Question Paper

Economic Legislation I (161) – July 2004

• Answer all questions.
• Marks are indicated against each question.

< Answer
1. Which of the following is required to alter the objects clause of the memorandum of >
association?
(a) Passing of ordinary resolution
(b) Passing of special resolution
(c) Passing of ordinary resolution and confirmation of the National Company Law
Tribunal
(d) Passing of special resolution and confirmation of the National Company Law Tribunal
(e) Passing of ordinary resolution and confirmation of the Central Government.
(1 mark)
< Answer
2. Communication of acceptance made by post is complete as against the offeror when the >
letter of acceptance
(a) Reaches the offeror (b) Is posted to the offeror (c) Is in
transit
(d) Is signed by the offeree (e) Both (a) and (d) above.
(1 mark)
< Answer
3. Which of the following is a just and equitable ground for winding up of a company by >
Tribunal?
(a) Where there is a dead-lock in the management of a company
(b) Where the number of members of the company falls below the statutory minimum and
the company carries its business more than six months
(c) When the company is unable to pay its debts
(d) When the company does not commence its business within a year of its incorporation
(e) Where the dividend is declared but not paid for a period of more than thirty days.
(1 mark)
< Answer
4. Every company shall keep an index of members along with the register of members, if it has >
more than
(a) 50 members (b) 100 members (c) 125 members (d) 175
members
(e) 150 members.
(1 mark)
< Answer
5. A person does not cease to be a member of a company even though, >
(a) His share certificate is lost
(b) His shares are converted into share warrant
(c) His shares are forfeited for non-payment of calls
(d) He rescinds the contract with the company on the grounds of fraud
(e) Both (a) and (b) above.
(1 mark)
< Answer
6. The manager of a private sector bank has wrongfully dishonored the cheque of its customer, >
though the customer has sufficient funds/balance in his account. The customer can sue for
(a) General damages (b) Special damages
(c) Exemplary damages (d) Nominal damages
(e) All of the above.
(1 mark)
< Answer
7. An unstamped promissory note in a court of law as evidence is >
 (a) Admissible (b) Inadmissible
(c) Admissible by affixing twice the amount of value of stamps required
(d) Admissible with a penalty of Rs.1,000
(e) Admissible with a penalty of Rs.2,000.
(1 mark)
< Answer
8. No bonus issue shall be made out of >
(a) Securities premium account (b) General reserve account
(c) Re-valuation reserve account (d) Profit and loss account
(e) Both (a) and (c) above.
(1 mark)
< Answer
9. An application to the National Company Law Tribunal to investigate into the affairs of a >
public company can be made by
(a) Any one hundred members or the members holding one-tenth of the total voting
power therein
(b) Any two hundred members or the members holding one-tenth of the total voting power
therein
(c) Not less than one third of the persons on the company’s register of members
(d) Not less than one fourth of the persons on the company’s register of members
(e) Both (a) and (c) above.
(1 mark)
< Answer
10. Section 197A of the Companies Act, 1956 provides for prohibition of simultaneous >
appointment of different categories of managerial personnel. Accordingly the category of
persons are
(a) Manager and whole time director (b) Manager and managing director
(c) Manager and a director (d) Managing director and a whole time
director
(e) Manager and a secretary.
(1 mark)
< Answer
11. Which of the following statements is/are true? >
(a) A share warrant must be issued by public companies as well as private companies
(b) A share warrant must be issued in respect of partly paid up shares
(c) A share warrant must be transferred by transfer deed only
(d) A share warrant holder’s name will be removed from the register of members
(e) A share warrant holder’s name will not be removed from the register of members.
(1 mark)
< Answer
12. Under which of the following situations, a negotiable instrument is said to be dishonored by >
non-payment?
(a) When the maker of the note, acceptor of the bill, drawee of the cheque defaults in
payment upon being duly required to pay the same
(b) When presentment for payment is excused
(c) When overdue remains unpaid
(d) Both (a), (b) above
(e) All (a), (b) and (c) above.
(1 mark)
< Answer
13. Under which of the following situations, will a requisition (u/s169 for calling extraordinary >
meeting) sent by the members holding 1/10th of the capital carrying voting rights be
considered invalid?
(a) Upon submission of a valid requisition, some of the members withdrew their consent
(b) Upon submission of a valid requisition, some of the members have ceased to be the
members of the company
(c) The requisition made by the persons holding shares, on which calls are due
(d) Both (a) and (b) above
(e) All (a), (b) and (c) above.
 (1 mark)
< Answer
14. The rights of the members of a company can be classified into >
(a) Statutory rights and moral rights
(b) Moral rights and ownership rights
(c) Ownership rights and statutory rights
(d) Statutory rights and contractual rights
(e) Contractual rights and ownership rights.
(1 mark)
< Answer
15. Under the Companies Act, 1956 the director’s report is to be adopted at a/an >
(a) Annual general meeting (b) Board meeting
(c) Extraordinary general meeting (d) Statutory meeting
(e) Committee of Board of directors meeting.
(1 mark)
< Answer
16. An auditor appointed at the annual general meeting shall hold office >
(a) Up to the next annual general meeting
(b) For a period of five years
(c) From the conclusion of that meeting to the conclusion of the next annual general
meeting
(d) Up to the finalization of the accounts and submitting their report
(e) Up to the date of extraordinary general meeting.
(1 mark)
< Answer
17. The annual financial statements of a company should be signed on behalf of the Board of >
directors by
(a) Manager or secretary of the company if any
(b) Not less than two directors of the company one of whom shall be managing director if
the company has
(c) Chairman of the company
(d) Both (a) and (b) above
(e) Both (b) and (c) above.
(1 mark)
< Answer
18. Additional directors of a company are appointed by >
(a) Board of directors (b) Members of the company
(c) Central Government (d) Preferential shareholders
(e) Financial institution.
(1 mark)
< Answer
19. When a promissory note or bill of exchange has been dishonored by non-acceptance or non- >
payment, the holder may, within a reasonable time cause such dishonor to be noted and
certified by a notary public. Such certificate is called
(a) Protest (b) Noting (c) Endorsement (d)
Estoppel (e) Allonge.
(1 mark)
< Answer
20. In which of the following cases an agency is terminated other than by operation of Law? >
(a) On performance of the contract (b) By mutual agreement
(c) On the insolvency of principal (d) On the destruction of subject matter
(e) On termination of sub-agents authority.
(1 mark)
< Answer
21. ABC Ltd. company has 3 directors (the company also has managing director), who are >
neither in the whole time employment of the company nor managerial personnel, how much
remuneration may be paid to them under the Companies Act, 1956?
(a) Three per cent of the net profits of the company
 (b) One per cent of the net profits of the company
(c) Five per cent of the net profits of the company
(d) Eleven per cent of the net profits of the company
(e) Two per cent of the net profits of the company.
(1 mark)
< Answer
22. No company shall purchase its own shares or other specified securities, unless >
(a) The buy-back is or less than 25% of the total paid up capital and free reserves of the
company
(b) The buy-back is or more than 25% of the total paid up capital and free reserves of the
company
(c) The buy-back of equity shares in any financial year shall not exceed 25% of the total
paid-up equity capital in that financial year
(d) Both (b) and (c) above
(e) Both (a) and (c) above.
(1 mark)
< Answer
23. Which of the following is an example of general crossing of cheques? >
(a) Bank of India (b) A/c payee (c) &
Company
(d) Bank of India - not negotiable (e) A/c Payee – not negotiable.
