GUIDELINE ANSWERS

PROFESSIONAL PROGRAMME

JUNE 2023
YYY
MODULE 1
These answers have been written by competent persons and the Institute hope that the
GUIDELINE ANSWERS will assist the students in preparing for the Institute's
examinations. It is, however, to be noted that the answers are to be treated as model
answers and not as exhaustive and the Institute is not in any way responsible for the
correctness or otherwise of the answers compiled and published herein.

The Guideline Answers contain the information based on the Laws/Rules applicable at the time of
preparation. However, students are expected to be updated with the applicable amendments which
are as follows:
CS Examinations Applicability of Amendments to Laws
December Session upto 31 May of that Calender year
June Session upto 30 November of previous Calender Year

CONTENTS
Page

MODULE 1

1. Governance, Risk Management, Compliances and Ethics

2. Advanced Tax Laws

3. Drafting, Pleadings and Appearances

 PROFESSIONAL PROGRAMME EXAMINATION

JUNE 2023

GOVERNANCE, RISK MANAGEMENT, COMPLIANCES AND ETHICS

Time allowed : 3 hours Maximum marks : 100

NOTE : Answer ALL Questions.
PART I

Question 1
Zion Ltd., is one of the listed leading companies in the pharmaceutical sector. Meta Ltd. acquired 75%
Equity shares of Zion Ltd. five years ago and is being retained by Meta Ltd. till date. The shareholding
pattern of Meta Ltd. includes the following:
The Government of Punjab and Government of Haryana each hold 18% of the paid-up share capital.
The Government of Rajasthan’s share is 15.5%. During the course of audit for the financial year 2019-
20, the Auditors made the following observations:
(i) The company was not maintaining proper records with respect to the fixed assets. The value of
fixed assets of the company amounts to approx. ` 1.50 crore.
(ii) The physical verification of the assets was not carried out at regular intervals. The last physical
verification was conducted on 31st July 2018. On 29th June 2020, Mr. Sam, the Auditor of Zion
Ltd., resigned from his post, citing medical reasons. However, he had forgotten to inform about
his resignation to the concerned authorities. Casual vacancy so created was filled up with the
appointment of RMT & Co. Chartered Accountants as statutory, auditors of Zion Ltd.
As far as RMT & Co. Chartered Accountants are concerned, Mr. R, who is one of the partners of
the firm had borrowed a sum of ` 3.00 lakh from Meta Ltd. He had also purchased goods worth `
1.89 lakh from the company. Both the sum borrowed and the cost of the goods bought are not
yet paid by Mr. R does not sign the financials of Zion Ltd. In the above circumstances:
(a) Whether the process of resignation by the Auditor was correct? Explain the provisions under
the Companies Act 2013 with regard to resignation and communication by the Auditor. Who and
by what time the resignation has to be informed?
(b) Whether the appointment of Mr. R as the Auditor is a valid one?
(c) What should the auditor do for reporting of the fraud?
(d) Discuss the role of Audit Committee in such situation
(5 marks each)
Answer 1(a)
As per the provisions of Section 140 of the Companies Act – “The auditor who has resigned from the
company shall file within a period of thirty days from the date of resignation, a statement in the prescribed
form with the company and the Registrar, and in case of companies referred to in sub-section (5) of section
139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating
the reasons and other facts as may be relevant with regard to his resignation”.
Further, as per Rule 8 of Companies (Audit and Auditors) Rules, 2014 - “when an auditor has resigned from
the company, he shall file a statement in Form ADT-3”.
According to the above, under the provisions of Companies Act, 2013 it is the responsibility of the auditor
to inform about his resignation to the Company and to the Registrar of Companies within 30 days of his
resignation by filing e-form ADT 3 indicating the reasons and other facts as may be relevant with regard to
his resignation; and hence
(a) the process of resignation of auditor appears to be incorrect as the auditor has forgotten to inform about
his resignation to the concerned authorities;
(b) and (c) the provisions with regard to resignation and communication of Auditor as contained in Section
140 and provisions as to the person responsible to give information and the timelines prescribed are
outlined above.
Answer 1(b)
Section 141 of the Companies Act, 2013 contains provisions relating to eligibility, qualifications and
disqualifications of auditors.
It is given to understand here that one of the partners of the Statutory Audit firm had borrowed a loan of Rs.
3 lakhs from the Company and also purchased goods worth 1.89 lakhs which are due to be paid to the
Company.
In the given context, Section 141 contains that - a person shall not be eligible to be appointed as the auditor
of the Company if he, or his relative or partner is indebted to the company, or its subsidiary, or its holding
or associate company or a subsidiary of such holding company, in excess of rupees five lakhs.
As the indebtedness does not exceed the prescribed threshold of rupees five lakhs, it appears from the
above provision that the appointment of M/s. RMT & Co. as statutory auditors is not affected by the reason
of Mr. R being indebted to the company.
Answer 1(c)
It is the duty of the auditor to verify whether the financial statements are prepared in accordance with the
applicable financial reporting framework and to express an opinion on the financial statements audited by
him as to whether the financial statements provide a true and fair view on the financial position of the
company. If during the course of the audit, the auditor comes across fraudulent activities or offence involving
the fraud, he shall report the same to the management of the company and Central Government as
appropriate.
Section 143(12) of Companies Act, 2013 and Companies (Audit and Auditors) Rules 2014 lays down the
procedure for reporting of fraud. The same has been explained below-
Amount involved in fraud is more than Rs. 1 Crore
If during the course of audit, the auditor has reason to believe that an offence of fraud involving an amount
exceeding Rs. 1 crore or more is being or has been committed against the company by the officers or
employees of the company, then the auditor shall report the matter to the Central Government.
The matter shall be reported to the Central Government in the following manner-
The auditor is required to report fraud to the management within 2 days from the date of his knowledge of
fraud, asking them to reply within a period of 45 days.
Upon receipt of reply from the management, the auditor shall forward his report along with reply from the
management and his comments on such reply to the Central Government within a period of 15 days from
the date of receipt of such reply from the management.
If the auditor fails to get any response from the management within a period of 45 days, he shall forward
his report to the Central Government along with the details of the report earlier forwarded to the
management for which he has not received any reply.
The repost shall be forwarded to the Secretary, Ministry of Corporate Affairs in a sealed cover either by
registered post or by speed post. It shall be followed by an email in confirmation of the same. Such a report
forwarded shall be on the letter head of the auditor containing the postal address, email address and
telephone number.
The report shall also be signed and sealed and shall indicate his membership number. The report shall be
in form ADT-4
Amount involved in fraud is less than Rs. 1 Crore
