FEMA_Practicla Problems_9

State whether the following statements are ‘True ‘ or ‘False’.

1. FEMA is a civil law.


2. A person resident in India can carry Indian currency notes of any denomination while traveling to Nepal.


3. ‘X’ who went to Switzerland in December, 2003 and drew US $ 10,000 desires to go to USA in January 2004, he can again draw US $ 10,000.


4. Foreign exchange payable for import of goods is a capital account transaction.


5. ‘X’, a citizen of USA but of Indian origin, comes to India for doing business and with the intention of setting in India, he becomes person resident in India on his arrival in India.


6. ‘A’ a citizen of India, goes to London to attend to his sick father and intends to stay in England till his father recovers, he becomes a non-resident from the date he leaves India.


7. ‘Security’ under FEMA includes a bill of exchange and promissory notes.


8. A person resident in India can purchase British lottery tickets through Internet using his International credit card.


9. A foreigner who is a non-whole time director of an Indian company can be paid ‘to’ and ‘fro’ fare for attending Board meetings in India.


10. An Indian sole proprietorship concern can accept deposits from non-residents on repatriation basis.


11. Export proceeds under FEMA must be realized within one month of shipment.


12. A non-resident can purchase immovable property in India only for his own residential use.


13. A person can buy foreign exchange up to US $ 1,00,000 for studies abroad per academic year.


14. A public limited company incorporated in India can accept deposits from non-residents only on non-repatriation basis.


15. A non-resident Indian who sells his immovable property in India can repatriate outside India only an amount equivalent to foreign exchange brought in.

FEMA_Practicla Problems_8

Kung Shui is a Japanese company having several business units all over the world. It has a robotic unit with its head quarters in Mumbai and has a branch in Bangkok, Thailand. Headquarter at Mumbai controls the branch of robotic unit. What would be the residential status of robotic unit in Mumbai and that of the Bangkok branch ?

FEMA_Practicla Problems_7

Mr. Z had resided in India during the financial year 1999-2000 for more than 182 days. He left India on August 1, 2000 for United States for pursuing higher studies for 3 years. What would be his residential status during financial year 2000-01 and during 2001-02 ?

FEMA_Practicla Problems_6

Mr. X had resided in India during the financial year 1999-2000 for less than 183 days. He had come to India on April 1,2000 for business. He intends to leave the business on April 30, 2001 and leave India on June 30,2001. What would be his residential status during the financial year 2000-01 and during the financial year 2001-02 up to the date of his departure ?

FEMA_Practical Problems_5

Mr.A had resided in India during the financial year 1999-2000 (1st April, 1999 to 31st March, 2000) for less than 183 days. He has come to India on April 1, 2000 for employment. What would be his residential status during the financial year 2000-01 (1-4-2000 to 31-3-2001) ?

Companies Act_Practical problems_25

The paid up capital of Needy Private Limited is Rs. 5 lakhs. Liberal Finance Ltd. has agreed to grant a loan or Rs. 2 crores to Needy Private Limited on the condition that Liberal Finance Ltd. shall have a right to nominate Mr. Successful, Mr. Achiever and Mr. Reliable as directors on the Board of Needy Private Limited. The articles of Needy Private Limited require every director to hold qualification shares of a nominal value of Rs. 20,000. Answer the following in view of the provisions of the Companies Act, 1956:

(i) Whether appointments of the three directors by Liberal Finance Ltd. can be made in accordance with the Loan Agreement entered into by Liberal Finance Ltd. and Needy Private Limited?

(ii) Whether the three directors nominated by Liberal Finance Ltd. shall have to obtain the qualification shares. If yes, what will be the value of the qualification shares?

(ii) Assuming that all legal requirements for appointment of the three directors are complied with, and the three directors hold requisite qualification shares, if any, whether these directors are required to disclose their interest in an agreement put for consideration in the Board meeting of Liberal Finance Ltd., and can they vote thereat?

Companies Act_Practical problems_24

Director’s Responsibility Statement is required to be made only when a company has not made compliances with the provisions of the Companies Act, 1956. The contents of the Director’s Responsibility Statement shall be such as deem fit by the directors. Comment.

Companies Act_Practical problems_23

The directors of a company have to travel very often for the company’s business. The company makes some advances to them for this purpose which sometimes exceed the actual requirements. Comment.

Companies Act_Practical problems_22

As a secretary of ST Ltd. advise the Board of directors regarding appointment of an alternate director, an additional director, and a director filling a casual vacancy. The articles of ST Ltd. does not contain any provision regarding appointment of any directors

Companies Act_Practical problems_21

A company failed to file annual accounts and annual return for two consecutive financial years (although such documents were ready for filing). The annual accounts and annual return for third financial year are not ready as on last date of filing annual return. Suggest the course of action to be adopted by the company and consequences if default is made in third year also.

