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(a) Both (I) and (II) above (b) Both (I) and (III) above
(c) Both (II) and (III) above (d) (I), (II) and (III) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
16. What is the minimum age limit prescribed under the Companies Act, for a person to become
managing director of a company?
(a) Attaining the age of thirty five years (b) Attaining the age of twenty years
(c) Completing the age of eighteen years (d) Completing the age of twenty five years
(e) Attaining the age of twenty-one years.
(1 mark)
< Answer >
17. Which of the following matters requires prior approval of the Central Government?
(a) Change of name of the company under section 21 of the Companies Act
(b) Alteration of articles of association for converting private company into a public company
(c) Appointing a relative of a director for a salary of Rs.10,000 per month
(d) Change of registered office of the company from one state to another state
(e) Making any loan/giving any guarantee/providing any security by a company to its directors.
(1 mark)
< Answer >
18. Which of the following matters is not treated as ordinary business matter?
(a) Adoption of accounts
(b) Appointment or reappointment of directors
(c) Alteration of articles of association
(d) Declaration of dividend
(e) Appointment of auditors and fixation of their remuneration.
(1 mark)
< Answer >
19. Under section 171 of the Companies Act, the notice of the general meeting must be sent not less
than twenty one clear days before the meeting. In this context, the word clear days means
(a) Inclusive of the date of service of the notice
(b) Exclusive of the date of meeting
(c) Inclusive of the date of service of notice and the date of meeting
(d) Exclusive of public holidays
(e) Exclusive of the date of service of notice and the date of meeting.
(1 mark)
< Answer >
20. The Doctrine of Election lays down the principle that
(a) The representatives of the people should be elected
(b) A person has the liberty to do whatever he wants
(c) A man taking a benefit under an instrument must also bear the burden
(d) Between alternative legal remedies a person may choose that which is most beneficial to him
(e) A property cannot be transferred where a suit or proceeding is pending in any Court.
(1 mark)
< Answer >
21. Instruments should be stamped under the Indian Stamp Act
I. After execution II. One month before execution
III. Before execution IV At the time of execution
V. At any time before it is produced as evidence before the competent Court
(a) Both (I) and (II) above (b) Both (I) and (III) above
(c) Both (II) and (III) above (d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
36. How much amount shall be transferred to capital redemption reserve account when a company
purchases its own shares out of free reserves?
(a) A sum equal to the nominal value of the shares so purchased
(b) A sum equal to the market value of the shares so purchased
(c) A sum equal to the book value of the shares so purchased
(d) A sum equal to the intrinsic value of the shares so purchased
(e) A sum equal to the market value of shares or book value of shares which ever is higher.
(1 mark)
< Answer >
37. Under which of the following modes a person becomes member of a company?
I. By subscribing his name to the memorandum of association
II. By an agreement with the company in writing
III. By entering his name as beneficial owner in the records of depository
(a) Only (III) above (b) Both (I) and (III) above
(c) Both (I) and (II) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
< Answer >
38. Which of the following matters do not require approval of the Central Government?
(a) Payment of interest out of capital
(b) Increase in numbers of directors beyond twelve
(c) Removal of auditor
(d) Appointment of cost auditor
(e) Borrowing money in excess of paid-up capital and free reserves.
(1 mark)
< Answer >
39. Which of the following matters requires passing of special resolution?
(a) To authorize buy-back of securities
(b) To appoint managing director /manager /whole time director
(c) To remove director before expiry of his term of office and appoint another in the place of
removing director
(d) To increase or reduce the number of directors of a company within the limits fixed by its
articles of association
(e) To contribute to charitable and other funds not directly relating to the business of the company
or employees of the company exceeding Rs.50,000 or 5 percent of company’s average net
profits during preceding three financial years immediately preceding, which ever is greater.
(1 mark)
< Answer >
40. As per section 591 of the Companies Act, a foreign company means
(a) A company incorporated outside India and having place of business in India
(b) A company incorporated in India and having place of business outside India
(c) A company incorporated outside India and having place of business outside India
(d) A company incorporated in India and having place of business in India
(e) A company incorporated in India but not commenced its business.
(1 mark)
< Answer >
41. The Companies (Acceptance of Deposits) Rules, 1975 are applicable to
(a) Non –Banking Finance Companies
(b) Non-Banking Non –Finance Companies
(c) Finance Companies
(d) Banking Companies
(e) Co-operative societies.
