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Question 1Corporate and Other Laws

Under the Companies Act, 2013, which document must a company registered under the Act prominently display at its registered office in addition to its name and address?

  1. Memorandum of association
  2. Certificate of incorporation Correct answer.
  3. Prospectus
  4. Certificate of commencement of business

Explanation

Section 12 requires a company to paint or affix its name and the address of its registered office outside every office or place of business, and to keep a copy of the certificate of incorporation displayed at the registered office. The commencement certificate requirement was abolished under the 2013 Act. The memorandum and prospectus are not the statutory display documents contemplated by Section 12.

Question 2Corporate and Other Laws

A private company has 180 members. It wishes to convert into a public company. Which of the following is a necessary consequence of such conversion?

  1. It must increase its minimum paid-up capital to five lakh rupees
  2. It must have at least seven members and three directors Correct answer.
  3. It must reduce its membership to fifty before conversion
  4. It must obtain fresh registration from the Registrar as a new entity

Explanation

A public company must have a minimum of seven members and three directors under Sections 3 and 149 of the Companies Act, 2013. On conversion, the company must comply with these structural requirements. The company continues as the same legal entity, so fresh incorporation is not required, and the 2013 Act prescribes no minimum paid-up capital.

Question 3Corporate and Other Laws

Which of the following is a document that must be filed with the Registrar for incorporation of a company under the Companies Act, 2013?

  1. Certificate of tax registration issued by the income tax authority
  2. Board resolution approving the first annual general meeting
  3. Audited financial statements of the first year
  4. Memorandum and articles of association of the company Correct answer.

Explanation

Section 7 requires the memorandum and articles of association, duly signed, to be delivered to the Registrar along with the incorporation application. Financial statements, tax registration certificates and resolutions relating to a future annual general meeting cannot exist at the time of incorporation.

Question 4Corporate and Other Laws

The name of a company is said to be 'identical' with or 'too nearly resembling' an existing name if it differs only by which of the following?

  1. Addition of the word 'India' to the existing name Correct answer.
  2. Change in the number of directors
  3. Change of the company's authorised share capital
  4. Use of a different registered office address

Explanation

Under the Companies (Incorporation) Rules, 2014, names are treated as identical or too nearly resembling where the only difference is the addition or deletion of words such as 'India', 'Bharat', or of certain prefixes and suffixes. Registered office, capital and board composition have no bearing on name similarity.

Question 5Corporate and Other Laws

A company alters its articles to include a provision that is inconsistent with the memorandum. What is the legal effect of such alteration?

  1. The alteration is void to the extent of the inconsistency Correct answer.
  2. The alteration is valid if approved by three-fourths of the members
  3. The alteration becomes valid only after board approval
  4. The alteration is valid because the articles prevail over the memorandum

Explanation

The memorandum is the charter of the company and the articles are subordinate to it. Section 5 permits articles to contain anything not inconsistent with the memorandum, so an inconsistent alteration is void to that extent. Neither board approval nor a special resolution can cure a conflict with the memorandum.

Question 6Corporate and Other Laws

Which of the following is a doctrine that treats the memorandum and articles as a contract between the company and its members and among the members themselves?

  1. Doctrine of statutory contract Correct answer.
  2. Doctrine of constructive notice
  3. Doctrine of indoor management
  4. Doctrine of ultra vires

Explanation

Section 10 of the Companies Act, 2013 provides that the memorandum and articles bind the company and its members as if they had been signed by each of them, giving rise to the doctrine of statutory contract. The other doctrines deal with lack of capacity, protection of outsiders, and deemed knowledge of public documents respectively.

Question 7Corporate and Other Laws

A member of a company registered under the Companies Act, 2013 seeks to enforce a right conferred on him by the articles in his individual capacity. Which statement is correct?

  1. He can enforce it only after obtaining the consent of the Registrar
  2. He can enforce it only if the board passes a unanimous resolution
  3. He cannot enforce it because the articles have no contractual force at all
  4. He can enforce it because the articles constitute a contract between the company and each member Correct answer.

