Companies Act 2013: Compensation and Appointments

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Questions and Answers

The maximum amount of compensation to which Mr. Shyam is entitled for premature termination of his office shall be -

Rs 1.80 crores

Rs 1.51125 crores

Rs 1.55 crores (correct)

Rs 1.1194 crores

The 'effective capital' of A Ltd. shall be -

Rs 18 crores

Rs 19 crores (correct)

Rs 16 crores

Rs 21 crores

The maximum amount that can be paid to Mr. Tushar as per the provisions of Companies Act, 2013 for F.Y. 2020-21 shall be -

Rs 118 lakhs

Rs 82 lakhs (correct)

Rs 104 lakhs

Rs 80 lakhs

For removal of Mr. Shyam, which type of resolution was required to be passed and what was the last date till which Mr. Tushar should have been appointed, in case he was not appointed on 1.08.2020?

Board Resolution and 30.11.2020 respectively Signup and view all the answers

What happens to Rajeev's position as Director of UPL when he is convicted?

He shall vacate the office of Directorship of UPL and be disqualified from holding an office in any other company. Signup and view all the answers

What is the maximum time limit within which the Registrar is required to return seized books and papers?

180 days Signup and view all the answers

What action can the Central Government initiate on receipt of a report from the Registrar regarding a company's affairs?

Order an investigation by the Inspectors appointed by it Signup and view all the answers

For how many days can the Registrar retain the books and papers if he calls for them again after returning them?

180 days Signup and view all the answers

From the options provided, what is the correct time period for making representations?

Representation needs to be made within 30 days from the date of receipt of notice. Signup and view all the answers

What should be the content of the Auditor's Certificate at the Sanctioning stage for the Scheme of Compromise?

All the documents submitted by HPL to the Tribunal for the purpose of Compromise are true and correct and the Auditors have duly verified them. Signup and view all the answers

Under which option shall the Company be liable for penalty due to non-production of Service Contracts for inspection?

₹ 50,000 penalty for the Company, ₹ 10,000 penalty for each defaulting officer Signup and view all the answers

According to Mahadevan, how should LSL dispose of its investment in SCPL as an undertaking of LSL?

Consent of the company by a Special Resolution Signup and view all the answers

In the case of wrongfully appointed Director Raghuram, what should the Board do regarding the resolutions passed during his tenure?

Valid and stand good Signup and view all the answers

Regarding the financial statements, what is the correct disclosure for LSL for political contributions and expenses?

Disclose all sums totaling ₹ 14,00,000 Signup and view all the answers

When does ABL become a listed company after the merger with KBL?

After certified copy of merger is registered with ROC Signup and view all the answers

How should the valuation of shares and payments to shareholders opting out be handled after the merger, according to the Tribunal's Order?

Specified by Registrar of Companies Signup and view all the answers

What is the nominal value of shares which a Director appointed by small shareholders is required to own?

₹ 10,000 Signup and view all the answers

For a company desiring to include the words 'British India' in its name, what is the minimum Authorized Capital required?

None of the above Signup and view all the answers

Regarding the recovery of excess remuneration drawn by a Director, when can the company waive the recovery?

Within two years from the date the sum becomes refundable Signup and view all the answers

What must be included by the auditor in the Auditor’s Report when an Application for Compromise relates to the Scheme of Corporate Debt Restructuring?

Truthfulness of all documents submitted to the Tribunal Signup and view all the answers

Within what timeframe must the persons to whom the Notice for the Meeting is sent be allowed to vote on the Compromise?

Within 14 days Signup and view all the answers

To raise an objection to the Scheme of Compromise, what must be the value of UBPL as a trade creditor in the books of HPL?

Not less than 10% of the total outstanding debt Signup and view all the answers

From the case scenario, WRPC intended to induct Rajan, a Chartered Accountant, and Sanjay, a Company Secretary, as the Executive Directors. Which of the following options is best suited to such a situation?