(1 mark)
< Answer
24. Contracts executed by a public company after the incorporation and before obtaining the >
certificate of commencement of business are called as
(a) Pre-incorporation contracts (b) Provisional
contracts
(c) Quasi contracts (d) Contingent
contracts
(e) Uberrimae Fidei contracts.
(1 mark)
< Answer
25. Which of the following matters require passing of special resolution? >
(a) Alteration of capital clause of a company (b) Appointment of managing
director
(c) Reduction of share capital (d) Issue of shares at
discount
(e) Both (a) and (c) above.
(1 mark)
< Answer
26. On what date, the resignation of a managing director is effective? >
(a) On the day, when the intention to resign is made clear
(b) On the day the Registrar Of Companies gives permission
(c) On the day Central government approved for resignation
(d) On the day the resignation is accepted by the Board of directors
(e) On the day E-mail reaches the company about his resignation.
(1 mark)
< Answer
27. A company can close its register of members for an aggregate period not exceeding >
(a) 15 days in a year (b) 30 days in a year
(c) 45 days in a year (d) 60 days in a year (e) 90 days in a year.
(1 mark)
< Answer
28. As a general principle, the Board of directors can exercise unlimited powers. Under which >
of the following cases the Board of directors cannot exercise their powers?
(a) When there is dead lock in the management
(b) When the Board is incompetent
(c) When the directors act with malafide intention
 (d) When the acts of the directors are in violation of the Companies Act
(e) Either of (a), (b), (c) and (d) above.
(1 mark)
< Answer
29. Which of the following statements is true? >
(a) All pre incorporation contracts are void under the Companies Act, 1956
(b) Members and company are one and same
(c) Provisional contracts are void
(d) Central Government will appoint the first auditors of the company
(e) Company can exercise all rights that are applicable to citizens of India.
(1 mark)
< Answer
30. 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) Special agent (b) General agent (c)
Universal agent
(d) Commission agent (e) Del-credere agent.
(1 mark)
< Answer
31. Which of the following matters require prior approval of the Central Government? >
(a) Change of name of the public company under section 21 of the Companies Act
(b) Alteration of articles of association for converting public company into private
company
(c) Appointing a relative of a detector for a salary of Rs.25,000 per month
(d) Change of registered office of the public company from one state to another
(e) Making any loan/giving any guarantee or providing any security to the directors of a
public company.
(1 mark)
< Answer
32. Can the agenda items of the meeting be jumbled at a Board meeting? >
(a) Agenda items cannot be jumbled at the board even if all the members and chairman of
the Board demand
(b) Agenda items can be jumbled with the permission of the chairman
(c) Agenda items can be jumbled with the permission of the interested directors
(d) Agenda items can be jumbled with the permission of the non-executive directors
(e) Agenda items can be jumbled only with the permission of the managing
director/manager /whole time director.
(1 mark)
< Answer
33. Who can become director of a company? >
(a) A company (b) A firm (c) A
corporation
(d) An individual (e) A Hindu undivided family.
(1 mark)
< Answer
34. Which of the following is not the content of articles of association of a company? >
(a) Buy-back of securities (b) Reduction of share capital
(c) Maximum number of directors (d) Borrowing powers of the company
(e) Liability of members of the company.
(1 mark)
< Answer
35. Under the Companies Act, 1956,which of the following acts is held as oppressive? >
(a) That the majority shareholders alone appointed all directors
(b) That the management is inefficient
(c) Failure to comply with the formalities of giving notice for general meetings
(d) Refusal to declare more than moderate rate of dividend, where the profits of the
company justify a higher rate
 (e) A person, who thus had no authority at all, usurps the office of a director and
managing director.
(1 mark)
< Answer
36. Under which of the following occasions, does the allotment of shares become void? >
(a) When any of the stock exchanges mentioned in the prospectus refuses to grant
permission
(b) When the minimum subscription is not received
(c) When the money received on application is less than 5% of the nominal value of each
share
(d) When the statement in lieu of prospectus is not filed with the Registrar of Companies
(e) When the application money is not deposited with a scheduled bank.
(1 mark)
< Answer
37. Prospectus issued by a company is >
(a) An acceptance (b) An agreement
(c) An offer (d) An invitation to offer (e) A
promise.
(1 mark)
< Answer
38. A private company, which is a subsidiary of a public company, has 5 directors. The number >
of directors retire by rotation is
(a) Two (b) Three (c) Four (d)
Five (e) Nil.
(1 mark)
< Answer
39. Assignment of contract may take place by the >
(a) Act of parties (b) Operation of law (c) Order of the
court only
(d) Both (a) and (b) above (e) Both (b) and (c) above.
(1 mark)
< Answer
40. Which of the following circumstances will lead to a discharge of surety’s liability? >
(a) When the creditor compounds with the principle debtor
(b) When the creditor agrees to give time to the principle debtor
(c) When the creditor agrees not to sue the principle debtor
(d) Both (a) and (b) above
(e) Either of (a), (b) and (c) above.
(1 mark)
< Answer
41. Mr. X who is the Director of ABC Ltd. tenders his resignation letter to the company. The >
articles of association of the company are silent with regard to resignation by a director. In
this regard, the Board of directors of ABC Ltd. is unable to decide, from which date
onwards the resignation will be effective. As a consultant of the company advise, which of
the following statements is true?
(a) The resignation once made will take effect immediately when the intention to resign is
made clear
(b) The resignation made by the director will come into effect, only after the annual
general meeting is concluded
(c) The resignation comes into effect only on the day his tenure as director is complete
(d) The resignation comes into effect only when another director is appointed in the place
of resigning director
(e) The resignation is not effective, unless the Registrar of Companies approves it.
(2 marks)
< Answer
42.Mr. X, a shareholder holding one tenth of the paid up capital of XYZ Ltd., sent a requisition >
to the company to conduct an extraordinary general meeting. The directors of the company
alleged that the requisitionist has not sent the explanatory statement along with his
requisition. Hence, they don’t want to conduct the meeting. With regard to the submission of
 the explanatory statement of the requisitionist, which of the following statements is/are
true?
(a) The requisitionist is liable to send the explanatory statement along with his requisition
(b) The requisitionist is not required to send the explanatory statement along with the
requisition
(c) The requisitionist is required to submit the explanatory statement on the demand made
by the Board of directors
(d) The Board of directors is responsible to give explanatory statement to all the members
along with the notice of the extraordinary general meeting
(e) Both (b) and (d) above.
(2 marks)
< Answer
43. A selection committee of a university interviewed Mr. A, a candidate for the post of a >
lecturer. Selection committee passed a resolution selecting Mr. A for the post. One of the
committee members, acting in his individual capacity, informed Mr. A, about the favorable
response by the selection committee by way of a resolution passed in its meeting. But Mr. A
received no information from the university as regards his selection. Subsequently, the
resolution was cancelled and Mr. A was not appointed for the post. In the above situation
which of the following is true?
(a) Mr. A can sue the committee member for the wrong information given by him and
claim exemplary damages
(b) Mr. A has no remedy for his grievance
(c) Mr. A can sue the university for breach of contract and claim damages and
compensation
(d) Mr. A can demand for appointing him for any post in that university
(e) Both (a) and (c) above.