Companies Act_Practical problems_20

Give your views in the following cases:

(i) Mr. A, a whole time director of the company is appointed as a secretary at a remuneration of Rs. 5,600 per month. No approval of shareholders is obtained in the first general meeting. Mr. B, another director of the company contends that Mr. A shall cease to be a director as from the date of first general meeting. Comment.

(ii) Mr. X is already a director in 15 companies. He has been appointed as a director in RT Ltd. on 23.4.2004 and in ST Ltd. on 30.4. 2004. Mr. X resigns from one of his earlier directorships on 13.5.2004. On the same date, he intends to accept the directorship in RT Ltd. and ST Ltd. Comment.

Companies Act_Practical problems_19

The balance sheet of M/s. Hush Hush Ltd., as at 31.3.1999 filed with registrar of companies, Mumbai disclosed that the liabilities amounted to Rs. 2.75 crores as against the assets of Rs. 1.25 crores. On the basis of the scrutiny of the Balance Sheet, the registrar filed a winding up petition against the company stating that it is commercially insolvent and that the company is unable to pay its debts on the ground that the value of liabilities far exceeded the value of assets. Examine whether the company has any case to defend against the winding up petition filed by the registrar.

Companies Act_Practical problems_18

The directors of a company held more than 75% shares in the company. The company was carrying on business of construction of projects. The directors acquired certain contracts in their own name in breach of trust and made profits for themselves. In the annual general meeting, they passed a resolution that the company had no interest in the contract. The minority shareholders filed a case against directors asking them to account for the profits. Discuss.

Companies Act_Practical problems_17

Where the appointment of a sole selling agent is made without a condition that the appointment is subject to approval of members but later on members’ approval is obtained, the appointment of sole selling agent is validated. Comment.

Companies Act_Practical problems_16

Examine whether the quorum is present in the following cases:

(i) In a Board meeting, only 3 directors were present out of the total of 11 directors. None of the 3 directors was interested in any of the items of the agenda.

(ii) In a meeting of the Board, out of the total of 11 directors, 7 directors were present of which only 2 directors were not interested in one of the transactions.

(iii) The articles of association of a company fixed 3 as the quorum for a meeting of the Board. At a meeting of the Board, all the 5 directors were present. They allotted the shares of the company to 3 of the directors. Is the allotment valid?

How to draft resolution ?

It is a general practice to start a resolution with the words “Resolved that………, but strictly speaking it is not compulsory. It denotes that the text of the resolution is decided formally.

If a resolution runs into paragraphs then it is conventional to split the resolution into different parts eg: “Resolved further that……..

Usually surplus or meaningless words are not included in the resolutions.
The language used should be direct and simple, because it is meant for reading by the common shareholders etc.

Reference to documents approved at a meeting should be included. For eg: Appointment of MD – Draft agreement.

Must indicate the relevant Section pursuant to which that resolution is passed eg: “Resolved that pursuant to Section……of the Companies Act 1956……… This is preferably be included in beginning part of the resolution. If more than one provision is hit then, include the words “and any other applicable provisions in the Companies Act, 1956”.

Approvals required for the resolution should be mentioned. For eg: subject to the approval of Central Government or subject to the confirmation of Company Law Board……….
With effect from date of the resolution may be indicated. For eg: Appointment of sole selling agent.

It is conventional to write a preamble to resolution. For eg:

Kind of meeting: Board/GeneralType of resolution: Simple/ordinary/special

Connecting words like, be and is hereby (denoting one concept) or be and are hereby (denoting more than one concept) is conventional. For eg: “Mr…….., director of the company be and is hereby appointed…….”

“Mr……. and Mr……. be and are hereby appointed…….”

Companies Act_Practical problems_15

Premier Housing Finance Company Ltd. is prepared to give housing loans to the employees of Supreme Chemicals Ltd. subject to the condition that the loans are guaranteed by Supreme Chemicals Ltd. Supreme Chemicals Ltd. is not a listed company and the company will be exceeding the limits prescribed under the Companies Act, 1956 by providing such guarantee. The company desires to give the guarantee early as part of employees’ welfare measure without waiting for the next annual general meeting, which is due only after eight months. Advise the company about the legal requirements under the Companies Act, 1956 to give effect to the above proposal. What would be your advice, if the company was required to provide security instead of guarantee?