Explanation

Section 10 makes the articles binding on the company and its members, and a member may enforce rights conferred on him in his individual capacity. The articles do not create a contract between the company and outsiders, which is why third parties cannot sue on them. No board resolution or Registrar consent is required.

Question 8Corporate and Other Laws

Under the Companies Act, 2013, a public company may issue sweat equity shares subject to which of the following conditions?

  1. The issue must be approved by the members by special resolution Correct answer.
  2. The issue can be made only to the employees' union
  3. The issue requires prior approval of the Registrar of Companies
  4. The issue must be approved by the members by ordinary resolution

Explanation

Section 54 permits sweat equity shares to be issued by a company on the recommendation of the board and after passing a special resolution of the members. The resolution must specify the number of shares, class, price and consideration. Registrar approval and issue to a union are not statutory conditions.

Question 9Corporate and Other Laws

A company wishes to reduce its share capital. Which of the following is a mandatory requirement under the Companies Act, 2013?

  1. Passing an ordinary resolution and filing it with the Registrar
  2. Obtaining the prior consent of all secured creditors only
  3. Obtaining the sanction of the National Company Law Tribunal through a special resolution Correct answer.
  4. Publishing the notice in the Official Gazette only

Explanation

Section 66 requires reduction of share capital to be effected by a special resolution and confirmed by the National Company Law Tribunal, which considers the interests of creditors and members. An ordinary resolution, creditor consent alone, or Gazette publication alone does not satisfy the statutory scheme.

Question 10Corporate and Other Laws

Which of the following statements about a company's 'registered office' under the Companies Act, 2013 is correct?

  1. It need not be intimated to the Registrar at the time of incorporation
  2. It must be capable of receiving and acknowledging all communications addressed to the company Correct answer.
  3. It must be situated in the state where the company is incorporated
  4. It may be changed from one state to another by a board resolution

Explanation

Section 12 requires the registered office to be capable of receiving and acknowledging all communications. It must be intimated to the Registrar within thirty days of incorporation. A change from one state to another requires a special resolution and approval of the Central Government, not merely a board resolution.

Question 11Corporate and Other Laws

A company wants to issue shares to persons other than its existing members on a preferential basis. Which of the following is required under the Companies Act, 2013?

  1. Only a board resolution and approval of the stock exchange
  2. A special resolution of the members and a registered valuer's report Correct answer.
  3. An ordinary resolution of the members and a valuation report
  4. Only a resolution of the audit committee

Explanation

Section 62(1)(c) permits preferential allotment only if authorised by a special resolution of the members. The price must be determined by a registered valuer, and the resolution must specify the basis and other prescribed particulars. An ordinary resolution, board resolution alone, or audit committee approval is insufficient.

Question 12Corporate and Other Laws

Which of the following is true of the 'doctrine of constructive notice' in relation to a company's public documents?

  1. The doctrine protects the company from the acts of its officers
  2. Persons dealing with a company are deemed to know the contents of its memorandum and articles Correct answer.
  3. The doctrine applies only to documents filed with the stock exchange
  4. The doctrine applies only to directors and officers of the company

Explanation

Because the memorandum and articles are public documents filed with the Registrar, every person dealing with the company is deemed to have read and understood them. This is the doctrine of constructive notice. Its harshness is mitigated by the doctrine of indoor management, which protects outsiders against internal irregularities.

Question 13Corporate and Other Laws

A director of a company enters into a contract with a third party acting beyond the objects clause of the memorandum. The third party is unaware of the limitation. Which doctrine is most relevant to protect the third party?

  1. Doctrine of lifting the corporate veil
  2. Doctrine of indoor management Correct answer.
  3. Doctrine of constructive notice
  4. Doctrine of ultra vires

Explanation

The doctrine of indoor management, associated with Royal British Bank v Turquand, protects an outsider who deals with the company in good faith against internal irregularities of which he had no notice. Ultra vires concerns acts beyond the company's capacity, while constructive notice imputes knowledge of public documents. Lifting the veil concerns disregarding separate legal personality.