(2 marks)
< Answer
44. Lakshmi, one of the directors of XYZ Company Ltd., did not attend the Board of directors’ >
meetings, from January 1st to March 31st, 2003, without obtaining leave of absence from the
Board, though the company had sent her notice for the meetings .Two meetings were held
between January 1st and 31st March 2003. There were five meetings of the Board of
directors, held during the calendar year 2002, out of which Lakshmi had attended three
meetings. The last meeting attended by her was on 1st December; 2002.There were no
further meetings of the Board of directors in December 2002. After the commencement of
the new financial year 2003, the company convened a meeting of the Board of directors on
1-5-2003, for which no notice was sent to Lakshmi, on the ground that she had ceased to be
a director under the Companies Act. The meeting was held as scheduled, and certain
important decisions were taken thereat. Lakshmi, on coming to know of the meeting of 1-5-
2003, challenges the company’s convening of the Board of directors’ meeting and decisions
taken thereat, on the ground of omission of sending notice to her. In the above context,
which of the following statements is true?
(a) Meeting is invalid, and the resolutions passed at such meeting are inoperative
(b) Meeting is valid, and also the resolutions passed are valid
(c) Meeting is valid but the resolutions passed are invalid
(d) Lakshmi has no right to allege on the resolutions passed at the Board meeting
(e) Directors cannot question on the omission of notice of the board meetings.
(2 marks)
< Answer
45. Pinky Ltd. (a listed company), which is engaged in the manufacture of paper and boards, >
wants to dispose off one of its undertakings (i.e. manufacturing glass), consequent upon its
decision to stick to its core business. State, which of the following provisions of the
Companies Act 1956, have to be complied with?
(a) Company has to take consent of members, under section 293(1)(a) of the Companies
Act
(b) The company has to comply with the listing formalities
(c) Board of directors of Pinky Ltd. has to alter the objects clause of the memorandum of
association
(d) Company must obtain the prior approval of the Central Government
 (e) Both (a) and (b) above.
(2 marks)
< Answer
46. Modern Ltd. proposes to appoint Mr. Khalid, a relative of one of the directors of the >
company, as general manager marketing on a monthly remuneration of Rs.40, 000. In this
context, which of the following provisions of the Companies Act are to be complied with?
(a) Passing of a Board resolution alone is sufficient
(b) Passing of a special resolution is required
(c) Passing of an ordinary resolution and Central Government’s permission are required
(d) Prior consent of the company by a special resolution and the approval of the Central
Government is required
(e) No resolution is required to be passed, but Central Government’s permission is
compulsory.
(2 marks)
< Answer
47. The shareholders of Star Ltd. decide to remove the auditor and appoint Roam & Roam, a >
firm of chartered accountants. The company’s articles are silent in removal of the present
auditors, before their tenure and appointment of other auditors in the place of the outgoing
auditors. With reference to the present matter, which of the following courses of action
is/are available to the shareholders of Star Ltd.?
(a) The shareholders must wait up to the next annual general meeting
(b) The shareholders can remove the present auditor and appoint other auditors
(c) Removing the auditors before the expiry of their tenure should be permitted by the
Central Government
(d) The share holders have authority to remove the present auditor but cannot fill the
casual vacancy by appointing another auditor
(e) Both (b) and (c) above.
(2 marks)
< Answer
48. Konica Ltd., having a paid up capital of Rs.80 Lakhs, entered into a contract with Moony >
Ltd. in which, director Ram was holding 10% shares. At the time of approval of the
contract, in the meeting of the Board of directors of Konica Ltd., Ram did not disclose his
interest in Moony Ltd. How would you deal with this situation?
(a) The director Ram has to vacate his office and pay penalty
(b) The officer in default is held responsible for the non-disclosure of nature of interest by
the director
(c) The director Ram has not violated any of the provisions of the Companies Act, and
hence cannot be held liable
(d) Failure to disclose interest renders the contract voidable at the option of the Board
(e) Both (a) and (d) above.
(2 marks)
< Answer
49. Board of directors of ABC Ltd. decided to conduct annual general meeting on 02-7-2004,for >
which the Board authorized the company secretary to issue notice of annual general meeting
to all the members who are entitled to receive the notice of the general meetings. But the
company secretary did not send the notice to all the directors including the managing
director. Majority of the directors attended in such meeting, objected the meeting and its
proceedings. In fact, that the company’s articles do not provide a provision of qualification
shares, hence no director including the managing director do not hold shares in ABC Ltd.,
and none of them are subscribers to memorandum of association .In the above context,
which of the following persons are entitled to receive the notice of the general meetings of
the company?
(a) Present members of the company whose names are borne in the register of members
(b) Legal representatives/heirs of the deceased members and Official assignees of the
insolvent members and the auditor(s)
(c) Directors and managing director of the company, including the chairman of the Board
meetings
(d) Both (a) and (b) above
(e) All (a), (b) and (c) above.
 (2 marks)
< Answer
50. ABC Ltd. company has twelve directors, who are scattered all over the country. Every time >
whenever there is a Board meeting, all twelve directors are attending the meetings thereby,
the cost of sitting fees is unreasonably high and also the directors are given trouble to attend
to all the Board meetings. They sought the advise of the company secretary on this matter,
‘how they can conduct Board meetings without violating the provisions of the Companies
Act. The company secretary advised the Board of directors ‘to form into committees so that,
all twelve directors need not attend for routine meetings, since respective committees will
take the decisions on behalf of the Board of directors, so that their time and money will not
be wasted’. Taking the above advise into account, Which of the following matters can be
delegated to committee of Board of directors:
I. Power to issue debentures
II. Power to invest funds of the company subject to sec. 293 and sec. 372A of the
Companies Act
III. Power to make loans subject to sec. 295 and sec. 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 on debentures.
(a) Only (I) above (b) Both (I) and (II) above
(c) (I), (II) and (III) above (d) All (I), (II), (III), (IV) and (V) above
(e) (II), (III) and (V) above.
(2 marks)
< Answer
51. An extra-ordinary general meeting was held on 30-12-2003. There were 10 items of >
business to be transacted. After completion of the 7th item the meeting was adjourned till
15th February 2004. The Board of directors added two more items to the notice of the
adjourned meeting. What is the legality of the meeting and the resolutions passed there at?
(a) In the adjourned extraordinary general meeting only ordinary business matters can be
discussed if the two added matters are ordinary business matters resolutions on those
matters are valid
(b) Adjourned meeting need not follow agenda items
(c) In this adjourned meeting fresh items can be discussed and hence, resolution are valid
(d) Both (a) and (b) above
(e) Both (a) and (c) above.
(2 marks)
< Answer
52. The articles of association of a company state that, a director-cum- member shall not vote in >
a general meeting, in respect of contract in which he is interested .In a resolution put up for
the approval of the shareholders, can a director exercise his voting right in favor of a
contract in which he is interested?
(a) No, he cannot vote since it is against the rule mentioned in the articles
(b) No he cannot vote under section 297 of the Companies Act
(c) No, he cannot vote under section 299 of the Companies Act
(d) Yes, a statutory right cannot be curtailed by articles
(e) Either of (a), (b) and (c) above.
(2 marks)
< Answer
53. Harischandra is a director in 20 companies as on 1st October 2003. The composition of his >
directorships is as detailed below:
I. Alternative director in 5 public limited companies;
II. Director in 9 public limited companies;
III. Director in 5 private companies which are neither subsidiaries nor holding of
other public companies; and
IV. Director in company registered as an association not carrying on business for
profit.
Wise Ltd., a public limited company, wants to induct Harischandra as a director in its
company. Whether Harischandra can be appointed as director in Wise Ltd. in terms of
Sections 275 of the Companies Act, 1956?