Supreme Chemicals Ltd. proposes to give guarantee to a body corporate and as such it attracts section 372 A of the Companies Act, 1956. Where the aggregate of bonus and investments so far made the amounts for which guarantee or security so far provided along with the proposed investment guarantee etc. exceeds the limits prescribed under Section 372 A(i), such investments, guarantee etc. are required to be authorised by a special resolution passed in a general meeting. Only after the special resolution is so passed, such investments, etc. can be made [First proviso to Section 372 A(1)]. However the second proviso to Section 372 A(1) provides an exception in the case of guarantee. The Board may give guarantee without being previously authorized by a special resolution, subject to the following condition:

(i) Unanimous resolution is passed in the meeting of the Board authorizing to give guarantee

(ii) Obtaining shareholders previous approval by special resolution is prevented by exceptional circumstances. In this case there is an urgent necessity.

(iii) The Board resolution for providing the guarantee is confirmed at a general meeting (annual or extraordinary) within 12 months from the date of the Board Meeting.

(iv) The special resolution must be specify the particulars prescribed in the 3rd proviso to Section 372 A(1) such as the Limit, particulars of the Company to which guarantee is proposed to be given, purpose of the proposed guarantee, and other relevant details. Subject to this above conditions, Supreme Chemicals Ltd. may give guarantee to Premier Housing finance Co. Ltd. without obtaining previous approval of the shareholders by special resolution. This exception is available in the case of guarantee only. The board cannot provide security unless it is previously authorized by a special resolution, as the prescribed limits are likely to be exceeded.

Companies Act_Practical problems_14

Articles of Association of a listed company has fixed payment of sitting fee for each Meeting of Directors subject to maximum of Rs. 10,000. In view of increased responsibilities of independent directors of listed companies, the company proposes to increase the sitting fee to Rs. 25,000 per meeting. Advise the company about the requirement under Companies Act, 1956 to give effect this proposal.

Under Section 310 of the Companies Act, 1956 approval of the Central Government shall not be required where sitting fee for each meeting of the Board of a Committee thereof does not exceed the prescribed sum under Rule 10-B of the Central Government’s (General Rules & Forms, 1956) as under:

1. Companies with paid up capital of Rs. 10 crores and above or turnover of Rs. 50 corres and Above Sitting fee not to exceed Rs. 20,000.

Other companies Sitting fee not to exceed Rs. 10,000 Any increase in the sitting fee will require amendment of relevant provision of the Articles of Association.

In the given case, the proposed sitting fee of Rs. 25,000 will require approval of the Central Government as the same exceeds the prescribed limits. The company can pay the sitting fee upto Rs. 20,000 depending upon the aforesaid parameters laid down in Rule 10-B.

Companies Act_Practical problems_13

Ram & Company was appointed as auditor of ABC Ltd. at the Annual General Meeting held on 30th September, 2004. Can Ram & Co. continue as auditor of the company in case the next annual general meeting has not been held in time ? What would be the position in case the next annual general meeting was held on 30th September, 2005, but adjourned without considering the business of appointment or re-appointment of auditor ?

The tenure of an auditor is laid down in section 224(1) of the Companies Act, 1956. It is from the conclusion of the annual general meeting to the conclusion of the next annual general meeting. Therefore, the tenure of office of the auditor does not expire on the last date on which the annual general meeting was due to be held in terms of Section 166. Hence Ram & Co. can continue as auditor even if the AGM for the year 2005 has not been held in time. In case AGM for 2005 was held on 30.9.05 that adjourned without considering the business of appointment or reappointment of auditor, the tenure of Ram and Co. will extend till the conclusion of the adjourned meeting.

Companies Act_practical problems_12

The group of requisite shareholders under Section 399 filed a petition before the Company Law Board for relief against oppression. Meanwhile, a secured creditor filed a civil suit for winding up for non-payment of his debt. The shareholders contended that winding up proceeding should not be heard as the Company Law Board is seized of the petition under Section 397. Is there contention tenable?
What would be your answer, if in the said situation a composite petition (petition praying for relief against oppression as well petition for winding up) is filed in the Court of Law?

In A.K. Puri vs. Devi Dass Gopal Kishan Ltd., (995) 17CLA, the J&K High Court held that there was no conflict of jurisdiction with respect to Sections 397, 398 and Section 433. The court observed that there is no statutory provisions in the Companies Act which provides for stay of the winding up proceedings under Section 433 when the CLB was seized of a petition between the same parties under Section 397/398. In other words, there is neither explicit nor implicit to carry on the winding up proceedings even when the CLB was seized of the matter.

The question whether shareholders can file a writ petition for relief against oppression and mismanagement during pendency of proceedings before the CLB, the Supreme Court in World-wide Agencies Pvt. Ltd., vs. Mrs. M.T. Desor (1990) 67 CC. 607 held against such filing as a shareholder cannot be allowed to bypass the express provisions of the Companies Act.