WRPC increased the total number of Directors to 16 by passing a Special Resolution in a General Meeting of shareholders to appoint both Rajan and Sanjay. Signup and view all the answers

According to the case scenario, Ullal Pharma Limited (UPL) received a notice from the ROC requesting various documents. Who was exclusively responsible to supervise both 'sales accounts' and 'inter-company transactions'?

Director (Finance) Rajeev Signup and view all the answers

In the case where Vasuki requested to alter the terms of his loan, which option is applicable?

The company can alter the terms in a General Meeting by passing a Special Resolution. Signup and view all the answers

As per the case scenario, Ajay Prakash, the Chairman and Managing Director of CBPL, wants to appoint his son as the Managing Director. Which option is correct?

Pranav Prakash can be appointed as the Managing Director for a term not exceeding 5 years at a time. Signup and view all the answers

Regarding the notices issued to Venkatesh and Lokesh, ex-employees of UPL, which option is correct?

Venkatesh and Lokesh are legally obligated to furnish the required information or explanation as asked by the ROC. Signup and view all the answers

In the given situation where Rajeev, the Director (Finance) of UPL, was convicted, which option applies?

Rajeev must resign from the office of Director in UPL but can continue Directorships in other companies of which he is currently Director. Signup and view all the answers

In the case scenario, when is the Merger Scheme deemed to be effective?

From the 'appointed date' being the completion of 15 days from the date of receipt of the certified copy of the Order of the Tribunal Signup and view all the answers

What procedure did the Board of Directors of ABL seek to understand regarding the merger implementation?

Filing a statement with the Registrar every year Signup and view all the answers

According to the case scenario, what was the correct stance on the liabilities of Neelesh after the merger?

Liability shall continue after the merger Signup and view all the answers

When can the books and papers of KBL be disposed of in the case scenario?

Only after obtaining permission from the Central Government Signup and view all the answers

Were the appointments of Anil, Badal, Chanchal, and Damodar as Directors by passing a single resolution at the AGM valid?

Yes, the appointments were valid as a motion authorizing their appointment was passed beforehand Signup and view all the answers

If all Directors were not rotational, how many Directors would have been required to retire at the AGM held on 20th August, 2020?

Four Directors Signup and view all the answers

If the company's turnover is ₹ 87.00 crores and the paid-up share capital is ₹ 12.00 crores, is it mandatory to appoint two independent Directors?

No, only one independent Director is required Signup and view all the answers

After altering the Articles to increase the total strength of Directors to 20, how many independent Directors were appointed?

Four independent Directors Signup and view all the answers

In the context of commission, which of the following statements is correct?

Without any pre-approval from the Reserve Bank of India upto USD 100,000 or 5% of the amount remitted, whichever is higher, can be transferred as a commission by LSPL to PREL Signup and view all the answers

In the context of the Export Declaration, which one of the following statements is not correct?

Export of goods can be made without furnishing the specified Declaration in case of unaccompanied personal effects of travelers Signup and view all the answers

For promoting business in the Middle East Region, LSPL sponsored a T20 cricket match in Dubai and approached State Bank of India for remittance of USD 250,000. Which statement is correct?

State Bank of India can remit USD 250,000 with the approval from Reserve Bank of India Signup and view all the answers

Javed wants to remit USD 250,000 under the Liberalized Remittance Scheme (LRS) to buy lottery tickets abroad using his business connections. Which statement is correct?

Remittance to buy lottery tickets abroad is a prohibited item under LRS Signup and view all the answers

How many Directors were on the Board of WRPC?

14 Signup and view all the answers

Which of the following options is applicable in the case of alteration of articles of a company?

The articles were altered by passing an ordinary resolution followed by approval sought from the jurisdictional Registrar of Companies. Signup and view all the answers

As of 12th August, 2021, when the AGM of LTSL was held and the total strength of Directors reached 18 due to the appointment of four independent Directors, how many Directors would have retired at this AGM?