(1 mark)
< Answer >
42. Debentures cannot be issued at a discount if they are
(a) Non-cumulative (b) Redeemable (c) Convertible (d) Unsecured (e)
Cumulative.
(1 mark)
< Answer >
43. Unless the articles provide higher number, the quorum for the general meeting of a public company
is
(a) One third of the members personally present
(b) One fifth of the members personally present
(c) Seven members personally present
(d) Five members personally present
(e) Two members personally present.
(1 mark)
< Answer >
44. Which of the following statements is true?
(a) A share warrant can be issued by public companies as well as private companies
(b) A share warrant can be issued in respect of partly paid up shares
(c) A share warrant shall be transferred by registration of transfer deed
(d) A share warrant holder’s name is removed from the register of members
(e) Even though articles of association prohibit, share warrants can be issued.
(1 mark)
< Answer >
45. Which of the following is not one of the powers of Arbitrators?
(a) Power to correct the clerical mistakes or errors in award
(b) Power to make the award conditional
(c) Power to extend time for making award
(d) Power to administer to the parties necessary interrogatories
(e) Power to amend the evidence produced before it.
(1 mark)
< Answer >
46. Where one or more companies are merged together it is known as
(a) Arrangement (b) Compromise (c) Reorganization
(d) Reconstruction (e) Amalgamation.
(1 mark)
< Answer >
47. Which of the following directors can be appointed by passing circular resolution?
I. Appointment of director in casual vacancy
II. Appointment of director as an additional director
III. Appointment of director as an alternate director
Reason : A guarantee given for an existing debt or obligation is called a ‘Retrospective guarantee’
2. Answer : (b) < TOP >
Reason : A cheque can be made payable on ‘bearer on demand’ but all others i.e. a promissory note, bill of
exchange, or a hundi cannot be made payable to bearer on demand by virtue of section 31 of the
Reserve Bank of India Act,1934.
3. Answer : (d) < TOP >
Reason : Railway receipts are recognized as negotiable instruments by custom or usage but money orders, postal
orders, debenture certificates dock warrants are not recognized as negotiable instruments though these
documents are transferable by delivery or endorsement and delivery. They cannot give a better title to
the transferee.
4. Answer : (e) < TOP >
Reason : To check whether the transactions of the company which are represented merely by book entries are not
prejudicial to the interest of the company is the duty of the auditor and not the right of the auditor but
all others are rights of an auditor.
5. Answer : (c) < TOP >
Reason : Under section 619(2) of the Companies Act, the auditors of the Government Companies are appointed
by the Comptroller and Auditor General of India. But not by the shareholders in general meeting.
6. Answer : (c) < TOP >
Reason : Every public company having paid up capital of not less than five crore rupees shall constitute an audit
committee under section 292A of the Companies Act.
7. Answer : (b) < TOP >
Reason : A promised to sell his to B for Rs.50,000 if he would like to sell it after having a new car, is called a’
Contingent contract’.
8. Answer: (d) < TOP >
Reason: A director appointed by the Central Government cannot be removed by the members u/s 284 of the
Companies Act.
9. Answer : (b) < TOP >
Reason : The particulars of modification of a charge must be filed with the Registrar of Companies
within thirty days of such modification.
10. Answer : (d) < TOP >
Reason : The office of a director shall become vacant when he acts in contravention of section 299 i.e. he acts in
contravention of disclosure of interest in a contract or arrangement in which he is interested and in the case
of all other situations he is not required to vacate his office u/s 283 of the companies Act, 1951.
11. Answer : (e) < TOP >
Reason : In fact, where the maturity period of debentures exceed 18 months the debentures needs to be secured
by way of charge on the assets of the company. But in the question it is given as if creation of charge is
not required which is a false statement.
12. Answer : (a) < TOP >
Reason : When default is made in filing its annual return by a company, such company is not permitted to engage
itself in buy-back of its securities.
13. Answer : (c) < TOP >
Reason : Offences of directors shall result into imprisonment are contravention to comply sec. 293A i.e.
contribution to political parties in violation of the provisions and also failure to distribute dividends
within 30 days from the date of its declaration under section 207 of the Act.
14. Answer: (d) < TOP >
Reason: The false statement is consideration for a contract may be illusory in fact consideration to a contract
shall not be illusory but it should be real.