If the amount involved in fraud is less than Rs. 1 crore, the auditor shall report the matter to the audit
committee or Board within a period of 2 days from the date of his knowledge of fraud.
The report shall include the following-
 Nature of Fraud
 Amount involved in fraud
 Parties involved
Further, in case of fraud in which the amount involved is less than Rs. 1 crore, the board report shall include
the following-
 Nature of Fraud Amount involved in fraud
 Parties involved
 Remedial Actions Taken Reporting
Requirements under CARO 2020
CARO 2020 provides for specific requirements for reporting of fraud under clause 11. The same has been
provided below-
1. Has there been any fraud by the company or any fraud done on the company. If any such
fraud has been noticed or reported any time of the year. If yes, nature and amount involved have
to be reported.
2. Whether the auditors of the company have filed a report in Form ADT-4 with the Central
Government as prescribed under the Companies (Audit and Auditors) Rules, 2014.
Answer 1(d)
Under Section 177(4) of the Companies Act, 2013, the role of audit committee with respect to appointment
of auditors, review of financial statements and reporting of fraud is as below:
Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board.
Terms of reference as prescribed by the board shall inter alia, include-
(i) the recommendation for appointment, remuneration and terms of appointment of auditors of the
company:
(ii) review and monitor the auditor's independence and performance., and effectiveness of audit process:
(iii) examination of the financial statement and the auditors’ report thereon:
(iv) approval or any subsequent modification of transactions of the company with related parties;
Provided that the Audit Committee may make omnibus approval for related party transactions proposed to
be entered into by the company subject to such conditions as prescribed under rule 6A of the Companies
(Meetings of Board and its Powers) Rules. 2014:
Provided further that in case of transaction, other than transactions referred to in section 188, and where
Audit Committee does not approve the transaction, it shall make its recommendations to the Board:
Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered
into by a director or officer of the company without obtaining the approval of the Audit Committee and it is
not ratified by the Audit Committee within three months from the date of the transaction, such transaction
shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any
director or is authorised by any other director, the director concerned shall indemnify the company against
any loss incurred by it.
 Attempt all parts of either Q. No. 2 or Q. No. 2A
Question 2
(a) Discuss the institutional mechanism for prevention of insider trading under the relevant Insider Trading
laws in India.
(5 marks)
(b) For greater accountability and effectiveness performance, review of the board and individual director is
essential. What is the scope of evaluation of director’s performance?
(5 marks)
(c) National Infrastructure Ltd., a Government Company appointed Z, a senior retired IAS officer on its Board
as an Independent director. The retired IAS officer wants to know the qualifications of an independent
director and also wishes to know any code of professional conduct with reference to the provisions of the
Companies Act, 2013. State the same.
(5 marks)
OR (Alternate question to Q. No. 2)
Question 2A.
(i) Mr. A is appointed as an Actuary in PQR Ltd. under IRDA (Appointed Actuary) Regulations, 2000. Mr.
A, the appointed actuary shall provide professional advice or certification to the Board of Directors of PQR
Ltd. on certain items. Discuss role of Appointed Actuaries and indicate such items on which Actuary may
provide professional advice or certification to the Board of Directors.
(5 marks)
(ii) “The corporate governance framework should protect and facilitate exercise of shareholders’ rights and
ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All
shareholders should have the opportunity to obtain effective redressal for any violation of their rights.”
Explain the provisions of the Companies Act, 2013 to protect the interests of minority shareholders.
(5 marks)
(iii) X Ltd., the holding company of B Ltd. (having 51% of its shareholding in B Ltd.), wants to appoint A as
Chief Finance Officer over there. A is related to one of the Directors of the holding company. Will it be
considered a related party transaction under the provisions of the Companies Act, 2013? If so, what is
the procedure to be followed by the Board of X Ltd.? Would your answer differ, assuming it is an associate
company or wholly owned subsidiary company?
(5 marks)
Answer 2(a)
Institutional Mechanism for Prevention of Insider trading (Regulation 9A of the Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015):
(1) The Chief Executive Officer, Managing Director or such other analogous person of a listed Company,
intermediary or fiduciary shall put in place adequate and effective system of internal controls to ensure
compliance with the requirements given in these regulations to prevent insider trading.
(2) The internal controls shall include the following:
(a) all employees who have access to unpublished price sensitive formation are identified as
designated person;
(b) all the unpublished price sensitive information shall be identified and its confidentiality shall be
maintained as per the requirements of these regulations;
(c) adequate restrictions shall be placed on communication or procurement of unpublished price
sensitive information as required by these regulations;
 (d) lists of all employees and other persons with whom unpublished price sensitive information is
shared shall be maintained and confidentiality agreements shall be signed or notice shall be served
to all such employees and persons;
(e) all other relevant requirements specified under these regulations shall be complied with;
(f) periodic process review to evaluate effectiveness of such internal controls.
(3) The board of directors of every listed company and the board of directors or head(s) of the
organisation of intermediaries and fiduciaries shall ensure that the Chief Executive Officer or the Managing
Director or such other analogous person ensures compliance with regulation 9 and sub- regulations (1) and
(2) of this regulation.
(4) The Audit Committee of a listed company or other analogous body for intermediary or fiduciary shall
review compliance with the provisions of these regulations at least once in a financial year and shall verify
that the systems for internal control are adequate and arc operating effectively.
(5) Every listed company shall formulate written policies and procedures for inquiry in case of leak of
unpublished price sensitive information or suspected leak of unpublished price sensitive information, which
shall be approved by board of directors of the company and accordingly initiate appropriate inquiries on
becoming aware of leak of unpublished price sensitive information or suspected leak of unpublished price
sensitive information and inform the Board promptly of such leaks, inquiries and results of such inquiries.
(6) The listed company shall have a whistle-blower policy and make employees aware of such policy to
enable employees to report instances of leak of unpublished price sensitive information.
(7) If an inquiry has been initiated by a listed company in case of leak of unpublished price sensitive
information or suspected leak of unpublished price sensitive information. the relevant intermediaries and
fiduciaries shall co-operate with the listed company in connection with such inquiry conducted by listed
company.
Answer 2(b)
Board evaluation is a key means by which boards can recognize and correct corporate governance