Question 14Corporate and Other Laws

Which of the following persons is disqualified from being appointed as a director of a company under the Companies Act, 2013?

  1. A person who is a member of another company
  2. A person who has been convicted of an offence involving moral turpitude and sentenced to imprisonment for six months Correct answer.
  3. A person who is a relative of an existing director
  4. A person who holds shares in the company

Explanation

Section 164 disqualifies a person convicted of an offence involving moral turpitude from being appointed as a director for five years from the date of release, where the sentence is six months or more. Being a member of another company, a relative of a director, or a shareholder does not by itself disqualify a person.

Question 15Corporate and Other Laws

A company has failed to file its annual return for three consecutive financial years. Which of the following consequences follows under the Companies Act, 2013?

  1. The company's certificate of incorporation is cancelled
  2. The directors of the company are disqualified from being reappointed as directors of any company for five years Correct answer.
  3. The company is automatically dissolved
  4. The company's bank accounts are frozen by the Registrar

Explanation

Section 164(2) read with Section 167 disqualifies directors of a company that has failed to file financial statements or annual returns for three consecutive financial years. The disqualification operates for five years and extends to appointment in other companies. Automatic dissolution, cancellation of incorporation, and freezing of bank accounts are not the statutory consequences.

Question 16Corporate and Other Laws

Which of the following is a statutory duty of an independent director under the Companies Act, 2013?

  1. To personally supervise the day-to-day operations of the company
  2. To resign if the company incurs a loss in any financial year
  3. To hold at least one per cent of the company's share capital
  4. To undertake appropriate induction and regularly update his knowledge of the company Correct answer.

Explanation

Section 178 and the accompanying rules require an independent director to undertake appropriate induction and regularly update his knowledge of the company. Independent directors are not involved in day-to-day management, need not hold any minimum shareholding, and are not required to resign merely because the company incurs a loss.

Question 17Corporate and Other Laws

A company proposes to appoint an auditor. Which of the following is a valid ground for disqualification of the auditor under the Companies Act, 2013?

  1. The auditor has audited the company for two consecutive years
  2. The auditor is indebted to the company for an amount exceeding five lakh rupees Correct answer.
  3. The auditor is a member of the Institute of Chartered Accountants of India
  4. The auditor is a chartered accountant in practice

Explanation

Section 141 disqualifies a person who is indebted to the company for an amount exceeding five lakh rupees. Being a chartered accountant in practice or a member of the Institute is a qualification, not a disqualification. The rotation requirement applies after a prescribed tenure and does not disqualify an auditor after two years.

Question 18Corporate and Other Laws

Which of the following is a matter that requires the prior approval of the company by special resolution for a related party transaction under the Companies Act, 2013?

  1. A transaction with a related party exceeding the prescribed threshold Correct answer.
  2. A transaction between two wholly owned subsidiaries
  3. A transaction in the ordinary course of business at arm's length
  4. A transaction with a director for a value below one lakh rupees

Explanation

Section 188 requires prior approval of the company by special resolution where a related party transaction exceeds the prescribed thresholds. Transactions in the ordinary course of business at arm's length are outside the scope of Section 188, and the rules exempt certain intra-group transactions. Small transactions below the prescribed limits do not require such approval.

Question 19Corporate and Other Laws

Under the Companies Act, 2013, the maximum number of members in a partnership firm or association that may be formed by a company for carrying on business is governed by which law?

  1. The Companies Act, 2013
  2. The Securities Contracts (Regulation) Act, 1956
  3. The Indian Partnership Act, 1932 Correct answer.
  4. The Reserve Bank of India Act, 1934

Explanation

Section 464 of the Companies Act, 2013 restricts the number of partners in a firm or members of an association formed for carrying on business, but the actual limit is prescribed by the Central Government, and the substantive law governing partnership remains the Indian Partnership Act, 1932. The other statutes deal with banking regulation and securities contracts respectively.