15. Answer : (d) < TOP >
Reason : Under the following circumstances the Central Government can order for special audit:-
I. When the affairs of any company are not being managed in accordance with sound business
principles or prudent commercial practices
II. When the company is being managed in a manner likely to cause serious injury or damage to the
interest of the trade, industry or business to which it pertains
III. Where the financial position of the company is such as to endanger to its solvency.
16. Answer : (d) < TOP >
Reason : The minimum age limit prescribed under the Companies Act, for a person to become managing director
of a company is Completing the age of twenty five years.
17. Answer : (e) < TOP >
Reason : Making any loans /giving any guarantee/ providing any security to the directors of the company
requires prior approval of the Central Government. but all others do not require prior approval of the
Central Government.
18. Answer : (c) < TOP >
Reason : A general meeting requires twenty-one clear days’ notice in writing. The word “Clear days” means
exclusive of the date of service of the notice and the date of the meeting.
20. Answer : (c) < TOP >
Reason : The Doctrine of Election lays down the principle that a man taking a benefit under an instrument must
also bear the burden.
< TOP >
21. Answer : (c)
Reason : Instruments should be stamped under the Indian Stamp Act before or at the time of execution under
Section 17 of the Indian Stamp Act, 1899.
< TOP >
22. Answer : (c)
Reason : Under the Depositories Act, 1996, when the share certificates of an investor are dematerialized his or
her name is entered in the records of the depository as a beneficial owner of such shares.
23. Answer : (d) < TOP >
Reason : There is no Stock Exchange in Nagpur. The rest are recognized Stock Exchanges.
24. Answer : (a) < TOP >
Reason : By an insertion in section 2(14A) of the Companies Act, with effect from 13-12-2000,
dividend includes any interim dividend. So all the provisions, what ever are applicable to final
dividend are also equally applicable to interim dividend. Under section 207 of the Companies Act, 1956
where a dividend has been declared by the company but has not been paid or warrant in respect thereof
has not been posted, within thirty days, from the date of declaration, to any shareholder entitled to the
payment of the dividend, all the directors who are knowingly party to the default shall be guilty for the
violation. Hence interim dividend must be paid with in thirty days from the date of passing such
resolution in the Board meeting.
25. Answer : (b) < TOP >
Reason : The registrar must refuse to register the prospectus when the expert is connected person to the company.
Section 60 of the Companies Act requires that before a company publishes a prospectus, inviting offers
from the public to subscribe to its shares, a copy thereof duly signed by all the directors named therein
should be delivered to the Registrar for registration. Sub-section (3) of Section 60, however, provides
that the Registrar shall refuse registration of a prospectus in the following circumstances:
When the prospectus is not dated.
When it does not set out the matter or reports as required under Section 56.
When it contains statements of reports of experts-engaged or interested in the formation of the company
(Section 57).
When it includes statement proposed to be made by an expert without a statement that he has given and
has not withdrawn his consent to the issue of prospectus.
When it does not contain consent in writing of every person named therein as director.
When the prospectus is not accompanied by the consent in writing of the auditor, attorney, solicitor,
lead manager, bankers, manager to the issue, broker, underwriters named in the prospectus acting in that
capacity.
Hence in the present question, the option (c) is that the expert is interested in the formation of the
company. Hence in such case, the Registrar of Companies shall refuse to register the Prospectus.
27. Answer : (b) < TOP >
Reason : A company may make its own provisions in the Articles of Association in regard to the attendance and
voting by joint shareholders provided that such provisions are not restrictive of any rights given to the
shareholders under the Companies Act or otherwise repugnant to any provision of the Act. Any joint
holder present at a meeting is entitled to exercise voting power and will be counted for the purpose of
the quorum. It may, however, be noted that only one of the several joint holders will be entitled to
exercise voting power, likewise for the purposes of the quorum, joint shareholders will be collectively
regarded as one shareholder.
28. Answer : (e) < TOP >
Reason : An agent, who in consideration for an extra-commission, guarantees his principal that the persons with
whom he enters into a contract on behalf of the principal, shall perform their obligations is called a
Del-credere agent
29. Answer : (c) < TOP >
Reason : In case of breach of a warranty in a contract of sale, the buyer can reject the goods
30. Answer : (b) < TOP >
Reason : An extraordinary general meeting may be called by members holding at least 10% of the paid-up share
capital that carries voting rights.
31. Answer : (a) < TOP >
Reason : Matter which do not require passing of a special resolution is alteration of authorized
capital.