problems and add real value to their organizations. A properly conducted board evaluation can contribute
significantly to performance improvements on organisational; board and individual member level.
Board evaluation typically examines the roles of the Board and the entailing responsibilities, and assesses
how effectively these are fulfilled by the Board. Board evaluation contributes significantly to improved
performance at three levels – organizational, Board and individual Board member level. It also improves the
leadership, teamwork, accountability, decision- making, communication and efficiency of the board. A
commitment to annual evaluation is powerful change.
1. The Role of the Nominations and Remuneration Committee in performance evaluation of directors
Section 178 (2): The Nomination and Remuneration Committee shall identify persons who are qualified to
become directors and who may be appointed in senior management in accordance with the criteria laid
down, recommend to the Board their appointment and removal and shall specify the manner for effective
evaluation of performance of Board, its committees and individual directors to be carried out either by the
Board or by the Nomination and Remuneration Committee or by an independent external agency and
review its implementation and compliance.
2. Independent Directors’ role in performance evaluation of Boards, non-independent directors and
Chairperson
Schedule IV [Part II (2)] : Independent directors are required to bring an objective view in the evaluation of
the performance of board and management.
Schedule 1V (Part VII) : The independent directors of the company shall hold at least one meeting in a
financial year. without the attendance of non-independent directors and members of management. All the
independent directors of the company shall strive to be present at such meeting. The meeting shall:
(a) review the performance of non-independent directors and the Board as a whole:
(b) review the performance of the Chairperson of the company. taking into account the views of executive
directors and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management
and the Board that is necessary for the Board to effectively and reasonably perform their duties.
3. Performance evaluation of Independent Directors
Schedule IV Part V: Re appointment - The reappointment of the independent directors would be based on
their report of performance evaluation.
Schedule IV Part VII : Evaluation mechanism The performance of the independent directors would have to
be done by the entire Board excluding the director to be evaluated. On the basis of the report of performance
evaluation. the continuance or extension of the term of appointment of the independent director would be
determined.
4. Inclusion of Performance evaluation in Board’ Report
According to Rule 8 (4) of the Companies (Accounts) Rules. 2014 Every listed company and every other
public company having a paid up share capital of twenty five crore rupees or more calculated at the end of
the preceding financial year shall include in the report by its Board of directors, a statement indicating the
manner in which formal annual evaluation has been made by the Board of its own performance and that of
its committees and individual directors.
Provisions under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with
respect to Board Evaluation
It also requires Boards to conduct an annual performance evaluation and its disclosure in the annual report
through the following provisions:
1. Regulation 4(2)(N(i1) (9) states the Key functions of the board of directors which includes: Monitoring
and reviewing board of director's evaluation framework.
2. Regulation 17(10) mandates that evaluation of independent directors shall be done by the entire board
of directors which shall include-
a. performance of the directors: and
b. fulfilment of the independent criteria as specified in these regulations and their independence from the
management.
In the above evaluation process, the directors who are subject to evaluation shall not participate.
3. Regulation 19(4) read with Part D of Schedule II - It provides that the role of Nomination and
Remuneration committee shall, inter-alia, include the following:
(1) formulation of the criteria for determining qualifications. positive attributes and independence of a
director and recommend to the board of directors a policy relating to, the remuneration of the Directors,
key managerial personnel and other employees;
(2) formulation of criteria for evaluation of performance of independent directors and the board of directors;
(3) devising a policy on diversity of board of directors;
(4) identifying persons who are qualified to become directors and who may be appointed in senior
management in accordance with the criteria laid down, and recommend to the board of directors their
appointment and removal.
(5) whether to extend or continue the term of appointment of the independent director, on the basis of the
report of performance evaluation of independent directors;
(6) recommend to the board all remuneration, in whatever form, payable to senior management.
4. Disclosure on Performance evaluation criteria for independent directors has to be made under head
Nomination and Remuneration Committee in the section on the corporate governance of the annual report.
Answer 2(c)
Qualifications of Independent Director
As per Section 149(6) - An independent director in relation to a company, means a director other than a
managing director or a whole-time director or a nominee director who, in the opinion of the Board, is a
person of integrity and possesses relevant expertise and experience.
Further, as per Rule 5 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 -
An independent director shall possess appropriate skills, experience and knowledge in one or more fields
of finance, law, management, sales, marketing, administration, research, corporate governance, technical
operations or other disciplines related to the company’s business.
Code for Independent Directors
Section 149 (8) of the Companies Act. 2013 states that the company and independent directors shall abide
by the provisions specified in Schedule IV, which contains the Code for Independent Directors.
Schedule IV - Code for Independent Directors
The Code is a guide to professional conduct for independent Directors. Adherence to these standards by
independent Directors and fulfilment of their responsibilities in a professional and faithful manner will
promote confidence of the investment community, particularly minority shareholders, regulators and
companies in the institution of independent Directors.
An independent director shall:
(1) uphold ethical standards of integrity and probity:
(2) act objectively and constructively while exercising his duties:
(3) exercise his responsibilities in a bona fide manner in the interest of the company:
(4) devote sufficient time and attention to his professional obligations for informed and balanced decision
making;
(5) not allow any extraneous considerations that will vitiate his exercise of objective independent Judgment
in the paramount interest of the company as a whole while concurring in or dissenting from the collective
judgment of the Board in its decision making;
(6) not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining
direct or indirect personal advantage or advantage for any associated person.
(7) refrain from any action that would lead to loss of his independence;
(8) where circumstances arise which make an independent director lose his independence, the independent
director must immediately inform the Board accordingly:
(9) assist the company in implementing the best corporate governance practices.

