CA (Chartered Accountancy) Intermediate: Corporate and Other Laws Syllabus

What is the difference between a 'fixed charge' and a 'floating charge'?

A fixed charge attaches to specific, identifiable, ascertained assets (e.g. land, machinery) and prevents the company from dealing with them freely. A floating charge hovers over a class of fluctuating assets (e.g. stock-in-trade) leaving the company free to deal with them in the ordinary course of business until the charge 'crystallises' (becomes fixed) on a default or winding up.

What is the difference between an 'annual general meeting (AGM)' and an 'extraordinary general meeting (EGM)'?

An AGM is a mandatory yearly meeting of members (every company except OPC must hold one each year). An EGM is any general meeting other than the AGM, called to transact urgent special business that cannot wait until the next AGM. All business at an EGM is special business.

State the time limits for holding an Annual General Meeting under Section 96.

The first AGM must be held within 9 months from the close of the first financial year. Subsequent AGMs must be held within 6 months from the close of the financial year, and the gap between two AGMs must not exceed 15 months. AGM must be held during business hours (9 a.m. to 6 p.m.) on a day that is not a National Holiday.

What is the quorum for general meetings of a (a) private company and (b) public company under Section 103?

(a) Private company: 2 members personally present. (b) Public company: 5 members if members are not more than 1000; 15 members if more than 1000 but up to 5000; 30 members if more than 5000.

What length of notice and what majority are required for an ordinary resolution versus a special resolution?

Both require not less than 21 clear days' notice (shorter notice allowed with consent of 95% members). Ordinary resolution: passed by simple majority (votes in favour exceed votes against). Special resolution: votes in favour must be at least 3 times the votes against (i.e. not less than 75% majority), and the intention to propose it as special must be stated in the notice.

Define a 'proxy' and state the key restrictions on a proxy under Section 105.

A proxy is a person appointed by a member to attend and vote at a meeting on the member's behalf. A proxy cannot speak and can vote only on a poll (not on a show of hands), unless the articles provide otherwise. The proxy instrument must be deposited at least 48 hours before the meeting. A person can act as proxy for up to 50 members holding in aggregate not more than 10% of total share capital carrying voting rights.

What is an 'annual return' under Section 92 and who must sign it?

The annual return is a yearly snapshot containing particulars as at the close of the financial year (registered office, principal business, shareholding pattern, indebtedness, members, directors, etc.). It must be signed by a director and the company secretary (or by a director and a company secretary in practice where there is no CS). It must be filed with the Registrar within 60 days of the AGM.

Which statutory registers must a company maintain regarding members and charges?

Key statutory registers include: Register of Members (Sec 88), Register of Debenture holders and other security holders, Register of Charges (Sec 85), Register of Directors and KMP and their shareholding (Sec 170), Register of Contracts (Sec 189), and Register of Significant Beneficial Owners (Sec 90).

Out of which sources can dividend be declared and paid under Section 123?

Dividend may be declared/paid out of: (a) profits of the current financial year after providing for depreciation; (b) profits of previous financial years after providing depreciation and remaining undistributed; (c) money provided by Central/State Government for dividend pursuant to a guarantee. Free reserves only may be used; no dividend can be declared if there are unset-off carried forward losses and depreciation.

Within what time must declared dividend be paid, and where is unpaid/unclaimed dividend transferred?

Dividend must be paid (or warrant posted) within 30 days of declaration. Amounts remaining unpaid/unclaimed for 30 days must be transferred to a special 'Unpaid Dividend Account' within 7 days. Money lying in that account unclaimed for 7 years is transferred to the Investor Education and Protection Fund (IEPF), along with the related shares.

What is the difference between 'interim dividend' and 'final dividend'?

Interim dividend is declared by the Board of Directors between two AGMs out of profits of the current year (or surplus profits). Final dividend is recommended by the Board and declared by members at the AGM. Once declared, both become a debt; final dividend once declared cannot be revoked, whereas interim dividend may be revoked before payment in some circumstances.

Within what time must the financial statements be filed with the Registrar, and who is required to be appointed as the first auditor and within what time?

Financial statements (and consolidated statements) adopted at the AGM must be filed with the Registrar within 30 days of the AGM. The first auditor must be appointed by the Board within 30 days of registration; if the Board fails, the members appoint within 90 days at an EGM. The first auditor holds office until the conclusion of the first AGM.

What is the tenure of an auditor and the rotation requirement under Section 139?

An auditor is appointed for a term of 5 years (to hold office from one AGM till the conclusion of the sixth AGM), subject to ratification not being required after the 2017 amendment. Rotation (for listed and prescribed companies): an individual auditor cannot serve more than one term of 5 years; an audit firm not more than two terms of 5 consecutive years; with a 5-year cooling-off period thereafter.