 (a) Harischandra is disqualified to be appointed as directors of Wise limited as he is
director in one company as alternative director
(b) Harischandra can be appointed as director in Wise limited, since he is with in the limits
prescribed under the Companies Act
(c) Harischandra is already director in 20 companies (crossed the limits prescribed under
section 275 of the Companies Act,) hence he cannot be appointed further in Wise
limited
(d) Harischandra is already director more than 15 companies (crossed the limits prescribed
under section 275 of the Companies Act,) hence he cannot be appointed further in
Wise limited
(e) Harischandra cannot be appointed in Wise limited, as he is director in other
companies.
(2 marks)
< Answer
54. Mr. Kumar made an application to ABC Ltd. (a listed company) along with a duly executed >
transfer deed for transfer of certain shares of the company in his favor. But the Board of
directors of the company rejected his application subsequent to passing of a resolution in
Board meeting. Later it is noticed that there was no quorum for that meeting. What is the
effect of such resolution passed by the board in their meeting?
(a) The meeting is properly convened and the resolution is valid
(b) Ratification of the resolution by the National Company Law Tribunal is required since
the required quorum was not present
(c) A refusal by a defectively constituted board is invalid hence the resolution is invalid
(d) A listed company cannot refuse transfer of shares hence the resolution is not valid.
(e) Both (c) and (d) above.
(2 marks)
< Answer
55. Ankit Ltd., a public company, is having paid up capital of Rs.200 crores and free reserves >
amounting to Rs.100 crores. The Board of directors made a loan of Rs.150 crores to another
body corporate. (The company has not made any other loans and it does not propose any
further loans) It is alleged by the shareholders of Ankit Ltd. that ‘the Board of directors
violated the provisions of the Companies Act’. Considering the above statement, which of
the following amounts can be given as loan to the other body corporate?
(a) Rs.100 crores (b) Rs.200 crores
(c) Rs.180 crores (d) Rs.150 crores (e) Rs.50
crores.
(2 marks)
< Answer
56. Murugan of Chennai entered into a contract with Raghava Reddy of Tirupathi for supply of >
local made liquor since there was no prohibition on supply of liquor to Andhra Pradesh.
Subsequently the Government of Andhra Pradesh imposed prohibition; consequently
transportation of liquor to Andhra Pradesh was banned. Murugan failed to supply the liquor
to Raghava Reddy of Tirupathi.
Raghava Reddy of Andhra Pradesh sued Murugan of Chennai for specific performance and
damages. Murugan pleaded that the contract could not be performed due to the prohibition
imposed by Government of Andhra Pradesh.
Which of the following statements is/are true?
(a) Raghava Reddy can demand performance of the contract
(b) Raghava Reddy can sue for damages
(c) Raghava Reddy cannot demand the performance of the contract, since the non-
performance is due to operation of law
(d) Murugan has to pay damages for non-performance of the contact
(e) Both (a) and (b) above.
(2 marks)
< Answer
57. ‘A’, ‘B’ and ‘C’ brothers are the joint owners of certain cattle. One cow is left in the >
possession of ‘A’ by the other two brothers, i.e. ‘B’ and ‘C’. ‘A’ later sells the cow to ‘D’
who purchases in good faith. With regard to the title of ‘D’, which of the following
statements is/are true?
 (a) ‘D’ will not acquire a valid title to the cow
(b) ‘D’ acquires a valid title to the cow
(c) If the other joint owners of the cow also agree for the sale, ‘D’ gets a valid title
(d) Sale by a person in possession of cattle is by misrepresentation, hence voidable
(e) Both (b) and (c) above.
(2 marks)
< Answer
58. Mr. A, a member of XYZ Ltd. wants to inspect the minute’s book of Board of directors >
meetings of the company. Which of the following provisions are applicable in the present
case?
(a) Mr. A can be allowed to inspect the minutes book of the meetings of the Board of
directors
(b) The members are not allowed to inspect the minutes book of the Board of directors
meeting
(c) The managing director can allow Mr. A to inspect the minutes book of meetings of the
Board of directors
(d) Mr. A will be allowed to inspect the minutes book if he pays Rs.500 as inspection fees
(e) The Registrar of Companies can permit Mr. A to inspect the minute’s book.
(2 marks)
< Answer
59. The Board of Directors of Swastik Industries Ltd., a Government company received a >
request from a political party for a contribution of Rs.10 lakhs. The company was
established in 1999 and its profits in the years 2000, 2001 and 2002 were Rs.50 lakhs,
Rs.100 lakhs and Rs.150 lakhs respectively. State whether the company can pay the
contribution to the political party.
(a) The company can contribute Rs.2.50 lakhs only
(b) The company can contribute Rs.5.00 lakhs only
(c) The company can contribute Rs.7.50 lakhs only
(d) The company can contribute Rs.10.00 lakhs
(e) The company cannot contribute to the political party.
(2 marks)
< Answer
60. Naveen borrowed Rs.50, 000 from a moneylender on January 01, 2000 at 24% p.a. The >
moneylender could not file suit within the validity period of promissory note. On January
15, 2004 Naveen acknowledged on the reverse of the promissory note stating – “I accept
this pronote and it is valid for next three years”. Now the moneylender proposes to file a suit
to recover the loan with interest. Which of the following statements is/are correct?
(a) The acknowledgement of debt given by Naveen is not a valid promise to seek a legal
remedy
(b) The acknowledgement of debt given by Naveen is valid to seek a legal remedy
(c) Moneylender can file a suit against Naveen to recover the loan on the basis of original
promissory note
(d) Naveen can be held liable to pay the loan with interest
(e) Both (b) and (d) above.
(2 marks)
< Answer
61. Ram had 1000 shares of XYZ Ltd. He went to New York to see his son. Balu had stolen the >
shares of Ram and got the shares transferred in his favor by forging the signature of Ram.
Balu sold the shares to Laxman at market price and Laxman got the shares transferred in his
favor and received dividends. Ram, after his return from New York, observed that the shares
were stolen. State the consequences of sale and the status of the persons affected?
(a) The company can refuse to allow Ram as the shareholder, since the shares are
transferred to Laxman
(b) Ram cannot claim the shares, as Laxman acquired the shares by paying adequate
consideration to Balu
(c) Laxman can claim the ownership in shares as he purchased in good faith and for
consideration
(d) Laxman is required to surrender the share certificate to the company and repay all the
dividends
(e) Sale of shares by Balu is valid.
 (2 marks)
< Answer
62. ABC Ltd purchased shares to the extent of 51.5% of XYZ Ltd on 1-4-2004.On 30-4-2004 >
ABC Ltd. company issued prospectus to the public and XYZ Ltd. intends to purchase to the
extents of 10% of that issued capital. In the above situation, which of the following
statements is true?
(a) A subsidiary company can be a member of its holding company without any
restriction
(b) A subsidiary company cannot become member of its holding company
(c) Permission to hold the shares must be obtained from the Registrar of companies.
(d) A subsidiary company can hold shares in its holding company as a trustee with
beneficial interest in the trust
(e) Both (b) and (d) above.
(2 marks)
< Answer
63. The Board of directors of XYZ Ltd. Mumbai decided to conduct the annual general meeting >
of the company on 18th February and also issued notice to all the members of the company.
In due course of time the Maharastra State Government declared 18th February as a public
holiday under the Negotiable Instruments Act, 1881. The effect of declaration of holiday on
conduct of the annual general meeting on 18th February is, that
(a) The company is not allowed to conduct the annual general meeting on 18th February
(b) The company can conduct the annual general meeting on 18th February because the
government declared holiday only after the issue of notice to all the members of the
company
(c) The permission from the National Company Law Tribunal is to be obtained for
conduct of annual general meeting on 18th February
(d) Annual general meeting can be held at any time at any place and even on a public
holiday
(e) Both (b) and (c) above.