Answer 2A (i)
IRDAI has brought out detailed Regulations on Appointed Actuary vide IRDA (Appointed Actuary)
Regulations. 2000, detailing the procedure for his appointment, qualifications, powers along with his duties
and obligations.
The Regulations also stipulate that prior approval of the Authority shall be taken for the appointment of the
Appointed Actuary. The Board should ensure that the requirements are scrupulously complied with.
In brief, it reiterated that:
 The Appointed Actuary should qualify and satisfy the “Fit & Proper” criteria and other eligibility
conditions as mentioned in IRDA (Appointed Actuary) Regulations, 2000, as amended from time to
time.
  The insurance companies shall clearly set forth the Appointed Actuary’s responsibilities and any
advisory role vis-a-vis the Board or the management as well as his/her rights and obligations. These
shall be in addition to the duties of the Appointed Actuaries as specified in the IRDAI Regulations and
any other directions of IRDA in the matter.
 As soon as the Appointed Actuary realizes that the entity does not comply or is likely to fail in complying
with the requirements of solvency and other parameters of sound operations, he/she shall inform the
Board of the insurer. If no viable/acceptable action is taken by the Board, then he/she has to inform
the same to IRDAI.
 The Board shall interact directly with the Appointed Actuary wherever it considers it expedient to
secure his advice. it may do so in such manner as it may deem fit.
The Appointed Actuary shall provide professional advice or certification to the board with regard to: -
- Estimation of technical provisions in accordance with the valuation framework setup by the insurer.
- Identification and estimation of material risks and appropriate management of the risks.
- Financial condition testing.
- Solvency margin requirements.
- Appropriateness of premiums (and surrender value).
- Allocation of bonuses to with-profit insurance contracts.
- Management of participating funds (including analysis of material effects caused by strategies and
policies).
- Product design, risk mitigation (including reinsurance) and other related risk management roles
While the areas of advice/certification listed above are with specific reference to life insurance companies,
the appointed actuaries in case of non-life insurance companies shall provide such advice/certification to
the extent applicable. In order to facilitate the Appointed Actuary in discharging his/her responsibilities, he/
she shall at all times be provided access to the information as required.
Answer 2A (ii)
As an equity shareholder, minority have the right to:
 participate in the profits of the company.
 information about the company.
 participation in general shareholder meetings and influence corporate actions through
voting on proposal.
Companies Act, 2013 provides for some measures to protect the interest of minority shareholders which
are discussed as under: -
(1) Oppression and Mismanagement: Part XVI consisting of Sections from 241 10 246 of Companies Act,
2013 deals with prevention of Oppression and Mismanagement. When a shareholder's rights are violated
it can be termed as oppression. Oppression occurs when the majority shareholders misuse their rights and
take company’s business as their personal property resulting in loss to the minority shareholders
(2) Class Action Suit: A class action suit is a legal proceeding in which shareholders bring suit as a group
against the company or its directors or officers and the judgment or settlement received from the suit covers
all the shareholders equally.
(3) Special Rights: As “the will of the majority prevails’ the decision of majority shareholders in a company
binds the minority. They exercise their rights without considering the interests of minority. They may misuse
their power to exploit the rights of minority. Hence Companies Act. 2013 provides some special powers to
small shareholders to prevent exploitation of their rights.
(4) Representation on Board: Section 151 provides that a listed company may have one director elected
by such small shareholders as prescribed under Rule 7 of the Companies (Appointment and Qualification
of Directors) Rules. 2014.
(5) E-Voting: Voting by electronic means is a facility given to the members of a company with more than
1000 shareholders to cast their votes on the resolutions through electronic mode. It provides an opportunity
to shareholders residing in far-flung area to take part in the decision-making process of the company.
Shareholder scan therefore exercise their voting rights even when they cannot be physically present for
meetings and without spending too much time or money.
(6) Exit Rights: In the event of an acquirer, or a person acting in concert with such acquirer, becoming
registered holder of 90% or more of the issued equity share capital of a company, or in the event of any
person or group of persons becoming ninety percent majority or holding 90% of the issued equity share
capital of a company, by virtue of an amalgamation, share exchange. conversion of securities or for any
other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of
their intention to buy the remaining equity shares [Section 236(1)].
(7) Related Party Transactions: Section 188(1) provides that except with the consent of the Board of
Director given by a resolution at meeting of the Board, not company shall enter into any contract or
arrangement with a related party with respect to(a) sale, purchase or supply of any goods or materials; (b)
selling or otherwise disposing of, or buying, property of any kind (c) leasing of property of any kind, (d)
availing or rendering of any services; (e) appointment of any agent for purchase or sale of goods, materials,
services or property; (f) such related party's appointment to any office or place of profit in the company, its
subsidiary company or associate company; and (g) underwriting the subscription of any securities or
derivatives thereof, of the company.
(8) Application to Tribunal for Relief:
Section 244(1) provides that any member of a company who complains that —
(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest
or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial
to the interests of the company;
or
(b) the material change, not being a change brought about by, or in the interests of, any creditors. including
debenture holders or any class of shareholders of the company, has taken place in the management or
control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership
of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever,
and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner
prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such
member has a right to apply under section 244, for an order under Chapter XVI.
Answer 2A (iii)
As per the provisions of Section 2(76), "related party", with reference to a company, includes —
(i) a director or his relative;
(ii) key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or his relative is a member or director;
(v) a public company in which a director or manager is a director or and holds along with his relatives, more
than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given
in a professional capacity;
Further, as per section 188, the following transaction is deemed to be related party transaction:
(f) related party's appointment to any office or place of profit in the company, its subsidiary company or
associate company; and where the expression “office or place of profit” includes any office or place—
(ii) where such office or place is held by an individual other than a director or by any firm, private company
or other body corporate, if the individual, firm, private company or body corporate holding it receives from
the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise;
In the given scenario, relative of director of X ltd. is going to be appointed as CFO in subsidiary company
of X ltd. and hence as per the above provisions, the same is a related party transaction under the Act.
Procedure to be followed by X Ltd.
 Consent of Board of Directors to be taken at a meeting of the Board of Directors;
The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-
(a) the name of the related party and nature of relationship;
(b) the nature, duration of the contract and particulars of the contract or arrangement;
(c) the material terms of the contract or arrangement including the value, if any;
(d) any advance paid or received for the contract or arrangement, if any;
(e) the manner of determining the pricing and other commercial terms, both included as part
of contract and not considered as part of the contract;
(f) whether all factors relevant to the contract have been considered, if not, the details of
factors not considered with the rationale for not considering those factors; and
(g) any other information relevant or important for the Board to take a decision on the proposed
transaction.
The director who is interested in the contract or arrangement with a related party, shall not be present at
the meeting during discussions on the subject matter of the resolution relating to such contract or
arrangement.
 Where the transaction is for appointment to any office or place of profit in the company, its
subsidiary company or associate company at a monthly remuneration exceeding two and a half
lakh rupees as mentioned in clause (f) of sub-section (1) of section 188, prior consent of members