Question 20Corporate and Other Laws

Which of the following is a characteristic of a One Person Company under the Companies Act, 2013?

  1. It must be a private company Correct answer.
  2. It must have at least two directors
  3. It may be a public company
  4. It cannot have a nominee

Explanation

Section 3(1)(c) provides that a One Person Company is a private company with only one person as a member. It must have a nominee to take over on the member's death or incapacity. The minimum director requirement is one, and it cannot be a public company.

Question 21Corporate and Other Laws

A company fails to repay a deposit on maturity. Which of the following is the correct consequence under the Companies Act, 2013?

  1. The company's directors are automatically imprisoned for six months
  2. The company is liable to pay the deposit along with interest and a penalty Correct answer.
  3. The company is deemed to be wound up
  4. The deposit is converted into equity shares automatically

Explanation

Section 73 and the allied provisions require a company to repay deposits with interest, and failure attracts penalties. Automatic imprisonment of directors, deemed winding up, or automatic conversion into equity are not statutory consequences. Default is visited with fines and, in certain cases, refund orders by the Tribunal.

Question 22Corporate and Other Laws

Which of the following statements about a company's ability to buy back its own shares under the Companies Act, 2013 is correct?

  1. Buy-back may exceed twenty-five per cent of the paid-up capital and free reserves in a year
  2. Buy-back requires approval by ordinary resolution only
  3. Buy-back may be made out of the proceeds of a fresh issue of shares Correct answer.
  4. Buy-back is permitted for all classes of companies without any limit

Explanation

Section 68 permits buy-back out of free reserves, securities premium account, or the proceeds of a fresh issue of shares. The aggregate limit is twenty-five per cent of paid-up capital and free reserves in any financial year, and a special resolution is generally required. These limits apply to all companies permitted to buy back.

Question 23Corporate and Other Laws

Under the Companies Act, 2013, which of the following constitutes a 'small company'?

  1. A holding or subsidiary company
  2. A company whose paid-up capital does not exceed four crore rupees and turnover does not exceed forty crore rupees Correct answer.
  3. A company with more than two hundred members
  4. A public company listed on a recognised stock exchange

Explanation

Section 2(85) defines a small company by reference to paid-up capital and turnover thresholds, which are prescribed by the Central Government and have been revised from time to time. Public companies, holding and subsidiary companies, and companies governed by special statutes are excluded from the definition. Membership count is not the criterion.

Question 24Corporate and Other Laws

A company wishes to shift its registered office from one state to another. Which of the following is required under the Companies Act, 2013?

  1. A board resolution and approval of the stock exchange
  2. A special resolution and approval of the National Company Law Tribunal
  3. An ordinary resolution and intimation to the Registrar
  4. A special resolution and approval of the Central Government Correct answer.

Explanation

Section 13 requires a special resolution and approval of the Central Government for altering the memorandum to change the registered office from one state to another. The Regional Director exercises this power on behalf of the Central Government. A board resolution, ordinary resolution, or stock exchange approval is not sufficient.

Question 25Corporate and Other Laws

Which of the following is a valid ground on which the National Company Law Tribunal may order the winding up of a company under the Companies Act, 2013?

  1. The company has not held its first annual general meeting
  2. The company has incurred losses in two consecutive years
  3. The company has failed to commence business within one year of incorporation Correct answer.
  4. The company has changed its auditor twice in three years

Explanation

Section 271 permits winding up where the company has, within one year from incorporation or such longer period as the Tribunal allows, failed to commence business or has suspended business for a whole year. Failure to hold the first annual general meeting, losses, or changes of auditor are not grounds for winding up, though they may attract other consequences.

Question 26Corporate and Other Laws

Under the Companies Act, 2013, a company must hold its first annual general meeting within what period from the date of its incorporation?