Winding up petition as a creditor on ground of inability to pay debts is not a bar to admission of a composite petition under Section 397 and 398 by the same party in the capacity of a member.

Companies Act_practical problems_11

Mr. Agent having ‘substantial interest’ in ABC Ltd is appointed as a Sole selling agent by the Board of Directors for a period of 5 years. The company’s paid-up share capital is Rs.49 crores. The Board did not place the matter in the AGM and communicated to Mr. Agent about his appointment, who in turn accepted the offer. Examining the provisions of the Companies Act, 1956,
(a) Whether the appointment is in order?
(b) What course of action you would take as the Secretary of the company, in case Mr. Agent does not have substantial interest?

(i) the appointment of J is not in order, as there have been a number of violation on the part of the company as per the Companies Act, 1956. Appointment without the approval of the general meeting and without the approval of the Central Government is not valid since the company’s paid-up share capital is more than Rs.50 lakhs in this case. Moreover, since J has substantial interest in the company, approval of Central Government in Form 1 is must. Thus, the appointment of J is not in order.

In the second question (ii), the answer would not be different, as the capital (paid-up share capital) is more than 50 lakhs Rupees. In this case though the appointee (J) does not have substantial interest, but the company’s paid share capital is more than 50 lakhs, consent of the company in general meeting (special resolution) and the approval of the Central Government is required.

Unsolved_Practical Problems_14

Mr. A, Director of Arihant Institute demand inspection of books of account at his residence. Company deny the inspection. Comment on the action of company. Would your answer be differnt if Director is handicaped and unable to visit the office of company ?

Competition Act_Practical Problems_2

Poly Ltd., (hereinafter referred to as “Seller”), manufacturer of footwears entered into an agreement with City Traders (hereinafter referred to as “purchaser”), for sale of its products. The agreement includes, among others, the following clauses:

(i) That the Purchaser shall not deal with goods, products, articles, by whatever name called, manufactured by any person other than the Seller.

(ii) That the Purchaser shall not sale the goods manufactured by the Seller outside the municipal limits of the city of Secunderabad.

(iii) That the Purchaser shall sale the goods manufactured by the Seller at the price as embossed on the price label of the footwear. However, the purchaser is allowed to sale the footwear at prices lower than those embossed on the price label.

You are required to examine with relevant provisions of the Competition Act 2002, the validity of the above clauses.

Provisions of section 3(1) of the Competition Act, 2002 prohibits any agreement for goods and/or services that may have an appreciable adverse effect on competition in India. Provisions of section 3(2) of the said Act states that any agreement entered into in contravention of provision of section 3(1) of the said Act shall be void. Sections 3(3) and 3(4) of the said Act enumerates the types of the agreements which are to be treated as contravening the provisions of the said section 3(1). According to section 3(4) of the said Act, any agreement among enterprises or persons at different stages of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services including the following shall be treated as agreements in contravention of the said section 3(1):

(a) tie-in-arrangement ;
(b) exclusive supply agreement ;
(c) exclusive distribution agreement ;
(d) refusal to deal
(e) re-sale price maintenance

The clauses of the agreement given in the question are covered by above mentioned provisions Clause at Sr. No.(i) comes under exclusive supply agreement; Clause at Sr. No.(ii) comes under exclusive distribution agreement and Clause at Sr. No.(iii) is covered by re-sale price maintenance. Explanations to said section 3(4) explains the above terms.

According to Explanation (b), exclusive supply agreement includes any agreement restricting in any manner, the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person. According to Explanation (c), exclusive distribution agreement includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods.

According to Explanation (e), "resale price maintenance" includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the price stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.

In view of the above provisions of the Competition Act, 2002, validity of the clauses of the agreement as given in the question can be determined as follows:
(i) Clause (i) restricts the purchaser to deal in the goods of manufacturers other than the seller. Hence this is in contravention of the provisions of section 3(1) of the said Act.
(ii) Clause (ii) restricts the purchaser to sell the goods within a specified area. Hence this is in contravention of the provisions of section 3(1) of the said Act
(iii) Clause (iii) stipulates the resale price, but it allows the purchaser to sell the goods at lower prices than the stipulated prices. Hence this is a valid clause.

But, the law states that any such agreement containing any of the prohibited clause shall be void. Therefore, even if the agreement contains some valid clauses, it shall still be termed as void if it contains even one prohibited clause.

Unsolved_Practical Problems_13

The managing Director of Arihant Ltd has paid remuneration of Rs. 25,00,000 during the year. Co has availed the loan from finanial institute, the agreement of which provide that company is required to pay 11% profit to it in lieu of interest of loan. Accordingly company has paid interest. State with reason whether in your opinion, BOD is require to disclose fact under the head "Particulars relating to employess" under section 217 (2A) in its Board report ? if not, why ? Would your answer be different if financial institue has appointed nominee director on the board of Arihant Ltd ?