by means of a resolution should also be obtained.
Any member of the company who is a related party shall not vote on such resolution, to approve any
contract or arrangement which may be entered into by the company:
The explanatory statement to be annexed to the notice of a general meeting convened pursuant to section
101 shall contain the following particulars, namely:-
 name of the related party;
 name of the director or key managerial personnel who is related, if any;
 nature of relationship;
 nature, material terms, monetary value and particulars of the contract or arrangements;
 any other information relevant or important for the members to take a decision on the
proposed resolution.
Every contract or arrangement entered into under sub-section (1) of Section 188 shall be referred to in the
Board’s report to the shareholders along with the justification for entering into such contract or arrangement.
The requirement of seeking approvals as above shall not apply to any transactions entered into by the
company in its ordinary course of business other than transactions which are not on an arm’s length basis.
The requirement of passing the member’s resolution shall not be applicable for transactions entered into
between a holding company and its wholly owned subsidiary whose accounts are consolidated with such
holding company and placed before the shareholders at the general meeting for approval. In case of wholly
owned subsidiary, the resolution passed by the holding company shall be sufficient for the purpose of
entering into the transaction between the wholly owned subsidiary and the holding company. For associate
company, no specific difference from above procedure has been prescribed.
Question 3.
(a) What are the methods by which IRDA exercises control over significant ownership?
(b) What are the Classes of Companies and bodies corporate governed by the National Financial Reporting
Authority (NFRA)?
(c) What are the provisions under Sarbanes-Oxley Act 2002 for protection of Whistle Blowers?
(d) What are the committees required to be constituted by Non-Banking Financial Companies?
(e) You have been appointed as a Company Secretary for a Company formed a month ago. As the
secretary, you are required to list out the items of business for the agenda for first meeting of Board of the
Company.
(3 marks each)
Answer 3(a)
IRDAI prescribes a minimum lock-in period of 5 years from the date of certificate of commencement of
business of an insurer (R3) for the promoters of the insurance company and no transfer of shares of the
promoters is permitted within this period without the specific approval of the Authority. Section 2 (7A) of the
Insurance Act, 1938 has prescribed the ceiling of Foreign Investment in Indian Insurance Companies at
74%, subject to the Indian Insurance Company being Indian owned and controlled. The manner of
computation of Foreign Investment to satisfy this requirement is specified in the Rules and Regulations
issued by the Government and IRDAI from time to time.
It has to be demonstrated through express provisions in the agreements between the promoters/
shareholders and/ or the Articles of Association of the Insurance companies that the ownership as well as
control does not lie with foreign entities but ultimately rests with resident Indian citizens at all times.
The Insurance Act, 1938 stipulates prior approval of the IRDAI for registration/transfer of shares, exceeding
one per cent and /or which involve holding of share capital, after such transfer, in excess of 5 per cent of
the paid-up capital of the company. The Board of Directors of the company shall ensure that the registration
of shares is in compliance with the above provisions of the Act, Regulations and circulars issued by IRDAI
from time to time.
Answer 3(b)
Classes of Companies and bodies corporate governed by the National Financial Reporting Authority
(NFRA) as per Rule 3 of the National Financial Reporting Authority Rules. 2018 (NFRA Rules) are as below:
1. companies whose securities are listed on any stock exchange in India or outside India;
2. unlisted public companies having paid-up capital of not less than rupees five hundred crores or having
annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans,
debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately
preceding financial year;
3. Insurance companies, banking companies, companies engaged in the generation or supply of electricity,
companies governed by any special Act for the time being in force or bodies corporate incorporated by an
Act.
4. Any body corporate or company or person, or any class of bodies corporate or companies or persons.
on a reference made to the Authority by the Central Government in public interest: and
5. A body corporate incorporated or registered outside India, which is a subsidiary or associate company
of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d), if
the income or net worth of such subsidiary or associate company exceeds twenty percent, of the
consolidated income or consolidated net worth of such company or the body corporate, as the case may
be.
6. A company or a body corporate other than a company governed under this rule shall continue to be
governed by the Authority for a period of three years after it ceases to be listed or its paid-up capital or
turnover or aggregate of loans, debentures and deposits falls below the limit stated therein.
Answer 3(c)
Sarbanes Oxley Act of 2002 is an Act enacted by U.S. congress to protect investors by improving the
accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other
purposes. Section 302 of the said Act contains following provisions for whistle-blowers:
 Make it illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate
against” whistle-blowers.
 Establish criminal penalties of up to 10 years for executives who retaliate against whistle-blowers.
 Require board audit committees to establish procedures for hearing whistle-blower complaints
 Allow the secretary of labour to order a company to rehire a terminated employee with no court
hearing.
 Give a whistle-blower the right to a jury trial, by passing months or years of administrative hearings.
Answer 3(d)
1. Audit Committee: All Applicable NBFCs shall constitute an Audit Committee, consisting of not less than
three members of its Board of Directors. The Audit Committee must ensure that an Information System
Audit of the internal systems and processes is conducted at least once in two years to assess operational
risks faced by the NBFCs.
2. Nomination Committee: All Applicable NBFCs shall form a Nomination Committee to ensure “fit and
proper’ status of proposed/ existing directors. The Nomination Committee constituted under this paragraph
shall have the same powers, functions and duties as laid down in Section 178 of the Companies Act, 2013.
3. Risk Management Committee: To manage the integrated risk, all Applicable NBFCs shall form a Risk
Management Committee, besides the Asset Liability Management Committee.
Few other committees are prescribed in other regulations depending on asset base or other parameter. For
example - Asset Liability Management Committee (ALCO) for NBFCs with asset base of Rs. 100 cr or more
& NBFC- D as per Para 1 of Asset Liability Management (ALM) System for NBFCs – Guidelines.
Stakeholders Relationship Committee for NBFCs having more than 1000 shareholders, debenture holders,
deposit-holders and any other security holders at any time during the FY as per Section 178(5) of
Companies Act, 2013, CSR Committee for NBFCs with net worth of rupees five hundred crore or more, or
turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any
financial year as per Section 135 of Companies Act, 2013, Committees as per Listing regulations for Listed
NBFCs etc.
Answer 3(e)
The first meeting of the board may contain the following agendas:
1. To appoint the Chairman of the Meeting, ascertain quorum and grant leave of absence, if any
2. To note the Certificate of Incorporation of the company, issued by the Registrar of Companies.
3. To take note of the Memorandum and Articles of Association of the company as registered.
4. To note the situation of the Registered Office of the company and ratify the registered document of the
title of the premises of the registered office in the name of the company or a Notarised copy of lease/ rent
agreement in the name of the company.
5. To note the first Directors of the company.
6. To read and record the Notices of disclosure of interest given by the Directors.
7. To consider appointment of Additional Directors, if any.
8. To consider appointment of the Chairman of the Board.
9. To consider appointment of the first Auditors.
10. To adopt the Common Seal of the company, if any.
11. To appoint Bankers and to open bank accounts of the company.
12. To authorise printing of share certificates and correspondence with the depositories, if any.
13. To authorise the issue of share certificates to the subscribers to the Memorandum and Articles of
Association of the company on receipt of subscription money.
14. To approve and ratify preliminary expenses and preliminary agreements.
15. to take note of secretarial standards.
16. To authorise personnel for GST and other registrations
17. To delegate powers for day-to-day operations of Company
15. To approve the appointment of the Key Managerial Personnel, if applicable and other senior officers