  1. Within nine months from the date of incorporation Correct answer.
  2. Within eighteen months from the date of incorporation
  3. Within twelve months from the date of incorporation
  4. Within six months from the date of incorporation

Explanation

Section 96 requires the first annual general meeting to be held within nine months from the date of incorporation. If the company extends its financial year, the period may extend to a maximum of fifteen months with Registrar approval. Subsequent meetings must be held within six months of the close of the financial year.

Question 27Corporate and Other Laws

A private company has a paid-up share capital of Rs. 2 crore. Under the Companies Act, 2013, which of the following is required to constitute its Board of Directors?

  1. A minimum of three directors
  2. A minimum of one director
  3. A minimum of seven directors
  4. A minimum of two directors Correct answer.

Explanation

Section 149 requires a private company to have a minimum of two directors, whereas a public company needs three and a One Person Company needs one. The paid-up capital of the private company does not alter this minimum. Only the maximum limit of fifteen directors applies uniformly unless increased by special resolution.

Question 28Corporate and Other Laws

A company proposes to alter its articles of association to convert itself from a private company to a public company. Which approval is mandatorily required?

  1. Approval of members by a special resolution Correct answer.
  2. Approval of the Regional Director
  3. Approval of the Board of Directors by a simple majority
  4. Approval of members by an ordinary resolution

Explanation

Conversion of a private company into a public company requires alteration of the articles, which under Section 14 requires a special resolution. The special resolution must be filed with the Registrar within the prescribed time. An ordinary resolution is insufficient for altering the articles.

Question 29Corporate and Other Laws

A company has not appointed a whole-time director despite being required to do so. Which authority can take cognizance of this default and initiate action?

  1. The National Company Law Tribunal on its own motion
  2. The Reserve Bank of India
  3. The Registrar of Companies, who may file a complaint before the Special Court Correct answer.
  4. The Securities and Exchange Board of India in all cases

Explanation

Section 439 read with the relevant provisions allows the Registrar to file a complaint before the Special Court for defaults under the Act. The Registrar is the primary authority for monitoring statutory compliance. SEBI and RBI have jurisdiction only in their respective regulatory domains.

Question 30Corporate and Other Laws

A member of a company wants to inspect the register of members maintained by the company. Which of the following statements is correct under the Companies Act, 2013?

  1. Inspection is permitted only with the prior approval of the Board of Directors
  2. Any member may inspect the register free of charge during business hours, subject to reasonable restrictions Correct answer.
  3. Inspection is permitted only if the member holds at least ten percent of the paid-up capital
  4. Inspection is permitted only during the annual general meeting

Explanation

Section 88 read with Rule 5 permits any member to inspect the register of members and related indices without charge during business hours. The company may impose reasonable restrictions on the timings. No minimum shareholding or Board approval is required for a member to inspect.

Question 31Corporate and Other Laws

A company wishes to issue secured debentures to the public. Which of the following is a mandatory requirement under the Companies Act, 2013?

  1. A minimum subscription of at least fifty percent from promoters
  2. Approval of the Reserve Bank of India before issue
  3. Listing on a recognised stock exchange in every case
  4. Creation of a charge on the company's assets or properties in favour of the debenture holders or trustee Correct answer.

Explanation

Section 71 requires secured debentures to have a charge created on the company's assets in favour of the debenture holders or the debenture trustee. The company must appoint a debenture trustee before issuing a prospectus for secured debentures. RBI approval and mandatory listing are not general conditions for secured debentures.

Question 32Corporate and Other Laws

A company wants to give a loan to a person in whom a director of the company is interested. Which of the following statements reflects the restriction under the Companies Act, 2013?

  1. The loan is prohibited unless approved by a special resolution of members Correct answer.
  2. The loan is freely permitted as it is a commercial decision
  3. The loan is permitted only if the director furnishes a personal guarantee
  4. The loan is permitted if approved by the audit committee only

Explanation

Section 185 restricts loans, guarantees or securities to directors or persons in whom directors are interested. Such a transaction requires prior approval by special resolution, with the interested director abstaining from voting. A mere audit committee approval does not satisfy the statutory requirement.