Unsolved_Practical Problems_12

Arihant Institute company registered under Sec. 25 of Comapnies Act wants to destroy its books of account for the financial year 2000. When they can do so ?

Unsolved_Practical Problems_11

Arihant Ltd wants to destroy its books of account for the year 1999. After which date it can destroy ? Show your calculation alongwith Provision of Act.

Unsolved_Practical Problems_10

Board of directors of Arihant Institute Ltd wants to keep its books of account at Nagpur. Company’s registered office is situated at Ahmedabad. What procedure should be followed by board ? Would your answer be different, if board of director wants to keep its books of account to its New York branch ?

Unsolved_Practical Problems_9

Arihant Ltd wants to write its books of account in pencil. Advise company

Unsolved_Practical Problems_8

Explain the difference among “book of account”, Books of Account” and “Proper books of account” under the Companies Act

Unsolved_Practical Problems_7

Who are having special power to inspect the books of account under the Companies Act ?

Unsolved_Practical problems_6

The company application u/s 391, 394 of the Companies Act, 1956 was jointly filed by JKH Ltd. (transferee co.) JKI Ltd. (transferor company No. 1) and KI Ltd. (transferor company No. 2) to approve the scheme of amalgamation for the amalgamation of transferor company Nos. 1 and 2 with the transferee company.

The Regional Director, Ministry of Corporate Affairs in his affidavit raised a objection, that the authorized share capital of the transferee company shall automatically increased by addition of authorized share capital of the transferor companies. Therefore the transfer of authorized share capital could only be done after following the procedure prescribed under the relevant provisions of the Companies Act, 1956, payment of requisite fees to the Registrar of Companies and stamp duty to the State Government. Examine

Unsolved_Practical Problems_5

Article of Arihant Institute (P) Ltd provide that director should make fixed deposit of Rs. 5,000 for being qualified to be director. Examine

Unsolved_Practical Problems_4

Mr. A holder of Citi bank gold card wants to purchase online from ebay.com and pay US $ 15,000. Is he require to obtain any permission or any formalities under FEMA ? What if he makes payment through international credit card ?

Unsolved_Practical Problems_3

Mr. A holder of Visa classic card draw US $ 12,000 for the purpose of shopping. What formalities are requird to be observed if any ?

Would your answer be different if he draw US $ 1,000 per month for the one year for same purpose. What would be situation if Mr. A is holder of International credit card whose limit is Rs. 40,00,000 ?

Unsolved_Practical Problems_2

A manufacturer of electronic goods stipulated to his retailers that they should not sell the goods below minimum price, nor above the maximum price, not with variation in the stipulated price. Does this amount to resale price maintenance ?

Companies Act_Practical Problems_4

In the context of provisions of the Companies Act, 1956 and case laws if any, answer the following:
(a) Amalgamation of a foreign company with an Indian company.
(b) Is the scheme of amalgamation requires approval by preference shareholder?
(c) When will Court order dissolution of the transferor company?

(A)In Bombay Gas Company (P) Ltd., vs. Central Government the Bombay High Court held that Section 394(4)(b) provides for amalgamation of a foreign country with the Indian company. The transferee company, however, cannot be a foreign country.
(B) The expression member is not only holders of equity shares but also preference
shareholders who had to be taken into account and value of their shares be included.
(C) The scheme may provide for the dissolution without winding up of any transferor company

Competition act_Practical problems_1

The Association of Truck Operators of India by agreement insisted that members of the association shall not deal with the non-members in transportation of goods. The Association claims that this agreement is entered for the welfare of trade and not for any other purpose. In your opinion whether the agreement would be under the purview of the Competition Act, 2002. Whether your answer would be different if the association attempts to control the provisioning of services rendered by its members.

"Cartel" includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services; The term
cartel like agreement has been given an inclusive meaning. Thus an association for the welfare
of the trade or formed for any other purpose not mentioned in the aforesaid definition will not be a cartel. It is only when an association, by agreement amongst themselves, limits control or
attempts to control the production, distribution, sale or price of, or, trade in goods or provision of services, that it will be a cartel.

Unsolved_Practical Problems_1

ARIHNAT Ltd company incorpoated in India, want to start FM Radio services and for the same purpose company wants to allott certain shares to USA company for providing technology for starting radio services....Advice the board of directors of company what steps or formalities are required to be observed in this regard if it is allowed under the FEMA ? What maximum number of shares can be issued to foreign company ? Which kind of shares can be issued ?