32. Answer : (b) < TOP >
Reason : The office of a director to fill casual vacancy is valid till the date upto which the director in whose place
he is appointed would have held office. Hence option (c) is correct.
35. Answer : (a) < TOP >
Reason : Special notice under section 190 is required to be issued for removing a director under section 284 and
appointing a person as an auditor other than the retiring auditor under section 225 of the Companies
Act.
36. Answer : (a) < TOP >
Reason : The amounts shall be transferred to capital redemption reserve when a company purchases its own
shares out of free reserves would be a sum equal to the nominal value of the shares so purchased.
37. Answer : (e) < TOP >
Reason : Borrowing money in excess of paid – up capital and free reserves do not require approval of the central
government only approval of member by special resolution is required
The following matters require approval of the Central Government
a. Payment of interest out of capital
c. Increase in numbers of directors beyond twelve
d. Removal of auditor
e. Appointment of cost auditor
Option (e) is correct where as all other matters given in options (a) to (d) require approval of Central
Government.
39. Answer : (a) < TOP >
Reason : To authorize buy-back of securities require passing of special resolution. Whereas all others matters
require only passing of ordinary resolution.
40. Answer : (a) < TOP >
Reason : As per section 591 of the Companies Act, a foreign company means ‘‘a company incorporated out side
India and having place of business in India’’.
41. Answer : (b) < TOP >
Reason : The Companies (Acceptance of Deposits) Rules 1975 are applicable to Non-banking Non –Finance
Companies.
42. Answer : (c) < TOP >
Reason : Unless the articles otherwise provide, the quorum for the general meeting of a public company is five
members personally present.
44. Answer : (d) < TOP >
Reason : As per section 115 of the Companies Act, A share warrants holder’s name is removed from the register
of members is true statement where as all other statements are false.
45. Answer : (e) < TOP >
Reason : Amending the evidence is not the power of the arbitrators but all other options given in the question
like
(a) Power to correct the clerical mistakes or errors in award.
(b) Power to make the award conditional
(c) Power to extend time for making award.
(d) Power to administer to the parties necessary interrogatories.
(e) Power to amend the evidence produced before it.
Are the powers of the arbitrators.
46. Answer : (e) < TOP >
Reason : Where one or more companies are merged together it is known as Amalgamation. The term compromise
indicates the existence of a dispute between two parties, which needs to be settled amicably. The dispute
usually relates to the rights of the parties. The term reorganization is not the correct answer as required
in the definition. Section 390(B) of the Companies Act, 1956 defines the term arrangement to include
reorganization of the share capital of a company by consolidation of shares of different classes or by the
division of shares into shares of different classes or by both of these methods. The reconstruction is said
to have taken place when an undertaking is being carried on by a company and is in substance
transferred, not to an outsider, but to another company consisting substantially of the same shareholders
with a view to its being continued by the transferee company.
47. Answer : (d) < TOP >
Reason : Appointment of director as additional director and appointment of director as alternate director can be
made by passing circular resolution.
48. Answer : (d) < TOP >
Reason : Prior approval of Regional Director is compulsory not the subsequent approval of the Central
Government hence the contract is invalid in law and the director concerned will cease to hold office
from the date of contract entered by the company.
49. Answer : (d) < TOP >
Reason : No consent is required to be filed for re-appointment of a director under section 264 of the Companies
Act.
50. Answer : (e) < TOP >
Reason : Section 224A of the Companies Act, 1956 requires a company to appoint an auditor by passing special
resolution where 25% or more of the subscribed capital of the company is held by public financial
institution, government companies’ etc. or a combination of them. However, said section does not
specify the date on which 25% of the subscribed share capital must be held by the specified
bodies/institutions i.e. whether the date of notice of meeting or date of passing the special resolution
shall be effective date. The Department of Company Affairs has clarified that the material date is the
date of annual general meeting at which the special resolution is required to be passed.
In the instant case the holding of SBI has been increased but not beyond the specified limit of 25% on
the date of annual general meeting of Price Worthy Ltd. Therefore the contention of the Board of
directors is right.
In the Instant case, the aggregate holding of Government and Public Financial Institutions put together
coming to (LIC holds 9%; SBI holds 2%; UTI holds 2%; Central Government holds 5%; and Public
Financial Institution holds 1.75% including the additional investment of SBI 5,000 preference share of
Rs.100/- each) 24.75% of Rs.1 crore which is not beyond the limit prescribed , hence passing of
ordinary resolution is sufficient and the contention of Registrar of Companies is not valid.