Question 33Corporate and Other Laws

A company has failed to appoint a Company Secretary despite crossing the prescribed threshold. Which of the following is the correct position under the Companies Act, 2013?

  1. The company may appoint any employee as Company Secretary without qualification
  2. The company is exempted if it is a private company
  3. The company may appoint a practising chartered accountant as Company Secretary
  4. The company must appoint a whole-time Company Secretary who is a member of the Institute of Company Secretaries of India Correct answer.

Explanation

Section 203 read with Rule 8 requires prescribed classes of companies to appoint a whole-time Company Secretary who is a member of ICSI. The appointment must be made in compliance with the prescribed qualifications. Other professionals cannot substitute for the Company Secretary unless separately qualified.

Question 34Corporate and Other Laws

A shareholder of a listed company wishes to nominate a person to receive his securities in the event of his death. Which of the following is the correct position under the Companies Act, 2013?

  1. Nomination requires the prior consent of the stock exchange
  2. Nomination is permitted only for shares and not for debentures
  3. Nomination is void unless registered within thirty days of allotment
  4. Nomination is permitted for shares and debentures and the nominee becomes entitled to the securities on the death of the holder Correct answer.

Explanation

Section 72 permits every holder of securities to nominate a person who becomes entitled to the securities on the holder's death. The nomination applies to shares as well as debentures. No stock exchange consent or time limit for registration is prescribed for the validity of the nomination.

Question 35Corporate and Other Laws

A company proposes to declare a dividend for the financial year. Which of the following statements is correct regarding the deposit of the unpaid dividend amount?

  1. The unpaid dividend must be transferred to the Unpaid Dividend Account within thirty days of declaration Correct answer.
  2. The unpaid dividend must be paid to the Registrar within seven days
  3. The unpaid dividend may be retained in the company's general account indefinitely
  4. The unpaid dividend must be transferred to the Investor Education and Protection Fund immediately on declaration

Explanation

Section 124 requires the company to transfer the unpaid or unclaimed dividend to a separate Unpaid Dividend Account within thirty days of declaration. Amounts remaining unclaimed for seven years are then transferred to the Investor Education and Protection Fund. Retention in the general account is not permitted.

Question 36Corporate and Other Laws

A company intends to hold a general meeting at shorter notice than that prescribed. Which of the following conditions must be satisfied for an annual general meeting?

  1. Consent of all members entitled to vote at the meeting is required Correct answer.
  2. Consent of the Board of Directors alone is sufficient
  3. Shorter notice is not permitted for any general meeting
  4. Consent of members holding at least seventy-five percent of the paid-up capital is sufficient

Explanation

Section 101 permits a general meeting to be called at shorter notice with the consent of at least ninety-five percent of members entitled to vote for an annual general meeting. For other general meetings, a simple majority of members entitled to vote suffices. Board consent alone is not sufficient.

Question 37Corporate and Other Laws

A company has an average net profit of Rs. 50 crore during the three immediately preceding financial years. What is the minimum amount it must spend on corporate social responsibility under Section 135?

  1. Two percent of the average net profit, i.e., Rs. 1 crore Correct answer.
  2. One percent of the average net profit, i.e., Rs. 50 lakh
  3. Five percent of the average net profit, i.e., Rs. 2.5 crore
  4. Ten percent of the average net profit, i.e., Rs. 5 crore

Explanation

Section 135 requires companies meeting the prescribed threshold to spend at least two percent of the average net profits of the three immediately preceding financial years on CSR activities. Two percent of Rs. 50 crore is Rs. 1 crore. The CSR committee must formulate and recommend the policy for this spend.

Question 38Corporate and Other Laws

A director of a company has not attended three consecutive meetings of the Board of Directors. What is the consequence under the Companies Act, 2013?