Companies Act_practical problems_10

A group of promoters approach you for advise regarding the formation of a Guarantee Company. Advise them briefly about the types of organizations for which it is suitable to form a Guarantee Company and the advantages that can be derived by registering a Guarantee Company

A company limited by guarantee means a company which, by its memorandum of association, restricts the liability of its members to a certain fixed amount, for payment of the debts and liabilities of the company in the event of its winding up. A past member shall not be liable to contribute if he had ceased to be a member for 1 year or upwards before the commencement of the winding up. Further, a past member shall not be liable in respect of any debt or liability of the company contracted after he ceased to be a member.

A guarantee company may also have a share capital, wherever necessary. In that event, the members will be liable for the amount, if any, remaining unpaid on the shares subscribed by them, in addition to the above guaranteed amount.

A guarantee company has all the features of a limited company except those related to liability of members, as explained above.

A guarantee company has all the features of a limited company except those related to liability of members, as explained above.

A guarantee company is a convenient from of organization for associations such as clubs, chambers of common trade associations, societies set-up for carrying on charitable work incorporated under section 25. The advantages of a guarantee company are as follows :

(i) A guarantee company is an incorporated body having a legal personality, perpetual succession and a common seal. It can own property, enter into contracts, can sue and can be sued by others.

(ii) Unless a guarantee company also has a share capital, the liability of the members arises only in the event of its winding up.

Companies Act_practical problems_9

As per provisions of the Companies Act, 1956, what is the status of XYZ Ltd., a company incorporated in London, U.K., which has a share transfer office at Mumbai ?

As per section 591, a company shall be a foreign company if –

(a) it is incorporated outside India; and
(b) it has established a place of business in India.

The answer to the given problem is as follows :

(i) A share transfer office or share registration office constitutes a place of business (Section 602). Since, the company incorporated outside India has a share registration office at Bombay, it is clear that the company has established a place of business in India and is therefore a foreign company.

(ii) In this case, Indian citizens have formed a company outside India. Since, the company has not established any lace of business in India, the company cannot be said to be a foreign company. The fact that Indian citizens have formed a company in a foreign country is immaterial in deciding whether the company is a foreign company or not.

Companies Act_practical problems_8

ABC Ltd. a foreign company having its Indian principal place of business at Kolkata, West Bangal is required to deliver various documents to registrar of companies under the provisions of the Companies Act, 1956. You are required to state, where the said company should deliver such documents.

As per section 597, all the returns and documents required to be delivered to the registrar by a foreign company shall be sent to –

(a) the registrar of companies; New Delhi; and
(b) the registrar of the State in which the principal place of business of the company is situated.

However, fees in respect of filing of documents is to be paid only at the registrar of companies, New Delhi.

Companies Act_practical problems_7

The aggregate shareholding of nationalized Banks, LIC and IDBI exceeded 55% of the paid up share capital of the company.

LIC and IDBI are the corporations owned by the Central Government, which hold 55% of the paid up share capital of the company. Therefore, the appointment of auditors will be made by the Comptroller and Auditor General of India and the remuneration of auditors shall be determined in the general meeting.w will the auditors of the company be appointed.

Companies Act_practical problems_6

The paid up share capital of AJD Limited is Rs. 10 crores consisting of 70 lakhs equity shares of Rs. 10 each fully paid-up and 30 lakhs preference shares of Rs. 10 each, fully paid up. Nationalised Banks, LIC and IDBI hold among themselves 30 lakhs equity shares and 25 lakhs preference shares. With reference to the provisions of the Companies Act, 1956, examine whether AJD Limited is a Government company. Explain the manner in which you would proceed in the matter of appointment of auditors for the said company.

The paid up share capital of AJD Limited is Rs. 10 crores (Paid up capital includes both equity share capital and preference share capital). Rs. 5.5 crores of paid up share capital of AJD Limited is held by Nationalised banks, LIC and IDBI. However, no share in AJD Limited is held by the Central Government or any State Government and therefore AJD Limited is not a Government company.

LIC and IDBI are the corporations owned by the Central Government, which hold more than 51% of the paid up share capital of AJD Limited. Therefore, the appointment of auditors of AJD Limited will be made in the same manner in which auditors of a Government company are appointed, i.e., the appointment of auditors shall be made by the Controller and Auditor General of India and the remuneration of auditors shall be determined in the general meeting.

Companies Act_practical problems_5

M/s Rao & Rao, a firm of chartered accounts have to be appointed as the auditors of M/s ABC Co. Ltd., a Government company. Explain the steps to be taken regarding the appointment and payment of remuneration to the auditors.