51. Answer : (b) < TOP >
Reason : According to Section 372A(1), no company shall directly or indirectly make any loan to or give
guarantee or provide security or make investment in other body corporate exceeding 60% of its paid up
share capital and free reserves, or one hundred percent of its free reserves, whichever is more, except by
a special resolution passed at a general meeting. However, section 372A shall not apply –
(i) to any investment made in shares allotted in pursuance of clause (a) of sub-section (1)
of section 81;
(ii) to any loan made by a holding company to its wholly owned subsidiary;
(iii) to any guarantee given or any security provided by a holding company in respect of loan
made to its wholly owned subsidiary;
In the given case, Lucky Ltd. made the following investments:
(i) Investment of Rs. 1,95,00,000 (i.e., 50,000 equity shares of Rs.390 per share) in PQR Ltd.
which are allotted in pursuance of section 81 of the Companies Act;
(ii) A loan of Rs.1,00,00,000 sanctioned to Albert Pharma Ltd which is a wholly owned
subsidiary of Lucky Ltd.;
(iii) Security provided to Kutty Ltd. which is a wholly owned subsidiary of Lucky Ltd. for
purchase of 50,000 Units of US-64 at Rs.14.50 approximately Rs. 7,25,000;
(iv) Investment of Rs.32,50,000 in a firm in which all the directors of Lucky Ltd. are interested.
Thus, as per section 372A all the above investments are exempted and the company is eligible to make
loans/investments/give guarantee/provide security to the extent of Rs.16,80,00,000 (i.e., one hundred percent
of free reserves).
52. Answer : (c) < TOP >
Reason : As per section 259 of the Companies Act, 1956 in case of a public company or a private company which
is a subsidiary of a public company, any increase in the number of its directors shall not have any effect
unless approved by the Central Government.
In the given case, Kun-Kun Pvt. Ltd. can appoint nominee of IFCI (since IFCI is established under the
authority of IFCI Act which is a Statutory Authority) as its director even if there is no provisions in the
Articles of Association but, it has to comply with the provisions of section 259 of the Companies Act,
1956 according to which the company has to obtain the permission of the Central Government for
increase in the number of its directors beyond twelve and the provisions which are applicable to a
public company are also equally applicable to its subsidiary.
53. Answer : (a) < TOP >
Reason : Disclosure of interest in contract or arrangement — A director must disclose his interest or concern
in any contract or arrangement or any proposed contract or arrangement by or on behalf of the
company. Such interest should be disclosed to Board of Directors. [section 299(1)]. If the contract or
arrangement is between companies, i.e., the company in which the person is director and the other
company, the director is deemed to be interested in the contract only if he singly, or along with other
directors, hold 2% or more shares in other company. [section 299(6)]. While calculating the 2% shares
in other company, only investment of directors is considered. Investment of his relatives is not to be
considered. [This seems to be a loophole]. Hence, director ‘A’ in the instant case did not violate any of
the provisions of the Companies Act and the contract is valid.
54. Answer : (d) < TOP >
Reason : As per section 42 of the Companies Act, 1956 a body corporate cannot be a member of a company
which is its holding company and any allotment or transfer of shares in a company to its subsidiary
shall be void.
However nothing in this section shall apply:-
1. Where a subsidiary company hold the shares in the capacity of a legal representative of a
deceased member of the holding company.
2. Where the subsidiary company hold the shares in the capacity of trustee, unless the holding
company or a subsidiary thereof is beneficially interested under the trust.
Hence in the given case, ABC Limited cannot be a member of its holding company but it can hold
shares as trustee under the trust unless the trust in which the company and its holding company are
benefically interested.
55. Answer : (e) < TOP >
Reason : Under section 293 A of the Companies Act, a Government company and a company which is in
existence for less than 5 years cannot contribute to the political party.
56. Answer : (b) < TOP >
Reason : After the commencement of this Act, no person shall, save as otherwise provided in section 276, hold
office at the same time as director in more than 92[fifteen] companies.
Exclusion of certain directorships for the purposes of sections 275, 276 and 277.
278. (1) In calculating, for the purposes of sections 275, 276, and 277, the number of companies of
which a person may be a director, the following companies shall be excluded, namely:-
(a) a private company which is neither a subsidiary nor a holding company of a public company;
(b) an unlimited company;
(c) an association not carrying on business for profit or which prohibits the payment of a dividend;
(d) a company in which such person is only an alternate director, that is to say, a director who is only
qualified to act as such during the absence or incapacity of some other director.