  1. The director's office becomes vacant automatically Correct answer.
  2. The director is liable to a penalty but continues in office
  3. The director must seek re-appointment at the next general meeting
  4. The director is suspended for six months

Explanation

Section 167 provides that the office of a director becomes vacant if he absents himself from all meetings of the Board held during a period of twelve months with or without leave. The vacation is automatic by operation of law. The company must record the vacancy and act accordingly.

Question 39Corporate and Other Laws

A company proposes to make an investment in another company exceeding the prescribed limits under Section 186. Which of the following approvals is required?

  1. Approval by the audit committee only
  2. Approval by the Registrar of Companies
  3. Approval by the Board of Directors only
  4. Prior approval by special resolution of members Correct answer.

Explanation

Section 186 restricts investments, loans and guarantees beyond prescribed limits unless approved by special resolution of the members. The resolution must specify the limits and the Board must disclose the particulars. Board approval alone is insufficient for exceeding the limits.

Question 40Corporate and Other Laws

A company wants to appoint an alternate director for a director who will be absent from India for three months. Which of the following statements is correct?

  1. An alternate director may be appointed for any period of absence exceeding one month Correct answer.
  2. An alternate director can hold office for a maximum of two years
  3. An alternate director must be a shareholder of the company
  4. An alternate director can be appointed only if the original director is absent for at least six months

Explanation

Section 161 permits the Board to appoint an alternate director during the absence of a director from India for a period of not less than three months. The alternate director holds office only during the absence of the original director. There is no requirement that the alternate director be a shareholder.

Question 41Corporate and Other Laws

A company has defaulted in repayment of deposits. Which of the following is the correct consequence regarding the small depositors under the Companies Act, 2013?

  1. The company may seek a moratorium on all repayments
  2. The company must repay small depositors within the prescribed time before other creditors Correct answer.
  3. The company may convert the deposits into equity without consent
  4. The company is automatically wound up

Explanation

The Companies (Acceptance of Deposits) Rules require priority repayment to small depositors who have deposits up to the prescribed limit. The company must repay them within the specified time. Conversion into equity requires the depositor's consent and is not automatic.

Question 42Corporate and Other Laws

A company wishes to appoint a person as its managing director. Which of the following conditions must be satisfied under the Companies Act, 2013?

  1. The person must have been a director of the company for at least two years
  2. The person must be below forty years of age
  3. The appointment must be approved by the members in a general meeting Correct answer.
  4. The person must be a shareholder holding at least five percent of the paid-up capital

Explanation

Section 196 requires the appointment of a managing director, whole-time director or manager to be approved by the members in a general meeting. The appointment is made by the Board subject to such approval. Shareholding, prior directorship and a maximum age of forty are not statutory conditions.

Question 43Corporate and Other Laws

A company wants to remove its statutory auditor before the expiry of his term. Which of the following is the correct procedure?

  1. The auditor may be removed by an ordinary resolution of members after obtaining prior approval of the Central Government
  2. The auditor may be removed only by the National Company Law Tribunal
  3. The Board may remove the auditor by a simple majority at a Board meeting
  4. The auditor may be removed by a special resolution of members after obtaining prior approval of the Central Government Correct answer.

Explanation

Section 140 requires prior approval of the Central Government before removing an auditor before the expiry of his term. The removal must then be approved by a special resolution of the members. This safeguard protects auditor independence.

Question 44Corporate and Other Laws

A company wants to enter into a contract with a related party for the sale of goods exceeding the prescribed threshold. Which of the following approvals is required under Section 188?

  1. Approval of the audit committee only
  2. Approval of the Registrar of Companies
  3. Approval of the Board of Directors by resolution at a Board meeting Correct answer.
  4. Approval of members by ordinary resolution

Explanation

Section 188 requires prior approval of the Board by a resolution passed at a Board meeting for related party transactions exceeding the prescribed limits. If the prescribed threshold is exceeded, member approval by ordinary resolution is additionally required. The interested director cannot vote on the resolution.

Question 45Corporate and Other Laws

A company has a paid-up share capital of Rs. 5 crore and wants to accept deposits from members. Which of the following is a correct requirement under the Companies Act, 2013?