PART-II

Question 4
A Chocolate Company since inception in 1990 has been largely responsible for satisfying the country’s
demand for Chocolates and Sugar Confectionery. The plant has various lines producing a wide range
of confectionery like Éclairs. Toffees, Fudges. Caramels, Hard Boiled Candy and Enrobed Chocolates.
These products are available in attractive packaging and premium Gift Boxes making them ideal for
gifting as well as for own consumption. Most of the packaging in the Gift Pack segment has been
carefully selected to ensure its enduring utility, thereby giving our valued customers an added benefit.
The confectionery is produced by experienced personnel under stringent quality control and hygiene
standards. State-of-theart manufacturing facilities ensure products of international quality. The
company in its relentless pursuit of quality obtained relevant Certification in April, 2004.
The Company, through its uncompromising stand on quality and competitive pricing, has
successfully penetrated countries all over the Gulf, the African continent. Asia, Australia, New
Zealand, Canada, South Africa, USA and the UK.
The principal business processes involved are:
• Procurement of raw materials and consumables, Production and Quality Control.
• Distribution and marketing, Inventory Management, Pricing and cost control.
• Feedback from consumers and redressal systems, Publicity and promotional activities, Investor
relations.
• Recruitment and HR, Finance & Administration.
• Corporate communications and public relations, Legal and secretarial matters.
 Maintenance of equipment and other assets, Capital expenditure for equipment and other
purposes.
 • IT systems and telecommunications, Transportation and Logistics.
Today, manufacturing sector companies like chocolate manufacturing operates in increasingly
complex, competitive and global markets. The ability to manage risks across geographies,
products, assets, customer segments and functional departments is of paramount importance. The
inability to manage these risks can cause irreparable damages. Chocolate company will always
face the likelihood of being impacted by uncertain or adverse future events. These uncertainties
will have an impact on a company’s ability to generate capital and shareholders returns. The
company Board expects that management will not only look at where the company may be exposed
to risk, but also how these risks can be managed to influence favorable business outcomes.
Considering the above, answer the following questions:
(a) What are the fundamental principles to be considered by company to develop an appropriate
Risk Policy Framework for the Company?
(b) What are the various risks, the company is exposed to?
(c) Discuss some approaches for risk impact assessment.
(d) What do you understand by Liquidity Risk? What are the techniques to control liquidity risk?
(5 marks each)
Answer 4(a)
Effective risk management plays a crucial role in any company's pursuit of financial stability and superior
performance. The adoption of a risk management framework that embeds best practices into the firm's risk
culture can be the cornerstone of an organization's financial future.
There are at least five crucial components that must be considered when creating a risk management
framework. They include risk identification; risk measurement and assessment; risk mitigation; risk reporting
and monitoring; and risk governance.
Risk Identification
The first step in identifying the risks a company faces is to define the risk universe. The risk universe is
simply a list of all possible risks. Examples include IT risk, operational risk, regulatory risk, legal risk, political
risk, strategic risk, and credit risk.
After listing all possible risks, the company can then select the risks to which it is exposed and categorize
them into core and non-core risks. Core risks are those that the company must take in order to drive
performance and long-term growth. Non-core risks are often not essential and can be minimized or
eliminated completely.
Risk Measurement
Risk measurement provides information on the quantum of either a specific risk exposure or an aggregate
risk exposure and the probability of a loss occurring due to those exposures. When measuring specific risk
exposure, it is important to consider the effect of that risk on the overall risk profile of the organization.
Some risks may provide diversification benefits while others may not. Another important consideration is
the ability to measure an exposure. Some risks may be easier to measure than others. For example, market
risk can be measured using observed market prices, but measuring operational risk is considered both an
art and a science.
Specific risk measures often give the profit and loss ("P/L") impact that can be expected if there is a small
change in that risk. They may also provide information on how volatile the P/L can be.
Common aggregate risk measures include value-at-risk (VaR), earnings-at-risk (EaR), and economic
capital. Techniques such as scenario analysis and stress testing can be used to supplement these
measures.
Risk Mitigation
Having categorized and measured its risks, a company can then decide on which risks to eliminate or
minimize, and how many of its core risks to retain. Risk mitigation can be achieved through an outright sale
of assets or liabilities, buying insurance, hedging with derivatives, or diversification.
Risk Reporting and Monitoring
It is important to report regularly on specific and aggregate risk measures in order to ensure that risk levels
remain at an optimal level. Financial institutions that trade daily will produce daily risk reports. Other
institutions may require less frequent reporting. Risk reports must be sent to risk personnel who have the
authority to adjust (or instruct others to adjust) risk exposures.
Risk Governance
Risk governance is the process that ensures all company employees perform their duties in accordance
with the risk management framework. Risk governance involves defining the roles of all employees,
segregating duties, and assigning authority to individuals, committees, and the board for approval of core
risks, risk limits, exceptions to limits, and risk reports, and also for general oversight.
Answer 4(b)
Different types of risks the company is exposed to:
I. Market Risks: It is the risk that the value of the company will be adversely affected by movements in
market rates or prices. foreign exchange rates, national & global fluctuations, credit spreads and/or
commodity prices resulting in a loss to earnings and capital. The market risks identified at this chocolate
company are as follows:
 Government Policy risks
 Product Risks
 Environmental risks
 Volatility of export orders
 Price Competition in the local & export market
 Currency fluctuation for export orders

II. Operational Risks: The operational risks identified at chocolate company are as follows:
 Fire & Allied Risks
 Machinery breakdown/ obsolescence
 Volatility of Raw material & Packing material prices
 Quality/ Ageing risks of Raw material/ Packing material
 Delivery risk of Suppliers
 Loss of data & information- IT security
 Manpower Availability risks
 Accidents
 Inventory carrying risk
III. Reputation Risks: These are risks arising from negative public opinion resulting from failures of
process, strategy or corporate governance. The Reputation risks identified at this company are as follows:
 Contamination-hygiene
  Product expiry/Shelf life
 Corporate Governance

IV. Credit Risks: Non receipt of receivables or delay in receipts is the credit risks attributable to the
company. These may be identified as:
 Payment risk [rom customers-local
 Payment risk from Customers- export
 Security from customers
 Advance to Suppliers
V. Liquidity Risks: The possibility is that the company will be unable to fund present and future financial
obligations. These may be identified as:
 Cash flow & working capital management
 FOREX decisions
 Cost overruns

VI. Strategic Risks: Risk those are arising from adverse business decisions or the improper
implementation of such decisions. These may be identified as follows:-
 Business Plan forecasts.
 Attrition of key people.
Answer 4(c)
The following are approaches for risk impact assessment: -
1. Critical Self-Assessment (CSA): This is one of the common qualitative bottom-up approaches where
line managers of the company can critically analyse their business processes given specific scenarios to
identify potential risks and gaps in their risk management processes. Tools like questionnaires, checklists
and workshops are used to help the managers analyze the risk profile of their business units. The key idea
behind this method is that businesses managers of this company are in the best position identify and
manage the Operational Risks pertaining to their business units.
2. Risk Audit: Employing the services of external (or internal) auditors to review the business processes
of a business unit is another approach. This process not only helps identify risks but also helps put in place
the oversight organization for the manageable risks.
3. Key Risk Indicators (KRI): Using the KRI approach the company can blend the qualitative and
quantitative aspects of Operational Risk management. Factors that have predictive value and that can be
easily measured with minimum time lag can serve as risk indicators. Key indicators are identified from
several potential factors and are tracked over time. The predictive capabilities of the indicators are tested
through regression analysis on historical loss data and indicator measurements. Based on such analysis,
the set of indicators of the company being tracked can be modified suitably. Over time. as the model gets
refined, the set of indicators can provide early warning signals for operational losses.
Answer 4(d)
Liquidity risk is the risk that a company will not have enough cash to meet its financial obligations (pay its
debts) on time. Liquidity refers to the ease at which an asset can be converted into cash without negatively
affecting its market price; the risk arises when a company cannot buy or sell an investment in exchange for
cash fast enough to pay its debts.
An effective liquidity risk management would include systems to identify measure. Monitor and control its
liquidity exposures. Management should be able to accurately identify and quantify the primary sources of
the company liquidity risk in a timely manner. To properly identify the sources. management should
understand both existing as well as future risk that it can be exposed.
Key elements of an effective risk management process should include an efficient MIS system to measure,
monitor and control existing as well as future liquidity risks and reporting them to senior management. An
effective management information system (MIS) is essential for sound management decisions. Information
should be readily available for day-to-day liquidity management and risk control, as well as during times of
stress. Data should be appropriately consolidated, comprehensive vet succinct, focused, and available in
a timely manner.
An effective measurement and monitoring system is essential for adequate management of liquidity risk.
Consequently, intends to institute systems that will enable it to capture liquidity risk ahead of time, so that
appropriate remedial measures could be prompted to avoid any significant losses. Some commonly used
liquidity measurement and monitoring techniques are:
 Contingency Funding Plans: In order to develop a comprehensive liquidity risk management
framework, the company should have way out plans for stress scenarios. A CFP is a projection of
future cash flows and funding sources of the company representing management's best estimate of
balance sheet changes that may result from a liquidity event. A CFP can provide a useful framework
for managing liquidity risk both short term and in the long term. Further it helps ensure that a financial
institution can prudently and efficiently manage routine and extraordinary fluctuations in liquidity.
 Cash Flow Projections: At the basic level the company may utilize flow measures to determine their
cash position. A cash flow projection estimates company's inflows and outflows and thus net deficit
or surplus (GAP) over a time horizon.
 Liquidity Ratios and Limits: The Company may use a variety of ratios to quantify liquidity. These
ratios can also be used to create limits for liquidity management. However, such ratios would be
meaningless unless used regularly and interpreted taking into account qualitative factors. Internal
Controls: In order to have effective implementation of policies and procedures, the company should
institute review process that should ensure the compliance of various procedures and limits
prescribed by senior management.

