit facilities in the ordinary course of business;

� Payments due as interest on loans and as net income from investments. � Remittance for living expenses of parents, spouse and children residing abroad; and

Expenses in connection with foreign travel, education and medical care of parents, spouse and children.

Q.8 WHAT ARE THE PROVISIONS RELATED TO CURRNET ACCOUNT TRANSACTION?

ACG has made Foreign Exchange Management (Current Account Transaction) Rules 2000

There are 3 schedules in the rules:

List of PROHIBITED CURRENT ACCOUNT TRANSACTIONS [RULE 3]

SCHEDULE I

1. Remittance out of lottery winnings.

2. Remittance of income from racing/riding, etc., or any other hobby.

3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes

etc.

4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned

Subsidiaries abroad of Indian companies.



9910965137, 9711284246

5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable.

[6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of

invoice value of exports of tea and tobacco.]

7. Payment related to “Call Back Services” of telephones.

8 Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c.

• Travel to Nepal and Bhutan

• Transaction with person resident in Nepal and Bhutan.

LIST OF TRANSACTIONS PERMITTED WITH CG APPROVAL[ RULE 4]

SCHEDULE II

Cultural Tours

[Advertisement in foreign print media for the purposes other than promotion of tourism, foreign investments and international bidding (exceeding US$ 10,000) by a State Government and its Public Sector Undertakings.

Remittance of freight of vessel charted by a PSU

Payment of import [through ocean transport] by a Govt. Department or a PSU on c.i.f. basis (i.e., other than f.o.b. and f.a.s. basis)

Multi-modal transport operators making remittance to their agents abroad

Remittance of hiring charges of transponders by TV channels and internet service providers

Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping

Remittance of prize money/sponsorship of sports activity abroad by a person other than International/National/State Level sports bodies, if the amount involved exceeds US $ 100,000

Remittance for membership of P & I Club

*P&I CLUB means ‘Protection and Indemnity club’ to protect the ship owners.

APPROVAL OF CG IS NOT REQUIRED IF THE AMOUNT IS USED FROM THE RESIDENT FOREIGN

CURRENCY ACCOUNT

LIST OF TRANSACTIONS PERMITTED WITH RBI APPROVAL[ RULE 5]

SCHEDULE III

(See Rule 5)

1. Release of exchange exceeding US $ [10,000] or its equivalent in one financial year, for one or more private visits to any country (except Nepal and Bhutan).

2. Gift remittance exceeding US$ 5,000 per remitter/donor per financial year.

3.Donation exceeding US$ [5,000] per remitter/donor per financial year.

Donations by corporate, exceeding one percent of their foreign exchange earnings during the previous three financial year or US $ 50 lacs, whichever is less. For

� Creation of chairs in reputed educational institutes

� To funds( not being an investment fund) Promoted by educational institutes and

� To a technical institution or body or association in the field of activity of the donor co.

4 Exchange facilities exceeding US $ [1,00,000] for persons going abroad for employment.



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5. Exchange facilities for emigration exceeding US $ [1,00,000] or amount prescribed by country of emigration.

6. Remittance for maintenance of close relatives abroad,

(i) exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who is resident but not permanently resident in India and—

(a) is a citizen of a foreign State other than Pakistan; or

(b) is a citizen of India, who is on deputation to the office or branch or subsidiary or joint venture in India of such foreign company,]

(ii) exceeding US$ [1,00,000] per year per recipient, in all other cases.

Explanation : For the purpose of this item, a person resident in India on account of his [employment of deputation of ] a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed three years, is a resident but not permanently resident.]

7 Release of foreign exchange, exceeding US $ 25,000 to a person, irrespective of period of stay, for business travel, or attending a Conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up.

8. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/doctor abroad.

Upto $ 1,00,000 with out any estimate from the doctor or hospital . subject to furnishing of declaration to the effect that he is buying the forex for medical treatment.

9. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US $ [1,00,000] per academic year, whichever is higher.

10. Commission per transaction to agents abroad for sale of residential flats/commercial plots in India, exceeding 5% of the inward remittance or $ 25000 whichever is higher.

11. Remittance exceeding US $ 1 cr per project for any consultancy services in respect of infrastructure projects. For the purpose of this item infrastructure project means a project related to :

� Power � Telecommunication � Railways � Roads including bridges � Sea ports and airport � Industrial parks and � Urban infrastructure( water supply, sanitation and sewages)

For any other projectRemittance exceeding US $ [1,000,000], per project, for any consultancy service procured from outside India.]

12.. Remittance exceeding 5% of the investment brought in india or US $ 1,00,000 whichever is higher, by an

entity in India by way of reimbursement of pre-incorporation expenses.

THE APPROVAL OF RBI IS NOT REQUIRED IF THE PAYMENT IS MADE FROM RESIDENT FOREIGN

CURRENCY ACCOUNT OR LIBERALISED REMMITANCE SCHEME.

Q.8 WHAT IS CAPITAL ACCOUNT TRANSACTION?

ACapital Account Transaction [ section 2(e) read with section 6]

Capital account transaction

Means a transaction which alters the assets or liabilities, including contingent liabilities, outside india of PRI or assets

or liabilities in india of PROI, and includes transactions referred to in section 6(3).