(2 marks)
< Answer
64. The Sarada Bio Tech Ltd. invented a medicine for the prevention of Hepatitis-A. The >
company advertised in several newspapers that a reward of Rs.1,00,000 would be given to
any person who contracted Hepatitis-A after the use of the company’s medicine according to
its printed directions. After this advertisement many people used the medicine of Sarada Bio
Tech Ltd.
The company also patented the invention and was able to develop a good market for its
product. Ms. Geeta used the medicine according to the directions of the company but
contracted Hepatitis-A. She wants to claim the reward of Rs.1,00,000 as announced by the
company. Which of the following statements is correct?

(a) The company has to pay the reward of Rs.1,00,000 to Geeta

(b) The company is liable to reimburse the cost of fresh medicine only
(c) The company is not liable to pay any thing to Geeta because the medicine was
patented and proved to be successful in all cases except Geeta
(d) The company is not liable to pay anything to Geeta because there is no offer from the
company
(e) The company is not liable to pay anything to Geeta because there is no acceptance
given by her.
(2 marks)
< Answer
65. Govind, aged 17 years, bought some goods on credit for Rs.10,000 from Vishal. On >
attaining majority, he took a further sum of Rs.2,000 and executed a bond in favour of
Vishal to pay the total amount of Rs.12,000. On being reminded of the repayment of the
debt, Govind maintains that the bond is not valid and enforceable since it amounts to
ratification of debt incurred during his minority. Which of the following statements is
correct?
(a) Govind is liable to pay Rs.10,000 (b) Govind is liable to pay Rs.2,000
(c) Govind is liable to pay Rs.12,000 (d) Govind is not liable to pay any
 amount
(e) Vishal cannot sue Govind to recover the debt since the bond is not a valid one.
(2 marks)
< Answer
66. Vinod Aggarwal, Finance Manager of Oswal Agro Industries Ltd., placed an indent with >
Quick Tech Solutions for the supply of 50 computers worth Rs.10 lakhs. After taking
delivery of the computers he accepted a bill of exchange payable after 90 days informing the
supplier that payment would be made by the company on the due date. In fact, as per the
memorandum and articles of association, the finance manager has no power to sign. The
finance manager disposed off the computers and used the monies for his personal needs. On
the due date, the supplier could not get the payment. Can Quick Tech Solutions recover the
amount?
(a) Quick Tech Solutions can recover Rs.10 lakhs from the company
(b) Quick Tech Solutions cannot recover Rs.10 lakhs from the company
(c) Quick Tech Solutions can attach the assets of the company and dispose these assets to
recover Rs.10 lakhs
(d) The company and the managing director of Quick Tech Solutions are held liable for
Rs.10 lakhs
(e) Both (a) and (c) above.
(2 marks)
< Answer
67. Swastik Oil Mills Ltd. owes Rs.50 lakhs to a creditor for the supply of raw materials. The >
creditor came to know that the financial condition of the company is not sound. The creditor
agreed to supply additional raw materials worth Rs.20 lakhs, if the company agrees create
charge duly secured by the assets of the company for the total amount of Rs.70 lakhs.
However the creditor could supply raw materials worth Rs.10 lakhs to the company on
March 5, 2004 and a floating charge was registered for Rs.70 lakhs on April 1, 2004 with
the Registrar of Companies. On June 15, 2004 an order for winding is passed. To what
extent the creditor can enforce his charge?
(a) The creditor can enforce his charge for Rs.10 lakhs
(b) The creditor can enforce his charge for Rs.20 lakhs
(c) The creditor can enforce his charge for Rs.60 lakhs
(d) The creditor can enforce his charge for Rs.70 lakhs
(e) The creditor cannot enforce his charge.
(2 marks)
< Answer
68. Ajay, Vijay, Vinod and Vinay jointly borrowed an amount of Rs.2,00,000 from Govind. >
Ajay and Vijay pleaded Govind to release them from the liability, as they have no means to
pay. Govind agreed to release Ajay and Vijay and filed a suit against Vinod and Vinay for
payment of the debt. Which of the following statements is/are correct?
(a) Vinod and Vinay also are not liable for Rs.2,00,000 as Govind released Ajay and
Vijay
(b) Vinod and Vinay only are liable for Rs.1,00,000 only as Govind released Ajay and
Vijay
(c) Vinod and Vinay cannot recover any contribution from Ajay and Vijay if Vinod and
Vijay pay Rs.2,00,000 to Govind
(d) Vinod and Vinay are liable to pay Rs.2,00,000 as Govind released Ajay and Vijay
(e) Govind cannot recover from Vinod and Vijay as he released Ajay and Vijay, without
the consent of Vinod and Vijay.
(2 marks)
< Answer
69. Venkat purchased a T.V. from Ankit Electronics Ltd. for Rs.25,000 and requested the >
shopkeeper to keep the T.V. in the very shop, since he is moving out of station and while
returning he will take delivery of the T.V. The shopkeeper accepted the request and
immediately packed the T.V. in front of Venkat and kept aside. Two days later, the shop
caught with fire and all the goods including the T.V. of Venkat were burnt in the fire.
Venkat demanded the shopkeeper for another T.V. or return the money paid by him. But the
shopkeeper denied the demand of Venkat. Decide which of the following statements is/are
true?
(a) The shopkeeper is not responsible for the T.V. or returning the money to Venkat
 (b) The shopkeeper is liable to give another T.V. in the place of the one, which is burnt
(c) The shopkeeper is liable to give back the money what is paid by Venkat
(d) The shopkeeper in addition to a new T.V. should pay the damages for the mental
agony caused to Venkat
(e) Both (b) and (d) above.
(2 marks)
< Answer
70. Mr. Joy invited all his close friends for a dinner on the occasion of the successful >
completion of his research. He wanted to take good care of his friends and accordingly he
arranged a very lavish dinner in a star hotel. On the day, to his shock and surprise the friends
could not turn up to the dinner, consequently all the dishes and money were wasted. He was
terribly disappointed. In the above situation which of the following remedies is/are available
to Mr. Joy for the loss caused to him?
(a) Mr. Joy can file a suit against his friends for not attending to the dinner
(b) Mr. Joy cannot have any remedy
(c) Mr. Joy can recover the expenses incurred for the arrangements from his friends
(d) Mr. Joy can file a suit for the special damages
(e) Both (a) and (c) above.
(2 marks)
END OF
QUESTION
PAPER
 Suggested Answers
Economic Legislation I (161) - July 2004
1. Answer : (b) < TOP >
Reason : Special resolution is to be passed to alter the objects clause of the Memorandum of Association.
Options in (a), (c), (d) and (e) are not correct.
2. Answer : (b) < TOP >
Reason : Communication of acceptance made by post is complete as against the offeror when the letter of
acceptance is posted to him. Means once it is posted, it is sufficient to comply the provision of
acceptance is reached.
3. Answer : (a) < TOP >
Reason : A company may be wound up by court on ‘Just and Equitable ground’, when there is a dead lock in
the management of a company. The court may order winding up of a company under specified
circumstances mentioned in (b), (c) and (d). These specified circumstances are not treated as ‘Just
and Equitable grounds’.
4. Answer : (a) < TOP >
Reason : Under section 151 of the Companies Act, Every company shall keep an index of members along
with the register of members, if it has more than 50 members
5. Answer : (a) < TOP >
Reason : A person does not cease to be a member of a company when the share certificate is lost. If a
shareholder is share certificate is lost the Board of Directors will issue a Duplicate share certificate.
But he will not loose his membership. A person ceases to be the member of a company if his share
certificate is converted into share warrant or his shares are forfeited for non-payment of calls or he
rescinds the contract with the company on the grounds of fraud.