The provisions of section 619 are explained as under :
1. Appointment of auditor
The auditor of a Government company shall be appointed or re-appointed by the Comptroller and Auditor-General of India (CAG). However, the limits specified in sub-section (1B) of section 224 shall apply, i.e., the auditor can conduct the audit of a maximum of 20 companies out of which not more than 10 companies shall have a paid up capital of Rs. 25 lakhs or more.

2. Remuneration of auditor
The remuneration of the auditor of a Government company shall be fixed by the shareholders in general meeting. Alternatively, the shareholders may determine the manner in which the remuneration shall be fixed.

3. Directions by CAG
The CAG has the power –
(a) to direct the manner in which the accounts shall be audited;
(b) to give instructions to the auditor regarding conduct of the audit; and
(c) to appoint a person to conduct a supplementary or test audit of the company’s accounts.

4. Audit report
The auditor shall submit a copy of his audit report to the CAG who shall have the right to comment upon or supplement the audit report in such manner as he may think fit.

Any such comments or supplement shall be placed before the annual general meeting of the company at the same time and in the same manner as the audit report.

However, while preparing the Board’s report, the Board is not required to give any information or explanation in respect of comments or supplement made by CAG, since there is no such requirement under section 217 or any other provision of the Act.

FEMA_Practical problems_4

Mr. Patel, who was resident of USA for many years, now permanently returns to India. He continues to hold some immovable property, foreign security and other foreign exchange assets in USA. Can he hold such assets outside India?

Yes, section 6(4) of the Act gives general permissions to Residents to hold such immovable property, foreign security and foreign exchange outside India if they were acquired when he was Resident outside India. No special permission is required from the RBI but the current income on such assets say, rent, dividend or interest etc., shall have to be repatriated to India within the prescribed time limit as specified in regulation 5(i) of Notification No.9 viz: FEM (Realisation, Repretation & Surrender of Foreign Exchange), 2000.

FEMA_Practical problems_3

Can Mr. Pandya, a resident of Canada, instruct his brother staying in Mumbai to make a payment of Rs.5,000 to Mr. Joshi, his close friend?

No, as such payment is not permitted under clause (b) of section 3 of the Act.

Clause (c) prohibits every person for receiving any payment from or on behalf of a person resident outside India without an Inward remittance from a place outside India through an authorized person.

Clause (d) prohibits a person to enter into any financial transaction in India as consideration for acquisition, creation or transfer of a right to acquire any asset outside India by any person. The clause would affect a transaction in the nature of “Hawala Transaction”.

FEMA_Practical problems_2

Mr. Bharat, born and brought up in India, goes to USA on 10.4.2004 to look after his son, Amit, who is suffering from chronic disease, with the intention to stay over there till his son, Amit recovers completely. Determine his residential status under the Act for the financial year 2004-2005 and 2005-2006.

Mr. Bharat is going to USA neither for employment nor for business nor for any purposes which indicate his intention to stay there for an uncertain period. Thus, his physical presence in India during the preceding F.Y., i.e., 2003-2004 shall have to be considered and as he was in India for 365 days during the F.Y. 2003-2004 he would be treated Residential of India for the financial year 2003-2004.

If he continues to stay in USA, say, till 31-3-2005, his stay in India during the preceding financial year; i.e., 2004-2005 shall be less than 183 days and hence he would be treated Non-Residential for the financial year 2005-2006.

FEMA_Practical problems_1

Mr. Ashok, born and brought up in India, goes to USA for taking up an employment on 15.5.2004. Determine, his residential status under the Act for the F.Y. 2004-2005.

Mr. Ashok shall be treated as Resident of India till 14-5-2004. But, w.e.f. 15-5-2004, he shall be treated Non-Resident as he is covered by one of the exceptions listed in sub-clause (A) to section 2(v).

Companies Act_practical problems_3

Every one Airways is proposing an IPO and for this purpose it proposed a Lead Merchant Banker for managing the issue. Mr. Spice one of the Director, is also a director in the said merchant banking company. Advise on the following situation:
(a) Is Mr. Spice, a concerned director for the purpose of disclosing his interest under Section 299 of the Act?
(b) Should he disclose his interest to the company?
(c) What would be your answer, if the company is already aware of the fact of his interest?

(a) According to Section 297, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm or a private company of which the director is a member or director, must not enter into contracts with company for the sale, purchase, or supply of goods, materials or services or for underwriting shares or debentures except with the consent of the Board of Directors [sub-section (1)]. According to the proviso to sub-section (1) in the case of a company having a paid-up capital of Rs.1 crore or more no such contract shall be entered into except with previous approval of the Central Government The consent of the Board is deemed to have been given only if it is accorded by a resolution of the Board and not otherwise, either before or within three months of the date of entering into the contract [sub-section (4)].