State the minimum and maximum number of directors required for different types of companies under Section 149.

Minimum: OPC – 1; Private company – 2; Public company – 3. Maximum: 15 directors for any company (which may be increased beyond 15 by passing a special resolution). Every company must also have at least one director who has stayed in India for not less than 182 days during the financial year (resident director).

What is a 'Director Identification Number' (DIN) and what is the maximum number of directorships a person may hold under Section 165?

DIN is a unique identification number allotted to an individual intending to be a director. A person cannot hold office as director (including alternate directorship) in more than 20 companies at the same time, of which the number of public companies cannot exceed 10.

List the grounds for disqualification of a director under Section 164.

A person is disqualified if: of unsound mind (declared by court); undischarged insolvent or applied to be adjudged insolvent (pending); convicted of an offence and sentenced to imprisonment of 6 months or more (within last 5 years) or any offence involving moral turpitude/imprisonment of 7+ years; court/Tribunal order disqualifying; unpaid calls for 6+ months; convicted of related-party offences (Sec 188) in last 5 years; or no DIN. Also disqualified if a director of a company that failed to file financial statements/annual returns for 3 continuous years or failed to repay deposits/redeem debentures/pay dividend for 1 year or more.

What are the general duties of a director codified under Section 166 of the Companies Act, 2013?

A director must: act in accordance with the articles; act in good faith to promote the objects of the company for the benefit of members, employees, community and environment; exercise duties with due and reasonable care, skill and diligence and independent judgment; avoid conflicts of interest; not achieve undue gain/advantage; and not assign his office (any such assignment is void).

What is the difference between an 'independent director' and a 'managing director'?

An independent director is a non-executive director with no material pecuniary relationship with the company, required for listed/prescribed public companies to bring objectivity; appointed for up to 5 years, max two consecutive terms, and not liable to retire by rotation. A managing director is entrusted with substantial powers of management; he is a whole-time key managerial personnel responsible for day-to-day management subject to the Board's superintendence.

What is the quorum and the maximum gap allowed between two meetings of the Board of Directors under Section 173 and 174?

A company must hold at least 4 Board meetings each year with a gap of not more than 120 days between two consecutive meetings. Quorum for a Board meeting is one-third of total strength or 2 directors, whichever is higher (any fraction rounded up to the next whole number).

Which powers can the Board of Directors exercise only by means of a resolution passed at a Board meeting (Section 179)?

Powers exercisable only by Board resolution at a meeting include: to make calls on shareholders; to authorise buy-back; to issue securities (including debentures); to borrow monies; to invest the funds of the company; to grant loans/give guarantee/provide security; to approve financial statements and Board's report; to diversify business; to approve amalgamation/merger; and to take over a company or acquire a controlling/substantial stake in another company.

Under Section 180, which powers of the Board can be exercised only with the consent of the company by special resolution?

(a) To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking; (b) to invest otherwise than in trust securities the compensation received on merger/amalgamation; (c) to borrow money exceeding the aggregate of paid-up capital, free reserves and securities premium (apart from temporary loans from bankers in ordinary course); and (d) to remit or give time for repayment of any debt due by a director.

What is the minimum and maximum number of partners required to form a Limited Liability Partnership (LLP) under the LLP Act, 2008?

Minimum 2 partners are required; there is no maximum limit on the number of partners. Every LLP must also have at least 2 designated partners who are individuals, at least one of whom must be resident in India.

State four key features that distinguish an LLP from a traditional partnership firm.

(1) An LLP is a body corporate with perpetual succession and a separate legal entity; a firm is not. (2) Partners' liability in an LLP is limited; in a firm it is unlimited and joint and several. (3) An LLP can sue and be sued, hold property in its own name; a firm cannot. (4) An LLP is governed by the LLP Act, 2008 and must register with the Registrar; a partnership firm is governed by the Indian Partnership Act, 1932 and registration is optional.

Compare an LLP with a company on the basis of liability, governing law, and minimum members.

Liability: limited in both. Governing law: LLP – LLP Act, 2008; Company – Companies Act, 2013. Minimum members: LLP – 2 partners; Company – 2 (private) / 7 (public) / 1 (OPC). An LLP offers more internal flexibility (governed by the LLP agreement) and fewer compliance requirements than a company; an LLP has 'designated partners' whereas a company has 'directors'.

Who is a 'foreign company' under Section 2(42) of the Companies Act, 2013?

A foreign company is any company or body corporate incorporated outside India which (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.

What documents must a foreign company deliver to the Registrar within 30 days of establishing a place of business in India (Section 380)?