PART-III

Attempt all parts of either Q. No. 5 or Q. No. 5A

Question 5
(a) “Financial Reports are one of the important documents detailing the performance of a company but still
many other significant aspects are left out.” Critically analyse the statement.
(b) Discuss the various forms of capital and what are the guidelines given by SEBI towards improving
disclosure standards?
(c) “A number of controls falling under operational controls can also be administrative controls.” Explain.
(d) “Risks are mitigated by implementing internal controls as appropriate to the business environment.
These type of controls must be integrated in the IT solution implemented at the Bank’s branches.” Indicate
five examples of Internal Control in a branch of Bank as well as five IT related controls in Bank.
(5 marks each)
 OR (Alternate question to Q. No. 5)
Question 5A
(i) As a Company Secretary of a growing multinational deeply rooted with the belief of Triple Bottom Line
(TBL) approach, specify the areas where and how the company can focus.
(5 marks)
(ii) What are the new norms under Rule 7 of the Companies (Amendment) Act, 2020 introduced for carrying
forward and setting off excess CSR expenditure?
(5 marks)
(iii)What do you understand by corporate sustainability? What is SDG India Index?
(5 marks)

(iv)“Certain Universal Standards forms part of Global Reporting Initiative (GRI )Standards.” Discuss the
statement mentioning its internal and external benefits.
(5 marks)
Answer 5(a)
Financial reporting is the process of producing statements that disclose an organisation's financial status
to management, investors and the government. Financial reporting serves two primary purposes. First, it
helps management to engage in effective decision- making concerning the company’s objectives and
overall strategies. The data disclosed in the reports can help management discern the strengths and
weaknesses of the company, as well as its overall financial health.
Second, financial reporting provides vital information about the financial health and activities of the company
to its stakeholders including its shareholders, potential investors, consumers, and government regulators.
It’s a means of ensuring that the company is being run appropriately. The financial reporting model is like
“looking in the rear-view mirror.” when in fact the road ahead is very turbulent and there are huge impacts
on the company, both societal and environmental.
It is not necessarily the volume of information, but the lack of a comprehensive story, which is where
improvements in corporate reporting are needed. Investors expect information about:
 Business model and strategy.
 Intangible factors and sustainability (i.e., economic, environmental, social) commitments.
 Impacts and performance that affect a company’s value today and its ability to create value
in the future.
 Key aspects of corporate governance.
 Internal controls.
 Human rights / diversity practices and policies.
 Key financial ratios.
Non-financial reporting is an opportunity to communicate in an open and transparent way with stakeholders.
In their non-financial reports, firms volunteer an overview of their environmental and social impact during
the previous year. The information in non-financial reports contributes to building up a company’s risk-return
profile.
Non-financial reporting includes-
 Board’s Report: The Board's Report should avoid repetition of information. If any information
is mentioned elsewhere in the financial statement, a reference thereof should be given in
Board's Report instead of repeating the same. A board’s report should typically include
 information under following heads- Company Specific Information, General Information, Capital
and Debt Structure, Credit Rating of Securities, Investor Education and Protection Fund (IEPF),
Management. Disclosures Relating to Subsidiaries, Associates and Joint Ventures, Details of
Deposits, Particulars of Loans, Guarantees And Investments, Particulars of Contracts or
Arrangements with Related Parties. Conservation of Energy, Technology Absorption, Foreign
Exchange Earnings and Outgo. Details of Establishment of Vigil Mechanism, Material Orders
of Judicial Bodies /Regulators. Auditors Report, Secretarial Audit Report and so on.
 Corporate Social Responsibility Report:
1. A brief outline of the company’s CSR policy including overview of projects or programs proposed to be
undertaken and a reference to the web-link to the CSR policy and projects or programs.
2. The Composition of the CSR Committee.
3. Average net profit of the company for last three financial years.
4. Prescribed CSR Expenditure (two per cent of the amount as in item 3 above).
 Corporate Sustainability Reporting: Comparing performance internally, and between
Organizations and sectors External benefits of sustainability reporting can include:
 Mitigating — or reversing — negative environmental, social and governance impacts.
 Improving reputation and brand loyalty.
 Enabling external stakeholders to understand the organizations true value, and tangible and
intangible assets.
 Demonstrating how the organization influences, and is influenced by, expectations about
sustainable development.
Answer 5(b)
All organizations depend on various forms of capital for their success. It is important that all such forms of
capital are disclosed to stakeholders to enable informed investment decision making. IIRC (International
Integrated Reporting Council) has categorized the forms of capital as follows:
 Financial capital
 Manufactured capital
 Intellectual capital
 Human capital
 Social and relationship capital
 Natural capital
It has been observed that certain listed entities in India and other jurisdictions have already
been making disclosures by following the principles of integrated reporting. Towards the
objective of improving disclosure standards, in consultation with industry bodies and stock exchanges, the
listed entities have been advised to adhere to the following by the SEBI:
(a) Integrated Reporting may be adopted on a voluntary basis from the financial year 2017-18 by top 500
companies which are required to prepare BRR.
(b) The information related to Integrated Reporting may be provided in the annual report separately or by
incorporating in Management Discussion & Analysis or by preparing a separate report (annual report
prepared as per IR framework).
(c) In case the company has already provided the relevant information in any other report prepared in
accordance with national/international requirement / framework, it may provide appropriate reference to the
same in its Integrated Report so as to avoid duplication of information.
(d) As a green initiative, the companies may host the Integrated Report on their website and provide
appropriate reference to the same in their Annual Report.
Answer 5(c)
A number of controls falling under operational controls can also be administrative controls. Examples of
operational controls are: quality control, works standards, periodic reporting, policy appraisal etc.
Administrative controls are very wide in their scope. They include all other managerial controls concerned
with decision- making process. They are concerned with the authorisation of transactions and include
anything from plan of organisation to procedures, record keeping. distribution of authority and the process
of decision-making. They include controls such as time and motion studies, quality control through
inspection, performance budgeting, responsibility accounting and performance evaluation etc.
Administrative controls have an indirect relationship with financial records and the auditor may evaluate
only those administrative controls which have a bearing on the financial records. However, for the purposes
of understanding the internal control we may study it in four parts as:
1. Accounting controls.
2. Operational controls.
3. Internal checks.
4. Internal audit.
1. Accounting controls pertain purely to the accounting system which enter finally in the preparation of
financial statements and information which are subject to the expression of opinion by the auditors.
2. Operational controls are those which help in improving the efficiency, productivity and not necessarily
enter the accounting systems. Works standards, quality control, methods study and motion study, critical
path method etc. may be many examples of operational controls.
3. Internal check is a built-in device in the day to day working by separating the duties and functions of the
staff in such a way that the work of one is automatically checked by the other e.g. posting of cash
transactions in the ledger is done by a person other than who handles the cash and writes the cash book
— the cashier.
4. Internal audit is an appraisal function to be performed on the principles and practices of audit. The scope
of this extends to all the quantifiable information.
Answer 5(d)
Internal Controls in Banks
Risks are mitigated by implementing internal controls as appropriate to the business environment. These
types of controls must be integrated in the IT solution implemented at the bank’s branches. Some examples
of internal controls in bank branch are given below: -
 Work of one staff member is invariably supervised/ checked by another staff member, irrespective
of the nature of work (Maker Checker process).
 A system of job rotation among staff exists; Financial and administrative powers of each official/
position is fixed and communicated to all persons concerned;
 Branch managers must send periodic confirmation to their controlling authority on compliance of the
laid down systems and procedures.
 All books are to be balanced periodically. Balancing is to be confirmed by an authorized official.
IT Controls in Banks
IT Risks need to be mitigated by implementing the right type and level of controls in the automated
environment. This is done by integrating control into IT. Sample list of IT related controls are:-
 The system maintains a record of all log ins and log outs.
 If the transaction is sought to be posted to a dormant (or operative) account, the processing is
halted and can be proceeded with only with a supervisory password.
 The system checks whether the amount to be withdrawn is within the drawing power.
 The system flashes a message if the balance in lien account would fall below the lien amount
after the processing of the transaction.
 Access to the system is available only between stipulated hours and specified days only.