6. Answer : (c) < TOP >
Reason : If a manager of a private sector bank wrongfully dishonors the cheaque, he has to pay exemplary
damages to the customer.
7. Answer: (b) < TOP >
Reason: An unstamped promissory note is not admissible as evidence in court of law.
8. Answer: (c) < TOP >
Reason: As per the Companies Act, and SEBI guidelines, no bonus issue shall be made out of revaluation
asset account. But bonus issue can be made out of share premium account, General reserve account,
and profit and loss account. Hence option © is correct and all other options are not correct.
9. Answer : (b) < TOP >
Reason : Under Section 235 (2) (a) of the Companies Act. Any two hundred members or members holding
one tenth of the total voting power there in of a company can apply to the National Company Law
Tribunal for investigation of affairs of the company. Then upon receipt of such order declaration
made by tribunal the Central Government shall appoint one or more competent pernouses inspection
to investigate the affairs of the company and to report to Central Government.
10. Answer: (b) < TOP >
Reason: Under section 197A of the Companies Act, 1956, a company shall not appoint a manager u/s 2(24)
and a managing director u/s2 (26) simultaneously. But company can appoint a managing director and
a whole time director, a managing director and a director, manager and a whole time director. Hence
option (b) is the correct answer and all other options are not correct
11. Answer : (d) < TOP >
Reason : Under Section 115 of the Companies Act, the company shall strike of share warrant holder’s name
from the register of members. Since option (d) is correct and All the options in (a), (b), (c), and (e)
are false.
12. Answer: (e) < TOP >
Reason: Under the following occasions an instrument is dishonored by non-payment:-
When the maker of the note, acceptor of the bill, drawee of the cheque makes default in payment
upon being duly required to pay the same Under section 92 when presentment for payment is
executed and when overdue remains unpaid U/s 76.
13. Answer: (c) < TOP >
Reason: According to Section 169 (4) of the Companies Act, the number of members entitled to requisition a
meeting in regard to any matter shall be in case of a company having share capital, such number of
them as hold at the date of the deposit of the requisition, not less than one-tenth of such of the paid-
up capital of the company as at that date carries the right of voting in regard to that matter; The
persons who made requisition-holding shares on which calls are due will not have voting rights and
hence, any requisition made by them will be considered invalid.
14. Answer: (d) < TOP >
Reason: The rights of a shareholder can be classified into Statutory rights and Contractual rights. The
Statutory rights are available under the Companies Act, and the Contractual rights are available
under the Memorandum of Association of the company
15. Answer : (a) < TOP >
Reason : As per Section 217(i) of the Companies Act the Board is report shall be attached to every balance
sheet laid before a company in an annual general meeting . Hence along with the auditors report
balance sheet and profit and loss account the board of directors report shall be adopted in annual
general meeting.
16. Answer: (c) < TOP >
Reason: An auditor appointed at the Annual general meeting will hold office from the conclusion of that
meeting to the conclusion of the next annual general meeting. Unlike directors who cease to hold
office if the annual general meeting is not held in accordance with section 166, an auditor appointed
under section 224 will not vacate his office if the annual general meeting is not held on time .He will
continue to hold office until the next annual general meeting is actually held and concluded and he
cannot be deemed to have vacated his office on the last date on which the meeting ought to have
been held. Similarly, where a meeting is held but is adjourned for want of quorum or any other
reason to a later date, he will hold office till the conclusion of the adjourned meeting. Hence all other
options are not correct
17. Answer : (d) < TOP >
Reason: Under section 215 of the Companies Act, 1956, the annual financial statements (i.e. every
Balance sheet and profit and loss account of a company, other than banking company) shall be
signed on behalf of the Board of Directors by its -
a. Manager or secretary of the company if any
b. Not less than two directors of the company, one of who shall be managing director if any.
In the case of a banking company by the person specified in clause (a) and (b), as the case may be
of sub-section (2) of section 29 of the Banking Companies Act 1949.
The chairman of the company in that capacity is not entitled under section 215 of the Act. Hence
option (d) is correct
18. Answer: (a) < TOP >
Reason: Under section 260 of the Companies Act, 1956 additional directors of the company shall be
appointed by the board of directors (subject to articles of association of the company). The power to
appoint additional directors cannot be exercised by any others except the BOD. This provision is
made under appointment of directors by directors. Hence option (a) is the correct answer, whereas all
other options are not.
19. Answer : (a) < TOP >
Reason : When a promissory note or bill of exchange has been dishonored by non acceptance or non payment,
the holder may, within a reasonable time cause such dishonor to be noted and certified by a notary
public. Such certificate is called a protest.
20. Answer : (b) < TOP >
Reason : Termination of agency by operation of law takes place in situations given in options (a),(c),(d) and
(e).Termination of agency by mutual agreement is not by operation of law.
21. Answer: (b) < 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
< TOP >
22. Answer: (e)
Reason: Under section 77A (2) of the Companies Act, 1956 No company shall purchase its own share or other
specified securities, unless
The buy-back is or less than 25% of the total paid up capital and free reserves of the company
furthermore, the buy-back of equity shares in any financial year shall not exceed 25% of the total
paid-up capital in that financial year
< TOP >
23. Answer : (c)
Reason : & company is an example for general crossing.
24. Answer : (b) < TOP >
Reason : Contracts executed by a public company after the incorporation and before obtaining the certificate
of commencement of business are known as Provisional contracts.
The contracts entered before the incorporation of the company are Pre-incorporation contracts.
A contract even though there is no offer, no acceptance, no consensus ad idem, etc. Such type of
contract where there is no element of contract but which still is considered as contract is referred as
quasi-contract.
The contracts on which the law imposes a special duty to act with the utmost good faith to disclose
all material information. Such type of contracts are known as Uberrimae Fidae Contracts.
Contingent contract is a contract which kinds the parties depend upon happening or not happening of
an event which may or may not happen.
25. Answer: (c) < TOP >
Reason: Under section 100 of the Companies Act, contemplates that the reduction of share capital requires
passing special resolution and sanction of the court. All other matters like Alteration of capital
clause, appointment of managing director, and issue of shares at discount require only ordinary
resolutions.
26. Answer : (d) < TOP >
Reason : The resignation of a managing director is effective, On the day the resignation is accepted by the
board of directors. The appointment of managing director is by virtue of an agreement with the
company and hence he cannot simply resign like any other director. His resignation must be accepted
by the company i.e. the Board of Directors.
27. Answer : (c) < TOP >
Reason : A company can close its register of members in a year for an aggregate period of not exceeding 45
days. But not exceeding 30 days at any one time.
28. Answer: (e) < TOP >
Reason: As a general principle, the board of directors can exercise unlimited powers the members of the
company are not entitled to interfere with the powers of the Board of directors
The following are the exceptions to the general rule
Dead lock
Incompetence of the board
Malafide acts
Acts in violation of Companies Act
Under the above exceptional situations members of the company can interfere with the powers of
the board of directors.
29. Answer : (a) < TOP >
Reason : All pre-incorporation contracts are void. The company law does not contain the provisions to protect
the promoters for the contract entered by then before incorporation of a company. They are
personally liable for the performance of the contract. But, they have the remedy under the Specific
Relief Act 1963. U/s 15 (h) and 19 (e) of that Act. Hence option (a) is true answer and all other
options are false.
30. Answer: (e) < TOP >
Reason : A special agent is one who is appointed to perform a special act or to represent his principal in some
particular transaction.