If the consent is not accorded to any contract under Section 297, anything done in pursuance of the contract shall be voidable at the option of the Board. [sub-section (5)]. But as a matter of good corporate governance practice, the concerned director may disclose his interest in the proposed contract/arrangement.

(b) The term ‘disclosure’ means to make others aware of something, which they are not aware. The disclosure of interest by a director has been provided in Section 299 only with a view to know that the director occupies fiduciary position in the company should disclose his interest in any arrangement or contract either directly or indirectly so that the company is in a position to know whether he is acting in any way prejudicial to the interest of the company or for his own benefit.

(c) When board is aware of the fact of the interest of a director in a particular transaction, it would not be necessary for such a director to formerly disclose his interest. (Ramakrishna Rao vs. Bangalore Race Club, 40 Comp. Case 674 (Mysore). A. Sivasailam vs. Registrar of Companies.

Companies Act_practical problems_2

A company is offering one of its flats on sale to one of its directors on the condition that 50% of the price to be paid in cash and the rest in equated instalments. Comment on the situation, whether this could be treated as a loan under Section 295 of the Companies Act, 1956.

(1)This transaction does not per se amount to a loan so as to violate Section 295 of Companies Act, 1956. The burden of proving otherwise lies with the prosecution. (M.G. Electronics Components Ltd v. Asst. Registrar of Companies).

(2) The deposit of the cost of purchase of property cannot be regarded as a loan or advance to the M.D. or book debt attracting the provisions of section 295 or section 296 of the Companies Act. It is no concern of the M.D. on what terms the company secures premises for residential accommodation for him.

(3) In a petition in Dr. Fredie Ardeshir Mehta v. Union of India seeking quashing of a prosecution launched under Section 295, the Bombay High Court came to the conclusion that a company selling one of its flat to one of its directors on receiving half price in cash and agreeing to accept the balance in instalments does not give a loan to the director. It is accredit sale. It cannot continued be described even as an indirect loan. In view of this decision, the transaction in question does not amount to a loan to a director requiring approval of the Central Government.

Companies Act_practical problems_1

A company has 11 directors on the Board consisting of the following:
Mr. Active, Mr. Archive as nominees from two Public Financial Institutions.
Mr. First, Mr. Second, Mr. Third appointed at the 2nd AGM.
Mr. Fourth, Mr. Fifth appointed at the 3rd AGM.
Mr. Addition was appointed as additional director subsequent to 3rd AGM.
Mr. Casual was appointed as director in place of Mr. Soul who died and as earlier appointed during the 3rd AGM.
Mr. Excellent was appointed as Managing Director for 5 years w.e.f. 2nd AGM.
Mr. One more was appointed as additional Director soon after Mr. Addition was appointed as Additional Director.
List out in order, who shall be vacating the office at the 4th AGM of the company.

Section 255 of the Companies Act, 1956, provides that unless the Articles provide for retirement of all the directors at every general meeting, not less than two-thirds of the total number of directors of a public company, or of a private company which is a subsidiary of a public company, shall retire by rotation. In terms of section 256 of the Act, one-third of the directors liable to retire by rotation shall retire at the Annual General Meeting of the Company. If the number of directors liable to retire by rotation is not three or a multiple of three, then the number of nearest to one-third shall retire from the office of director.
In order to determine the directors who shall retire by rotation at every general meeting, it is provided that the persons who have been longest in office since their last appointment shall be liable to retire. As between the persons who became directors on the same day, the directors who shall retire may be determined by agreement among themselves. In the absence of any such agreement the persons liable to retire shall be chosen by lot.
Of the 11 directors mentioned in the question, Mr. Active and Mr. Archive, who are nominees of Public Financial Institutions respectively, are non-rotational directors and are not liable to retire. Mr. Excellent being the Managing Director, is also not liable to retire. The position in regard to the remaining 8 directors is as under:
(i) Mr. Addition & Mr. One More who were appointed as Additional Directors in subsequent to 3rd Annual General Meeting respectively, shall vacate office on the date of 4th Annual General Meeting.
(ii) Mr. Casual was appointed in place of Mr. Soul who died and will, therefore, hold office till the date. Soul would have held office.
(iii) Of the 6 rotational directors, [viz., Mr. First, Mr. Second, Mr. Third, Mr. Fourth, Mr. Fifth and Mr. Casual, 2 directors who constitute one-third, and who have been longest in office are liable to vacate office. Accordingly, two amongst Mr. First, second and third who were appointed in 1st AGM and have been longest in office, shall vacate office. Amongst themselves, either they can decide by mutual consent or by draw of lots.