Five Directors Signup and view all the answers

From the given options, choose the correct one which indicates the quorum for a Board Meeting held on 17-08-2021?

Four Directors Signup and view all the answers

For the purpose of a meeting of the Audit Committee of SCL, how many members should be present to constitute the quorum?

Only two members of which minimum one should be an independent member. Signup and view all the answers

In the case of Sheetal Chemicals Limited, what remuneration could the company pay to all the Directors for the Financial Year 2020-21 if there is no Managing or Whole-Time Director?

3% of the net profits available for the Financial Year 2020-21. Signup and view all the answers

In the Audit Committee of Sheetal Chemicals Limited, if there are only six members, how many minimum independent members should be present?

Four Signup and view all the answers

According to the case scenario about Global Trade and Securities (India) Limited, choose the minimum number of small shareholders who must have assembled together to appoint Mukund as Director to represent them.

The minimum number of small shareholders must have been not less than one thousand or one-tenth of the total number of such shareholders whichever is higher. Signup and view all the answers

For Global Trade and Securities (India) Limited, as the company is in existence for less than five years, how much amount might it have contributed to a political party?

Any amount as approved by the Directors. Signup and view all the answers

Study Notes

Case Study 1: A Ltd.

Mr. Shyam, the managing director, was removed from A Ltd. with compensation for early termination.
The original tenure of Mr. Shyam was up to 31.12.2022.
The remuneration drawn by Mr. Shyam since the date of his joining the office is:
- FY 2018-19: Rs 55 lakhs
- FY 2019-20: Rs 62 lakhs
- FY 2020-21 (up to 31.05.2020): Rs 13 lakhs
The company's data as on 31.03.2020:
- Paid-up Share Capital: Rs 1000 lakhs
- Share Application Money: Rs 200 lakhs
- General Reserve: Rs 500 lakhs
- Revaluation Reserve: Rs 250 lakhs
- Securities Premium Account: Rs 300 lakhs
- Long-term loan: Rs 400 lakhs
- Funded Interest Term Loan: Rs 100 lakhs
- Working Capital Loan: Rs 200 lakhs
- Mutual Fund Investments: Rs 350 lakhs
- Miscellaneous Expenditure not written off: Rs 50 lakhs
Mr. Tushar was appointed as the new managing director of A Ltd. on 1.08.2020.
The company decided to pay remuneration to Mr. Tushar as per Section 197(4) of the Companies Act, 2013.
Additional perquisites/remuneration for FY 2020-21:
- Dearness Allowance: Rs 7 lakhs
- House Rent Allowance: Rs 5 lakhs
- Contribution to Annuity Fund: Rs 6 lakhs
- Reimbursement of direct taxes: Rs 4 lakhs
- Additional Remuneration per month: Rs 2 lakhs
- Sitting fees payable for a board meeting: Rs 1 lakh

Case Study 2: Senior Ltd.

Senior Ltd. is an Indian company registered under the Companies Act, 2013.
The company has two subsidiaries: Small Ltd. and Junior Ltd.
The company formulated a scheme wherein every employee is entitled to a loan equivalent to 30 times the monthly salary.
Ms. Radha, the Finance Manager, applied for a loan of Rs 50 lakhs to purchase a house.
The management sanctioned the loan of Rs 50 lakhs to Ms. Radha.
Ms. Radha got married to Mr. Raj, the Managing Director, two months after the loan was sanctioned.
The company sold one of its flats to Mr. Raj for Rs 80 lakhs, with Rs 50 lakhs paid in cash and the balance in 30 instalments.
Some members questioned whether the Rs 50 lakhs paid by Mr. Raj was from his own pocket or taken from the company through an indirect route.
The company's balance sheet extracts:
- Paid-up Capital - Equity: Rs 100 crores
- Paid-up Capital - Preference: Rs 50 crores
- Revaluation Reserve: Rs 10 crores
- Securities Premium Reserve: Rs 15 crores
- General Reserve: Rs 5 crores
- Capital Redemption Reserve: Rs 2 crores
- Equity Investment in Small Ltd.: Rs 80 crores
- Equity Investment in Junior Ltd.: Rs 60 crores
- Outstanding Balance in Loan - Raj: Rs 20 lakhs
- Outstanding Balance in Loan - Radha: Rs 30 lakhs
Senior Ltd. wants to give a guarantee to HDFC Bank in favor of Junior Ltd. for a loan of Rs 50 crores.
Senior Ltd. also wants to give a guarantee to SBI for a loan of Rs 50 crores to Small Ltd.