 A general agent is one who has the authority to do all acts with a particular trade, business or
employment.
Universal agent is one whose authority to act for the principal is unlimited.
A commission agent is employed to buy and sell goods or transact business for others and earns
commission.
A Del-credere agent is one who, in consideration of an extra commission guarantees his principal
that the persons with whom he enters into contract on behalf of the principal shall perform their
obligations. Correct answer is (e).
31. Answer : (e) < TOP >
Reason : Under Section 295 of the companies Act, 1956, 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.
32. Answer : (b) < TOP >
Reason : Agenda items need not be annexed to the notice of the Board meeting only it is customary to give
agenda items, though not required as per law, such given items can be jumbled with the permission
of the chairman of the Board meetings,
33. Answer : (d) < TOP >
Reason : Only an individual can become director of a company according to the provisions of section 253 of
the Companies Act.
34. Answer: (e) < TOP >
Reason: Liability of members of the company is the content of the memorandum of association but not the
content of articles of association.
< TOP >
35. Answer: (e)
Reason: A person and who thus had no authority at all usurp the office of a director and managing director
will amount to oppression. But the acts like majority shareholders appointed all directors, the
management is inefficient, denying a shareholder the right to inspect the registers maintained by the
company, Failure to comply with the formalities of giving notice for general meeting or refusal to
declare dividend, will not amount to oppression.
36. Answer: (a) < TOP >
Reason: U/S 73 of the Companies Act, 1956 when the permission of stock exchanges (whose names are
mentioned in the prospectus) refuses to grant the permission with in ten weeks from the date of the
closure of the subscription list, the allotment made by the board of directors will be void and they
must return the application money.
37. Answer : (d) < TOP >

Reason : Prospectus issued by a company is an invitation to offer.

38. Answer : (c) < TOP >
Reason : Under section 255 of the Companies Act, in case of a public company or a private company which is
subsidiary of a public company shall have not less then two thirds directors as retiring category
Accordingly, the number of rotational directors will be two thirds of 5. Fraction is to be rounded off
2
×5
to the higher number. That is 3 = 3.3 rounded to 4.
39. Answer :(d) < TOP >
Reason :Assignment of contract may take place by the act of parties or by operation of law.
40. Answer :(e) < TOP >
Reason : The following circumstances will lead to a discharge of surety’s liability
When the creditor compounds with the principle debtor
When the creditor agrees to give time to the principle debtor
When the creditor agrees not to sue the principle debtor
Hence option (e) is correct.
41. Answer: (a) < TOP >
Reason: Mr. X the Director of the company can resign from the company. In fact Companies Act is silent
with regard to resignation by a Director. The resignation comes into the effect immediately from the
time when the intention to resign is made clear. Resignation through E-mail or telegram or
 Telephone is also permitted as per the judicial decisions. Hence option (a) is correct and all other options are
not correct
42. Answer: (e) < 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, explanatory statement is not required to be
sent by the members. The Board of Directors upon receiving the requisition they 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 (e) is correct but not others.
43. 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.
44. 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 continues period of three months, which ever is higher,
with out obtaining the leave of absence from the board.
Accordingly lakshmi was absent only for two board meetings in a period of three months from 1st
January to 31st March. 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 are 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 company Ltd. 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 Lakshmi 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 Lakshmi is valid that the company’s calling of the Board of Directors
meeting and decisions taken thereat on the ground of omission on the part of the company from
implementing the decisions taken at the meeting are invalid and inoperative.
45. Answer: (e) < TOP >
Reason: According to section 293(1)(a) of the Companies Act, 1956 The board of directors of a public
company or of a private company which is a subsidiary of a public company, shall not except with
the consent of the members in general meeting, sell, lease, or otherwise dispose of the whole or
substantially the whole of the undertaking of the company, where the company has more than one
undertaking, of the whole or of any such undertaking.
In the given case the Pinky Ltd. has to comply section 293 of the Companies Act, and since it is a
listed company it has to comply the listing formalities also like informing to stock exchange and
passing the resolution by postal ballot etc.
46. 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 this 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 convening a general meeting and getting a
special resolution passed for the appointment and also get the approval of the Central Government
before appointment of Kalid as a General Manager.
< TOP >
47. Answer : (c)
Reason : In the given case as Roam & Roam, chartered accountants have to be appointed as the auditors of
StarLtd. in place of the present auditors, the provisions and procedure given in Section 225 and
sec224(7)have to be complied with. According to Section 225 of the Companies Act, 1956 if an
auditor to be removed before his tenure, and appoint another in the place of the removing auditor, a
special notice shall be required for passing a resolution at an Annual General Meeting. On receipt of
notice of such resolution, the company shall send a copy to the removing auditor who may make
representation in writing with a request to notify to members of the company. The company shall
send the representation to the members in accordance with Sub-section (3) of Section 225 (unless the
representations are received too late, whereupon they may be read out at the meeting). Thereafter, a
general meeting has to be convened to pass the ordinary resolution by simple majority, and take the
consent of the Central Government. A written certificate from the proposed auditor to the effect that
appointment if made, will be in accordance with the limits specified in Section 224(1B) shall also be
obtained. If the company is listed, the requirements of the listing agreement also have to be complied
with and the stock exchanges have to be informed accordingly.
48. Answer: (e) < TOP >
Reason: According to Section 299(1) of the Companies Act, 1956 every director of a company who is in any
way whether directly or indirectly concerned or interested in a contract or arrangement or proposed
contract or arrangement, entered into, or to be entered into, by or on behalf of the company, shall
disclose the nature of his concern or interest at a meeting of Board of Directors. In the case of a
proposed contract or arrangement the disclosure, referred to above, shall be made at the meeting of
the Board at which the question of entering into contract or arrangement is first taken into
consideration or at the first meeting of the Board held after he becomes so interested or concerned.
Further under Section 300 of the Act, an interested director is prohibited to take part in the discussion
or vote on any contract or arrangement entered into by or on behalf of the company where he is
directly or indirectly interested in it.
In the present case, Ram is an interested director. He should have, therefore, disclosed his interest in
Moony Ltd. Non-disclosure of interest by Ram would subject him to a penalty of an amount, which
may extend to Rupees 5,000 as stipulated in Section 299(4) of the Act. Further in accordance with
the provisions of Section 283(1)(i) of the Act, Ram will have to vacate his office. Failure to disclose
interest renders the contract voidable at the option of the Board.
49. Answer : (d) < TOP >
Reason : The persons who are entitled to receive the notice of the general meeting is Present members of the
company whose names are borne in the register of members ,Legal representatives/heirs of the
deceased members and Official assignees of the insolvent members and the auditor(s) since as rightly
told by the company secretary since the BOD and MD are not members of the company they are not
entitled to receive under the provisions of the companies Act but it is a custom to give notice of the
general meetings to the BOD and MD also.
50. Answer : (e) < TOP >
Reason : Certain powers to be exercised by Board only at meeting
The Board of directors of a company shall exercise the following powers on behalf of the company,
and it shall do so only by means of resolutions passed at meeting of the Board, (not by circular
resolution)
(a) The power to make calls on shareholders in respect of money unpaid on their shares; [17(aa)
the power to authorize the buy-back referred to in the first proviso to clause (b) of sub-section
(2) of section 77A]
(b) The power to issue debentures;
(c) The power to borrow moneys otherwise than on debentures;
(d) The power to invest the funds of the company; and
(e) The power to make loans:
– Powers relating to power borrow money otherwise then on debentures.
– Power to invest the funds of the company and power to make loans can be deligated to
committee of directors. But power to make calls and issue debentures cannot be decided by
committee of directors. Those two powers can be exercised by the Board of directors only.