It must file Form FC-1 with: a certified copy of the charter/MOA & AOA (with translation if not in English); full address of registered/principal office; list of directors and secretary with particulars; name and address of person(s) resident in India authorised to accept service of process and notices; full address of the company's principal place of business in India; and particulars of opening/closing of place of business earlier.

What is the object and key effect of the General Clauses Act, 1897?

The General Clauses Act, 1897 (a 'Reading Aid' Act) provides standard definitions of common words/expressions and general rules of construction applicable to all Central legislation and Regulations, so they need not be repeated in every statute. It shortens statutes, ensures uniformity of expression, and provides rules on commencement, repeal, computation of time, and effect of amendments.

Under the General Clauses Act, 1897, how is a period of time computed and when does an enactment come into force?

Computation of time (Sec 9): when a period is reckoned 'from' a day, that day is excluded; when reckoned 'to' a day, that day is included (i.e. 'from' excludes the first, includes the last). Commencement (Sec 5): unless otherwise stated, a Central Act comes into operation on the day it receives the President's assent. Where an act is allowed/required within a period and the last day is a holiday, it may be done on the next working day (Sec 10).

What is the effect of repeal of a statute under Section 6 of the General Clauses Act, 1897?

Unless a different intention appears, the repeal of an enactment does not: revive anything not in force at the time of repeal; affect the previous operation of the repealed law or anything duly done; affect any right, privilege, obligation or liability acquired/incurred; affect any penalty/forfeiture/punishment incurred; or affect any legal proceeding/remedy in respect of such right or liability — which may be continued as if the repealing Act had not been passed.

What is meant by 'interpretation of statutes' and why is it necessary?

Interpretation is the process by which courts ascertain and give effect to the true meaning and intention of the legislature as expressed in the words of a statute. It is necessary because language may be ambiguous, vague, or capable of more than one meaning, and to resolve conflicts, fill gaps, and apply general words to specific facts not foreseen by the legislature.

State and explain the 'literal (grammatical) rule' of interpretation.

Under the literal rule, the words of a statute are given their ordinary, natural and grammatical meaning. If the language is plain and unambiguous, the court must apply it as it stands, regardless of consequences, because the intention of the legislature is best discovered from the words used. It is the primary/first rule of interpretation.

Explain the 'mischief rule' (rule in Heydon's Case) of statutory interpretation.

The mischief rule directs the court to consider four matters: (1) what was the common law before the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy the legislature has resolved to provide; and (4) the true reason of the remedy. The court must interpret the statute so as to suppress the mischief and advance the remedy.

Distinguish between the 'golden rule' and the 'mischief rule' of interpretation.

Golden rule: start with the literal meaning, but if it leads to absurdity, inconsistency or repugnance, modify the ordinary meaning just enough to avoid that absurd result. Mischief rule: look behind the words to the defect the statute was meant to cure and interpret to suppress the mischief and advance the remedy. The golden rule modifies literal meaning; the mischief rule prioritises legislative purpose.

What are 'internal aids' to construction of a statute? Give examples.

Internal aids are found within the statute itself and help interpret it, including: the long and short title, preamble, marginal/side notes, headings, definition/interpretation clauses, illustrations, provisos, explanations, schedules, and saving clauses & non-obstante clauses ('notwithstanding anything...').

What are 'external aids' to construction, and name a few important ones?

External aids lie outside the statute and assist interpretation, such as: parliamentary history (debates, Statement of Objects and Reasons, reports of committees/commissions), dictionaries, earlier and later statutes (statutes in pari materia), historical setting, contemporanea expositio (contemporary usage), judicial decisions, and foreign decisions.

Explain the rules of 'Noscitur a Sociis' and 'Ejusdem Generis'.

Noscitur a sociis: a word takes its meaning from the words associated with it ('known by its companions'). Ejusdem generis (a species of noscitur a sociis): where general words follow specific words of the same class/genus, the general words are construed as limited to things of the same kind as those specified (e.g. 'cars, vans, motorcycles and other vehicles' = other mechanically propelled vehicles).

What is the 'doctrine of harmonious construction' in interpretation of statutes?

When two or more provisions of the same statute appear to conflict, they must be interpreted so that effect is given to both, harmonising them, rather than rendering one provision redundant or otiose. The court presumes the legislature did not intend a conflict; only if reconciliation is impossible will one provision prevail (and the court tries to keep both alive to the maximum).

What is a 'casting vote' of the Chairman, and how is voting at a general meeting decided on a show of hands versus a poll?

On a show of hands, each member present has one vote irrespective of shareholding; on a poll, voting is in proportion to the member's share of the paid-up capital (one share – one vote for equity). In case of equality of votes, the Chairman has a second or casting vote if the articles so provide, in addition to his vote as a member.