Hence, Ramachandra can be appointed as a director in Wise Limited, since he is within the limits
prescribed under section 275 of the Companies Act.
57. Answer : (c) < TOP >
Reason: For certain contracts, time is the essence, the performance of the contract is subject to fulfillment within
a specified time, if the time is elapsed the contract becomes void. In the present case also time is
essence for the performance of the contract i.e. crackers must be dispatched before the Diwali since the
crackers are send after the Diwali, what can be done by the trader with them, thereby he is not under
obligation to accept the contract when it is attempted to perform. That will not amount to breach of
contract. The other party does not fulfill the movement subject to condition, automatically the
agreement becomes void, and the advance amount what ever is paid will be refundable.
58. Answer : (c) < TOP >
Reason : Section 292A of the Companies Act provides that every Audit Committee set up shall act in accordance
with the terms of reference to be specified in writing by the Board of directors. It follows that the
quorum for Audit Committee Meetings should be fixed by the Board while constituting the Committee.
If the quorum is not prescribed by the Board, all the members of the Audit Committee should attend the
meeting. Therefore, all the 4 members of the Board of Slow-Down Ltd. should be present at the meeting
of Audit Committee to validly transact the business and only two members present at the meeting
cannot validate any business.
59. Answer : (a) < TOP >
Reason : The resignation of a director may even be oral as has been held in the case of Latchford Premier
Cinema Ltd. v. Ennion and Paterson 1931 2 Ch. 409 that where even the resignation tendered orally at
a general meeting and accepted at the meeting was held to be effective. The director who has tendered
the resignation cannot withdraw it. However, he may do so with the consent of the general meeting. In
the present case, the director who had orally tendered his resignation at the annual general meeting
which was accepted cannot continue in his office.
60. Answer : (d) < TOP >
Reason : Ramu is not entitled to the salary for the period he has been employed because, by leaving the service,
he has disabled himself from performing his promise in its entirety.
61. Answer : (d) < TOP >
Reason : The hospital cannot recover damages because an agreement in restraint of trade is void, after the
termination of his service.
62. Answer : (c) < TOP >
Reason : Raghavareddy cannot demand for specific performance of contract Since the non-performance is due to
operation of law and the contract is impossible to perform, which is caused by the circumstances
beyond the control of Murugan.
63. Answer : (c) < TOP >
Reason : A certificate of incorporation issued by the Registrar of Companies is a conclusive evidence. The
existence of the company cannot be questioned subsequently.
64. Answer : (d) < TOP >
Reason : As Ajay and Vijay are discharged, both Vinay and Vinod are liable to pay Rs.2,00,000. Options in (a),
(b), (c) and (e) are not correct.
65. Answer : (d) < TOP >
Reason : Under section 169 of Companies Act, the members, who are holding 1/10 of the capital having voting
rights, may requisition for extra ordinary general meeting. Such meeting is also called requisition
meeting. In case the members send requisition, the requisitionist is not required to send the explanatory
statement. The Board of directors upon receiving the requisition have to sent the notice of the extra
ordinary general meeting along with explanatory statement under section 173(2) to all the members of
the company. Hence option (d) is correct but not others.
66. Answer : (e) < TOP >
Reason : A private company can convert itself into a public company by filing a certified copy of the special
resolution, and amended memorandum and articles of association with the Registrar of Companies. But
the approval of the Central Government is not required for this purpose.
In the given case ABC (P) Ltd. has fulfilled all the formalities required for conversion and it need not
obtain any permission. Passing of special resolution and filing of altered memorandum and articles of
association is sufficient. Hence the notice issued by the Registrar of Companies is not valid as the
company did not violate any law.
67. Answer : (a) < TOP >
Reason : Under section 283 of the companies Act, 1956, a director automatically vacates his/her office, if he /she
absents himself/herself from three consecutive meetings of the Board of directors or from all meetings
of the Board for a continous period of three months, which ever is higher, with out obtaining the leave
of absence from the Board.
Accordingly Anita was absent only for two board meetings in a period of three months from 1st July to
3oth September. The provision demands that absence of three consecutive meetings or that number of
meetings in a period of three months, which ever is higher. During that period only two meetings were
conducted but not three or more (to take the higher). Hence she has not violated the provision and
thereby she continues to hold office of directorship of XYZ Limited as director.