51. Answer : (c) < TOP >
Reason : In the general meetings only on those matters which were given in the agenda can be discussed..In
 this persent matters since a fresh notice is given to the three items those can be discussed in the adjourned
meeting and hence they are valid. [The Board of Directors added two more items to the notice of the
adjourned meeting]
52. Answer : (d) < TOP >
Reason : Yes, the director in the present question can vote, it is general meeting and a director if he is member
of the company ,can vote at general meeting even if he is interested .The restrictions u/s 297and 299
and 300 are applicable in connection with contracts in which he is interested are applicable only in
case of board meetings .In case of general meeting, the director can attend as a member ,speak and
also vote at the meeting .his attendance will be counted as quorum .The only requirement is that his
interest should be disclosed in the explanatory statement attached to the notice of the general
meeting.
53. 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 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 in the given question all the other three are excluded from the preview of section 275 i.e.
Directorship in
– Private company.
– Association not carrying for profit .
– Alternate directorship are not included in calculation of total directorship a person can hold.
Directorship for 9 public companies is only taken for calculation of Number of directorship i.e.
9 directorships. Hence, Harichandra is entitled to be appointed as director in wise Limited.
54. Answer : (e) < TOP >
Reason : A listed company cannot refuse transfer of shares u/s 111A of the companies Act but it can reject
only on the ground when the transfer deed contains some technical defects if there is any order by
SICA or SEBI or any authority, then in such case first transfer must be effected and then the board
can make an application NCLT, the decision of the NCLT is to be implemented . Hence resolution
passed in a board meeting without a valid quorum for transfer of shares has no effect. A refusal by a
defectively constituted board is no proper refusal.
55. Answer : (c) < TOP >
Reason: Section 372A(1)(a) of the Companies Act, 1956 provides that no company shall, directly or
indirectly, make any loan to any other body corporate exceeding sixty percent of its paid-up share
capital and free reserves or hundred percent of its free reserves, whichever is more. Provided that
where the aggregate of loans etc, along with loan etc. proposed to be made or given by the Board
exceeds the aforesaid limits, no loan etc. shall be made unless previously authorized by a special
resolution passed in a general meeting. Further sub-section (2) of said section disallows making of
inter-corporate loans etc. by the Board of directors of a company unless the resolution sanctioning
the loan is passed at a meeting of the Board with the consent of all the directors present at the
meeting.
In the given case 60% of the paid-up capital and free reserves of Ankit Ltd. would amount to
Rs.180 crores. However, the Board has made a loan of Rs.150 crores to a body corporate, which does
not exceed the ceiling specified in the said section. Thus the company has not violated any provision
of the Companies Act, 1956 provided that the Board by means of passing unanimous resolution at
the Board meeting had approved the amount of loan.
56. Answer : (c) < TOP >
Reason : Raghavareddy can not demand for specific performance of contract because the contract is
impossible to perform, which is caused by the circumstances beyond the control of Murugan
57. Answer: (b) < TOP >
 Reason: ‘D’ acquires valid title to the cow. In the instant case sec.28 of the sale of Goods Act, 1930 is
applicable which provides for the sale by one of the joint owners. If one of the several joint owners
of goods has the sole possession of them by permission of the co-owners, the property in goods is
transferred to the person who purchases them in good faith, and has not at the time of entering into
the contract of sale notice that the seller has no authority to sell them. Hence, in the present case D,
gets valid tile to the cow.
58. Answer : (b) < TOP >
Reason : No member is allowed to inspect the minutes book of meetings of the Board of Directors
59. Answer : (e) < TOP >
Reason : Under section 293 A of the Companies Act, Government company or a company which is in
existence for less than 5 years can not contribute to the political party.
60. Answer : (a) < TOP >
Reason : A time barred debt agreed upon by a written agreement, signed by the debtor or his duly authorized
agent, is enforceable even without consideration. Section 25(3), requires an express promise to pay
the time barred debt rather than a mere acknowledgement of the debt. In the given ease it is only an
acknowledgement of the existence of the debt and did not indicate whether Naveen intended to pay
the debt. Hence the moneylender cannot file suit on the basis of the acknowledgement given by
Naveen. Moneylender cannot file suit on the basis of original promissory note as it is not valid in
law. Hence the correct answer is (a).
61. Answer : (d) < TOP >
Reason : Yes, Ram will get his shares from Lakshman. The company is bound to restore the name of the
rightful owner in the register of members on becoming aware of the fact of forgery. Lakshman is
required to surrender the share certificate to the company and repay all the dividends, benefits
received by him. A person who becomes a holder of shares under a forged transfer does not acquire a
good title and is bound to return the shares to the rightful owner
62. Answer : (b) < TOP >
Reason : U/s 42 of the Companies Act, 1956 A subsidiary company cannot be a member of a holding
company except that a subsidiary may.
Hold the shares in the capacity of a Legal representative of a deceased member.
As trustee or continues to be a member of its holding company, either since the inception of the Act
or before it became its subsidiary.
63. Answer: (b) < TOP >
Reason : As per section 166 of the Companies Act, 1956 every annual general meeting shall be called during
business hours and on a day that is not a public holiday. But subsequent declaration of holiday by the
government does not affect the notices of the meeting already issued. So the company can conduct
the annual general meeting on 18th February .
64. Answer : (a) < TOP >
Reason : The company has to pay the reward of Rs.100,000 to Mrs. Geeta as she was contacted with
Hepatitis-A, even after the use of the medicine as per the specifications.
65. Answer : (c) < TOP >
Reason : Govind is liable to pay Rs.12,000. Where a person receives a part of the benefit during his minority
and part of it after attaining majority, then a promise made by him to pay for the both will be valid
consideration and is enforceable.
66. Answer : (b) < TOP >
Reason : The quick tech solutions cannot recover Rs.10 lakhs from the company.
According to the Doctrine of Constructive notice, every outsider dealing with a company is deemed
to have a notice of the contents of the Memorandum and Articles of Association. Doctrine of indoor
management has no application in this case.
67. Answer : (a) < TOP >
Reason : As per section 534 of the Companies Act, 1956, a floating charge on the undertaking or property of a
company created within 12 months before the commencement of the winding up proceedings shall be
void, if the company is not solvent immediately after the charge was created. As the company was
not solvent charge is not valid. The creditor can enforce his charge for Rs.10 lakhs only.
68. Answer : (d) < TOP >
 Reason : As Ajay and Vijay are discharged, both Vinay and Vinod are liable to pay Rs.200,000 options in (a),
(b), (c) and (e) are not correct.
69. Answer: (a) < TOP >
Reason: Once the sale is complete and the right on the goods is transferred from the seller to the buyer, no
longer the seller is responsible for the loss or destruction, or damage of the goods. The buyer has to
suffer the loss. In the instant case, Venkat purchased the T.V and kept the same in the very shop for
his own convenience. For the occurrence of the fire, the shopkeeper is not responsible in fact his own
goods are also burnt in the fire. Hence Venkat cannot compel the shopkeeper to give another or pay
the money what he has paid.
70. Answer: (b) < TOP >
Reason: All agreements are not contracts, even though there is an offer and acceptance, certain agreements
are social in nature, which do not contain any intention to create legal relationship. Hence they will
not bind on the parties. In the present case Mr. Joy invites all his friends and make arrangements for
lavish dinner in a star hotel. Thereby he incurs huge loss and got disappointed when the friends did
not turn up to the dinner. Even then Mr. Joy cannot have any remedy for recovering the loss caused
to him through his friends

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