  1. Deposits from members require prior approval of SEBI
  2. Deposits from members are prohibited for all companies
  3. Deposits from members are subject to the prescribed limits and must comply with the Deposit Rules Correct answer.
  4. Deposits may be accepted without any limit from members

Explanation

Section 73 and the Companies (Acceptance of Deposits) Rules permit companies to accept deposits from members subject to prescribed limits and conditions. The company must comply with the circular, security and repayment requirements. Deposits from members are not unlimited or universally prohibited.

Question 46Corporate and Other Laws

A company has an unpaid dividend amount that has remained unclaimed for seven years. Which of the following is the correct consequence under Section 124?

  1. The amount must be returned to the company's general reserves
  2. The amount must be distributed among the existing shareholders
  3. The amount must be deposited with the Registrar of Companies
  4. The amount must be transferred to the Investor Education and Protection Fund along with the statement of unclaimed amounts Correct answer.

Explanation

Section 124 requires the transfer of unpaid or unclaimed dividends remaining unclaimed for seven years to the Investor Education and Protection Fund. The company must also furnish a statement of unclaimed amounts. Once transferred, the amounts cannot be reclaimed by the company.

Question 47Corporate and Other Laws

A company has passed a resolution for voluntary winding up. Which of the following statements about the powers of the liquidator is correct?

  1. The liquidator has no power to dispose of the company's assets
  2. The liquidator may exercise powers with the sanction of the company by special resolution or the NCLT where required Correct answer.
  3. The liquidator may exercise powers only with the prior sanction of the NCLT in every case
  4. The liquidator may exercise all powers without any sanction of the members

Explanation

In voluntary winding up, the liquidator exercises powers subject to the sanction of the company by special resolution or the NCLT where the Act so requires. Certain powers such as sale of assets require such sanction. The liquidator cannot act entirely without sanction in all matters.

Question 48Corporate and Other Laws

A company wants to merge with another company through a scheme of arrangement. Which of the following is the correct procedural requirement under Sections 230-232?

  1. The scheme must be approved by SEBI in all cases
  2. Approval of the Board alone is sufficient for the merger
  3. The scheme must be approved by the Registrar of Companies before it is presented to the NCLT
  4. The scheme must be approved by the NCLT after holding meetings of members and creditors as directed Correct answer.

Explanation

Sections 230-232 require the NCLT to order meetings of members and creditors and to sanction the scheme after satisfying itself that it is fair and reasonable. The NCLT exercises supervisory jurisdiction over the process. Board approval alone or Registrar approval is insufficient.

Question 49Corporate and Other Laws

A company has been unable to pay its debts and a creditor files a winding up petition. Which of the following statements about the company's ability to defend the petition is correct?

  1. The company cannot defend a winding up petition at all
  2. The company can defend by showing that the debt is bona fide disputed on substantial grounds Correct answer.
  3. The company can defend only by paying the entire debt before the hearing
  4. The company can defend by showing it has sufficient assets even if it is unable to pay debts currently due

Explanation

A winding up petition based on inability to pay debts can be resisted if the debt is bona fide disputed on substantial grounds. The court or tribunal will not allow the winding up process to be used to pressure a company into paying a disputed claim. Mere ownership of assets does not necessarily defeat the petition.

Question 50Corporate and Other Laws

A company has defaulted in filing its financial statements for two consecutive financial years. Which of the following is the correct consequence for the company and its officers under the Companies Act, 2013?

  1. Only the company is liable to a penalty; officers are exempt
  2. The company is automatically dissolved
  3. The company and every officer in default are liable to penalties, and the company may face restrictions on further filings Correct answer.
  4. The defaulting directors are automatically disqualified from all directorships

Explanation

Section 137 read with the penalty provisions imposes liability on the company and every officer in default for failure to file financial statements. The company may also face restrictions on filing other documents until the default is cured. Automatic dissolution or automatic disqualification of all directors does not follow merely from this default.