Under section 286 of the Companies Act, the notice of the Board meeting must be sent to all the
directors whose addresses are in India. But the company under the impression that Anita is ceased to be
director of the company did not sent the notice of the Board meeting. If no notice is sent to any director
can allege on that, and the proceedings of such meetings becomes invalid and resolutions at such
meetings also become invalid (in case any director to whom notice is not sent alleges).
Hence the contention of Anita is valid that the company’s calling of the Board of directors meeting and
decisions taken thereat are invalid and inoperative on the ground of omission on the part of the
company to send notice to all Board of directors.
68. Answer : (d) < TOP >
Reason : According to section 314(1B) of the Companies Act, no relative of a director of a Company shall hold
office or place of profit in the company carrying a total monthly remuneration of not less than such sum
as may be prescribed [at present a sum which is not less than Rupees Twenty thousand] except with the
prior consent of the company by a special resolution and the approval of the Central Government.
Therefore in the present case as the monthly remuneration of Kalid, a relative of director as General
Manager (Marketing) exceeds Rs.20,000 the limit prescribed under section 314(1B), Modern Ltd. will
have to get the prior consent of the company by a special resolution passed at the general meeting and also
the approval of the Central Government before appointing Khalid as a General Manager.
69. Answer : (a) < TOP >
Reason : Even though the total amount of the bill has been negotiated. B and C are endorsees for only a part of
the amount and hence the endorsement is invalid.
According to sec.56 of the Negotiable Instrument Act, no writing on a negotiable instrument is valid for
the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be
due on the instrument; but where such amount has been partly paid, a note to that effect may be
endorsed on the instrument, which may then be negotiated for the balance.
Reason : Sunil will get a valid title as he bought the refrigerator in good faith.
71. Answer : (a) < TOP >
Reason : Rahim can recover the entire amount from Rahul as per section 43 of the Indian Contract Act, when two
or more persons makes a joint promise and there is no express agreement to the contrary, the promisee
may compel any promisor to perform the whole promise.
72. Answer : (d) < TOP >
Reason : Under section 210 of the Companies Act 1956 only the Audited accounts of the Company must be
placed before the members in annual general meeting of the company with in six months from the date
of the closure of the accounts. The un-audited accounts (i.e. the accounts not verified by the auditors of
the company) shall not be placed before the members of the company.
73. Answer: (e) < TOP >
Reason : According to section 262, if the office of a director appointed in a general meeting is vacated before the
expiry of his term, either by reason of death, resignation, disqualification or for any other reason except
retirement by rotation, then subject to the articles of association, the Board of directors may fill up the
vacancy at a meeting of the Board. The director who has been so appointed shall hold office only till the
date upto, which the director in whose place he is appointed would have held the office.
In the present case, Mr. X is appointed in the general meeting but he died in a car accident in his place Y
is appointed by the Board of directors as casual director. But Y resigned from the company the question
is whether this will be treated as casual vacancy, which is not filled by the members in general meeting?
The answer is no only. Theoretically this vacancy cannot be filled by the Board of directors in their
meeting only the vacancy must be filled in general meeting. But Department of Company Law Affairs
clarified that in the interest of smooth working of the company, Department will have no objection to
Board of directors filling that casual vacancy as many times as may be necessary Hence `Z’ can be
appointed as director to fill up the casual vacancy on account of `Y’s resignation. Such vacancy shall be
filled at Board meeting and no extra ordinary general meeting is required. Since `Z’ has been appointed
in place of `Y’, he shall hold office up to the date on which `X’ would have held his office.
74. Answer : (b) < TOP >
Reason : The Board must authenticate the accounts before the auditor verifies the accounts.
75. Answer: (b) < TOP >
Reason: Mr. A cannot sue the university because for a valid contract two ingredients must be present i.e. offer
and acceptance. Mr. A cannot argue that the university has accepted by passing resolution, unless it is
communicated to Mr. A. Communication of acceptance is missing in the given case, Hence such
contract is invalid and there by, not binding on the university. In the famous case of Powell Vs Lee
1908,which has the similar facts, the court held that it was not a binding contract because there was no
acceptance by any authorized representative.
Hence option (b) is correct.
76. Answer : (a) < TOP >
Reason : C can recover the amount from A. A is liable to pay, because the cancellation was not apparent on the
face of the instrument.