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Sec. 6(3)

� Transfer or issue of any foreign security by a PRI � Transfer or issue of any security by a PROI � Transfer or issue of any security or foreign security by any branch, office or agency in india of a PROI. � Any borrowing or lending in forex or by whatever name called. � Any borrowing or lending in rupees or by whatever name called between a PRI & PROI. � Deposits between PRI & PROI � Exports, import or holding of currency or currency notes. � Transfer of immovable property outside india, other than a lease not exceeding five years, by a PRI � Acquisition or transfer of immovable property in india, other than a lease not exceeding five years, by a

PROI. � Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred-

i. By a PRI and owed to a PROI; or ii. By a PROI

However the following shall not be regarded as the CAT:

� A PRI may hold, own , transfer or invest in foreign currency, foreign security or any immovable property

situated outside india if such currency, security or property was acquired, held or owned by such PRI when

he was resident outside india or inherited from a PROI. Sec. 6(4)

� A PROI may hold, own , transfer or invest in indian currency, security or any immovable property situated in india if such currency, security or property was acquired, held or owned by such person when he was resident in india or inherited from a PRI [ sec. 6(5)]

RBI shall not impose any restriction on the drawl of foreign exchange for payments due on account of amortization of

loans or for depreciation of direct investments in the ordinary course of business.

Q.9 WHAT ARE PROHIBITED CAPITAL ACCOUNT TRANSATION?

ACapital Account Transaction [ section 2(e) read with section 6

Unless otherwise provided in the act, rules or regulations made there under, no person resident outside india

shall make investment in india in any entity which is engaged, or proposes to engage-

� In the business of chit fund

� As Nidhi Company

� In agricultural or plantation activities or

� In real estate business, or construction of farm houses

� In trading in Transferable Development Rights (TDRs)]

Q.10 WHAT IS TDR?

A It means certificates issued in respect of category of land acquired for public purpose either by CG or SG in

consideration of surrender of land by the owner without monetary compensation, which are transferable in part or

whole.

“It means a certificate issued by the government to any person whose land is compulsorily acquired by the

government without paying any monetary compensation. Such certificate authorizes the concerned person to develop

a structure on the aforementioned land as per the specifications of the government and to transfer the same to the

government on a reasonable profit in order to cover the cost of land and cost of construction plus the additional

profit.”



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Further such person may instead of developing the said structure himself, transfer the certificate to a PRI who can

develop it and to transfer the same to the government.

PRACTICAL QUERIES ON CAPITAL ACCOUNT TRANSACTION

Particulars Whether CAT

Investment by PRI in foreign Security it is a capital account transaction and is

permitted subject to the provisions of the

FEM( investment in Foreign Securities by

PRI) Regulations, 2000. however the PRI

is having the option of LRS upto US$

2,00,000.

Foreign Currency Loans raised in India and

abroad by a person resident in india

It is capital account transaction subject

to the rules and regulations under FEMA.

Export , import and holding of currency

/currency notes

It is a capital account transaction.

Permitted subject to the rules and

regulations under FEMA

Trading in Transferable Development Right It is a capital account transaction.

However specifically prohibited under

regulation 4 of FEM(Permitted Capital

Account Transactions) Regulation 2000.

Investment in Nidhi Company It is Prohibited CAT in terms of regulation

4 of FEM(Permitted Capital Account

Transactions) Regulation 2000.

Drawl of Forex for payments due on account of

amortization of loans

It is specifically permitted.

In terms of section 6 RBI shall not

impose any restrictions on the drawl of

forex for payments due on account of

amortization of loans or for depreciation

of direct investments in the ordinary

course of business. Therefore there are

no restriction in the present case for

drawl of forex.

Purchase of shares of a company engaged in

the plantation activities by a person resident

outside india.

It is prohibited CAT in terms of regulation

4 of FEM(Permitted Capital Account

Transactions) Regulation 2000.

Mrs. Janvi, a resident in india got the

immovable property from her father in USA a

PROI.

It is a capital account transaction

As per section 6, A PRI may hold,

own , transfer or invest in foreign

currency, foreign security or any

immovable property situated outside

india if such currency, security or

property was acquired, held or

owned by such PRI when he was



9910965137, 9711284246

resident outside india or inherited

from a PROI.

Therefore she can take such

property under fema.

Mr. shyam an inidan citizen left india for

employment in USA on 1st of june 2007. he

purchased a flat at new delhi for Rs. 15 lacs in

September 2008. his brother, Mr. Gopal

employed in new delhi, also purchased a flat in

same building in September 2008 for 16 lacs.

The flat was financed by Housing Finance

company and the loan was guaranteed by Mr.

Shyam.

It is capital account transaction

In terms of section 6(3) The term CAT

includes

� Acquisition or transfer of immovable property in india, other than a lease not exceeding five years, by a PROI.

� Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred-

i. By a PRI and owed to a PROI; or

ii. By a PROI However it is also subject to the

provisions of FEM( Acquisition and

Transfer of Immovable Property in

India)Regulations, 2000.

In terms of regulation 3 of these

regulations only a PROI who is a citizen

can acquire the immovable property in

india. Hence Mr. shyam can acquire the

flat in New Delhi.

Further guarantee is also covered within

the inclusive definition of CAT. However

it is not a permitted CAT therefore

restricted. It could be done with the RBI

approval only.

Issue of Equity Shares of Rs. 1 Cr. to the Non-

resident Indians in USA on non- repatriation

CAT includes transfer or issue of any

security by a PROI



9910965137, 9711284246

basis issued by an indian company.

Therefore the transaction is a CAT.

However it is subject to FEM(Transfer or

issue of securities by a PROI)

regulations, 2000. these regulation put

restriction on sale or purchase of the

securities of an indian company by a

non-resident. However it is permitted on

non-repatriation basis with out any limit.

As in the present case the transaction is

on non –repatriation basis . the same is

permitted CAT.

X a non residentinidan holding shares in

xyz limited an indian company wants to sell

some shares to another non Resident

indian in USA and to transfer some share

by way of gift to a PRI

These transaction shall be permissible

subject to FEM(Transfer or issue of

securities by a PROI) regulations, 2000.

In terms of these regulations a NRI can

sale the shares to another NRI or can gift

to a PRI.

In view of the above both these

transaction are permissible.

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