Case Study 3: Little Star Private Limited (LSPL)

LSPL is a fully integrated setup from taking a 3D model as input to the design and manufacturing of tools to the manufacturing of finished products.
The company is also into Engineering Services with headquarters in Mumbai, India.
LSPL has a marketing office with warehouse facility in Poland, fully owned and controlled by it.
On 1st January 2017, LSPL shipped engineering products to LTS, Poland, and to a customer in the UK.
The total value of Exports of LSPL during the calendar year 2017 was USD 12 million.
LSPL entered into a Supply (Export) Agreement with Drakes Group (DG) in the UK for the supply of two machines.
The agreement terms:
- The exact value of each machine can be ascertained only after the export to the UK.
- An advance of GBP 1 million is to be remitted to India by DG to LSPL.
- Interest shall be payable on the advance payment by LSPL to DG up to the date of the bill of lading of the first shipment.
- The first machine is to be supplied within 15 months from the date of receipt of the advance payment.
- The second machine is to be supplied within 27 months.
LSPL also established a marketing office in Dubai, UAE, for conducting normal business activities.
LSPL sponsored a T20 cricket match in Dubai and approached the State Bank of India for remittance of USD 250,000 towards sponsorship fees.
LSPL is holding certain properties in the form of residential flats in UAE ready for sale.
LSPL entered into an Agency Agreement with Prestige Real Estate LLC (PREL) in UAE for the sale of properties.
The agreement terms:
- LSPL grants PREL the exclusive rights to sell all the residential flats in UAE.
- Any and all offers and negotiations in regards to the said properties shall be conducted by PREL.
- PREL shall do everything possible to entertain and vet offers made.
- Any offers considered valid should be reported to the Seller within 2 days, and it shall be at the discretion of LSPL to accept or decline.
- LSPL agreed to remit PREL a flat commission of a certain percentage of the final sale price.### Remittance under LRS
Remittance of more than USD 100,000 for buying lottery tickets abroad is prohibited under LRS.
No other option is applicable as the correct answer is not provided.

WRPC Limited (WRPC)

WRPC is a Mumbai-based company with 35% share capital held by the Central Government, 15% by the Government of Maharashtra, and 10% by the Government of Karnataka.
The company manufactures corrosion-resistant overhead transmission and distribution products.
Internal auditors raised concerns about internal control irregularities.
WRPC defaulted in complying with statutory requirements, leading to a notice from the Registrar of Companies, Mumbai.
The company received Show Cause Notices from Revenue Officials on GST and Income-tax related issues.
The Board of Directors consisted of 14 Directors.

CBPL and PISCO Electronics

CBPL is a Delhi-based company and PISCO Electronics is a Pune-based company, both being major component suppliers to WRPC.
CBPL has a paid-up capital of ₹100 crore and a turnover of ₹315 crore as on 31.03.2019 and ₹350 crore as on 31.03.2020.
PISCO Electronics has a paid-up capital of ₹50 crore and a turnover of ₹275 crore as on 31.03.2019 and ₹305 crore as on 31.03.2020.