77. Answer : (b) < TOP >
Reason : KBC Ltd, having its registered office in Mumbai, wants to shift its registered office from Mumbai to
Hyderabad as the company’s works and other contracts are at Hyderabad. The following actions are to
be taken for implementation of the shifting :
The company has to pass a special resolution and obtain Central Government’ s permission.
78. Answer : (d) < TOP >
Reason : As per section 292 of the companies Act, the Board of directors of a company are entrusted with the
following powers:
I. Power to issue debentures
II. Power to invest funds of the company subject to section 293 and section 372A of the
Companies Act
III. Power to make loans subject to section 295 and section 372A of the Companies Act
IV. Power to make calls on share holders in respect of money unpaid on their shares
V. Power to borrow money otherwise than on debentures.
However the power to issue debentures and power to make calls on shareholders in respect of money unpaid
on their shares can be exercised by the directors only at their meeting and remaining powers can be delegated
to the committee of directors.
Hence in the given case, powers given in options (II), (III) and (V) can be exercised by the Committee of
directors and powers given in options(I) and (IV) can be exercised by the directors only at their meeting.
Hence option (d) is correct.
79. Answer : (b) < TOP >
Reason : It appears that both the charges are of the same type. A registered charge takes priority over an
unregistered one. Registered charges take priority from the date of creation though constructive notice
arises from the date of registration. Consequently in the instant case between 09.10.2004 to 10.10.2004,
the charge in favour of Sahara Bank Ltd. will get priority. But on and from 15.10.2004, the one created
in favour of Lika Bank Ltd. will not get priority.
80. Answer : (a) < TOP >
Reason : Under Section 8 of the Sale of Goods Act, 1930, where there is an agreement to sell specific goods and
subsequently goods without any fault on the part of the seller or buyer perished or become so damaged
as no longer to answer to their description in the agreement before the risk passes to the buyer, the
agreement is there by avoided.
In the present case, the agreement to sell has become void due to death of the horse without any fault of
either party. Hence, the seller can not recover the price from buyer. Moreover, in an agreement to sell,
the risk of loss always rests in the hands of seller inspite of the goods being in the hands of buyer.
81. Answer : (c) < TOP >
Reason : In the Board meetings other than agenda items can be transacted with the permission of chairman
hence, the appointment is valid.
82. Answer : (c) < TOP >
Reason : Under section 309(4) of the Companies Act, 1956 a director who is neither in the whole time
employment of the company nor managing director may be paid remuneration either by way of a
monthly, quarterly or annual payment with the approval of the Central Government or by way of
commission if the company by special resolution authorizes such payment, provided that the
remuneration paid to such director, or where there is more than one such director, to all of them
together, shall not exceed one percent of the net profits of the company ,if the company has a
managing or whole time director. If the company has no such managing or whole time director three
percent of the net profits of the company.
84. Answer : (d) < TOP >
Reason : A private Company can commence its business immediately upon incorporation. But, a public company
cannot commence its business immediately upon incorporation. It has to obtain one more certificate i.e.
certificate of commencement of business.
A contract entered by a public company after obtaining certificate of incorporation but before obtaining
certificate of commencement of business is called a ‘provisional contract’ in case of a private company
there is no question of obtaining certificate of commencement of business (C.C.B.) Hence no
provisional contracts.
85. Answer : (e) < TOP >
Reason : In case of a special crossing (i.e. from one bank to another) the crossing is permitted even without two
traverse lines. But in case of general crossing or any other crossing there should two transverse lines.
The instances cited in III, IV and V alone are crossing. The remaining instances do not amount to
crossing. Hence option (e) alone is correct.
86. Answer : (b) < TOP >
Reason : Compromise or arrangement shall be sanctioned by the National Company Law Tribunal
87. Answer : (a) < TOP >
Reason: Powers of the CLB on deciding the complaints regarding non-payment of public deposits, refusal to
register transfer of securities, rectification of register of members, oppression and mismanagement etc.,
are transferred to National Company Law Tribunal.
88. Answer: (c) < TOP >
Reason: Stock cannot be issued in fractions is a false statement. All other statements are true statements. Hence
stock can be issued in fractions.
89. Answer : (c) < TOP >
Reason : Payment of remuneration to an advocate depending upon winning of the case is ‘Gambling in
Litigation.
90. Answer : (a) < TOP >
Reason : Dividend is appropriation of profits, it is neither responsibility nor authority of the auditor to comment.
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