Ullal Pharma Limited (UPL)

UPL is an unlisted company with its Registered Office at Baidebettu, District Udupi, Karnataka.
The company is a market leader in semi-synthetic penicillin and has a presence in key therapeutic segments.
UPL has three group companies and has duly filed its Annual Accounts, Annual Returns, and other documents with the jurisdictional Registrar of Companies (ROC).
ROC issued a notice to UPL asking for information and explanations on certain matters, including books of accounts, ledger abstracts of all Inter-Company Accounts, all documents relating to sales, and all Bank Statements and Cash Books.

Rajeev, Director (Finance) of UPL

Rajeev had exclusive responsibilities to supervise sales accounts and inter-company transactions.
He was found to be evasive and willfully disobeying the directions given by the ROC.
Rajeev was convicted and punished with imprisonment for a period of six months and a fine of ₹70,000 under Section 207 (4) (i).

Notice to Venkatesh and Lokesh

Venkatesh, ex-Whole-time Director, and Lokesh, ex-Chief Financial Officer (CFO) of UPL, received separate notices from the ROC.
Both argued that the notice served on them was not valid since they are no longer associated with the company and, while in service, they had acted only in their capacity as officers of the company.### Case Study 1: Lotus Switchgears Limited (LSL)
LSL is a manufacturer, exporter, and supplier of electrical products based in Shivamogga, Karnataka.
The company is facing difficulties and appointed Raghuram as an Executive Director to overcome them.
Raghuram's appointment was invalid due to certain defects and disqualification, but he participated in several Board Meetings and assented to various decisions.
The Board of Directors of LSL decided that Raghuram shall make good the losses, if any, for the period he remained Executive Director, but all the resolutions passed during his period shall be valid and stand good.

Lotus Switchgears Limited (LSL) - Net Worth

Net Worth of LSL is ₹ 100 crore, calculated by adding Paid-up Capital, General Reserves, and Securities Premium Account, and deducting Accumulated Losses and Deferred Revenue Expenditure.
The company's net worth is relevant to determine whether Shruta Components Private Limited (SCPL) is an undertaking of LSL.

Service Contracts

Raman, an investor, was informed that only copies of the written Memorandum setting out the terms and conditions of the service could be provided for inspection, as no written Service Contracts with Arjun, Ramesh, and Ripudaman were available.
The company and every defaulting officer may be liable to a penalty for non-production of Service Contracts for inspection.

Political Contributions

LSL made political contributions and incurred expenses during the financial year 2020-21.
The company disclosed ₹ 11,00,000 as political contributions and ₹ 3,00,000 as 'Advertisement and Business Promotion Expenses' in its financial statements.

Case Study 2: Kumar Beverages Limited (KBL) and Akshay Beverages Limited (ABL)

Kumar Beverages Limited (KBL) is a listed company, and Akshay Beverages Limited (ABL) is an unlisted company.
The two companies have been in negotiation for a merger, with KBL transferring all of its assets and liabilities to ABL.
The merger proposal is subject to various factors, such as elimination of competition, scaling up of operations, economies of large-scale business, and increase in market share.

Merger Procedure

The companies filed a petition with the National Company Law Tribunal (NCLT) for the purpose of sanctioning the Scheme of Merger.
The NCLT ordered the required meeting and gave directions for conducting the meeting.
A certified copy of the Order was filed with the Registrar of Companies for registration.

Effective Date of Merger

The merger scheme shall be effective from the 'appointed date', being the completion of 15 days from the date of receipt of the certified copy of the Order of the NCLT.

Implementation of Merger

The actual implementation of the Scheme of merger is expected to take some time.
The Board of Directors of ABL will discuss the manner of disposing of the books and papers of KBL once the implementation procedure is completed.

Liabilities of Directors

Neelesh, a Director of KBL, committed various offences by contravening different provisions of the Companies Act, 2013.
Neelesh contended that the wrongful acts were committed before the merger, and therefore, he should be relieved from all liabilities, punishments, and penalties for the offences earlier committed.

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Description

This quiz covers provisions of the Companies Act, 2013 related to compensation for premature termination and appointments of company officers.