Answer 5A (i)
Within the broader concept of corporate social responsibility, the concept of Triple Bottom Line (TBL) is
gaining significance and becoming popular amongst corporates. Coined in1997 by John Ellington, “People”
(Human Capital) pertains to fair and beneficial business practices toward labour and the community and
region in which a corporation conducts its business.
“Planet” (Natural Capital) refers to sustainable environmental practices. It is the lasting economic impact
the organization has on its economic environment. A TBL enshrined company endeavours to benefit the
natural order as much as possible or at the least do no harm and curtails environmental impact.
Therefore, the company can work for any issues addressing to the needs in any manner. For people issues
faced by the organisation includes —
 Health
 Safety
 Diversity
 Ethnicity
 Education and literacy
 Prevention of child labour
 Differently-abled.
The planet concerns include-
 Climate change
 Energy
 Water
 Biodiversity and land use
 Chemicals, toxics and heavy metals
 Air pollution
 Waste management
 Ozone layer depletion
 Ocean and fisheries
 Afforestation.
The Profit includes-
 Creating Employment
 Generating Innovation
 Paving Taxes
 Wealth Creation.

Answer 5A(ii)
New norms introduced for carry forward and set-off excess CSR expenditure
(2) According to Rule 7 of the Companies (CSR Policy) Rules, any surplus arising out of the CSR activities
shall not form part of the business profit of a company and shall be ploughed back into the same project or
shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action
plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period
of six months of the expiry of the financial year.
Where a company spends an amount in excess of requirement provided under sub- section (5) of section
135, such excess amount may be set off against the requirement to spend under sub-section (5) of section
135 up to immediate succeeding three financial years subject to the conditions that —
(i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if
any, in pursuance of sub-rule (2) of this rule.
(ii) the Board of the company shall pass a resolution to that effect.

Answer 5A(iii)
Everything that we need for our survival and well-being depends, either directly or indirectly, on our natural
environment. Sustainability creates and maintains the conditions under which humans and nature can exist
in productive harmony that permits fulfilling the social, economic and other requirements of the present and
future generations.
Corporate sustainability indicates new philosophy, as an alternative to the traditional growth and profit-
maximization model, under which sustainable development comprising of environmental protection, social
justice and equity, and economic development are given more significant focus while recognizing
simultaneous growth of the corporate and profitability.
It is a business approach that creates long-term shareholder value by embracing opportunities and
managing risks deriving from economic, environmental and social developments. Corporate sustainability
describes business practices built around social and environmental considerations.
Corporate sustainability encompasses strategies and practices that aim to meet the needs of the
stakeholders today while seeking to protect, support and enhance the human and natural resources that
will be the need of the future. Corporate sustainability leaders achieve long-term shareholder value by
gearing their strategies and management to harness the market's potential for sustainability products and
services while at the same time successfully reducing and avoiding sustainability costs and risks.
The UN Sustainable Development Solutions Network (SDSN) partners with a variety of organizations to
assess progress towards SDG achievement at the national level and the local level. Both official and
unofficial metrics are used to measure distance to targets for each of the SDGs to identify priorities for
action, understand key implementation challenges, track progress, ensure accountability, and identify gaps
that must be closed in order to achieve the SDGs by 2030. The SDG India Index 2020-21 is developed in
collaboration with the United Nations in India.
The NITI Aayog launched its index in 2018 to monitor the country’s progress on the goals through data-
driven assessment, and foster a competitive spirit among the States and Union Territories in achieving
them. The index represents the articulation of the comprehensive nature of the Global Goals under the
2030 Agenda while being attuned to the national priorities. The SDG India Index 2020-21 is also live on an
online dashboard, which has cross-sectoral relevance across policy, civil society, business, and academia.
 Methodology:
The SDG India Index computes goal-wise scores on the 17 SDGs for each State and Union
Territory.
These scores range between 0-100, and if a State/UT achieves a score of 100, it signifies it has
achieved the 2030 targets.
The higher the score of a State/UT, the greater the distance to target achieved.
States and Union Territories are classified in four categories based on their SDG India Index score:
Aspirant (0-49). Performer (50-64), Front-Runner (65-99), Achiever (100).

Answer 5A(iv)
Universal Standards: The GRI Standards begin with three Universal Standards to disclose general
information about an organization and its approaches to sustainability management.
Further topic-specific standards outline approaches to disclosing qualitative and quantitative information
deemed material to each reporting organization.
GRI-101: Foundation: The starting point for using the GRI Standards.
GRI-102: General Disclosure: Used to report contextual information about the organization.
GRI-103: Management Approach: Used to disclose how the organization manages impacts related to each
of its material topics.
Internal benefits for companies and organizations can include:
 Increased understanding of risks and opportunities.
 Emphasizing the link between financial and non-financial performance.
 Influencing long term management strategy and policy and business plans.
 Streamlining processes, reducing costs and improving efficiency
 Benchmarking and assessing sustainability performance with respect to laws, norms, codes,
performance standards, and voluntary initiatives.
 Avoiding being implicated in publicized environmental, social and governance failures
 Comparing performance internally, and between organizations and sectors.

External benefits of sustainability reporting can include:

 Mitigating — or reversing — negative environmental, social and governance impacts.
 Improving reputation and brand loyalty.
 Enabling external stakeholders to understand the organization's true value, and tangible and
intangible assets.
 Demonstrating how the organization influences, and is influenced by, expectations about
sustainable development.
 PART-IV
Question 6
(a) What is Communication on Progress? How does it help to incorporate transparency and accountability
amongst participants? Answer the questions with reference to UN Global Compact transparency and
accountability policy.
(b) A newly established car manufacturing company sold 1000 cars of new variant; but subsequently it was
found that the product has a major defect, which can be fatal in certain cases. If the company calls back its
products it will face huge losses which may lead to its closure. Advise the company to bail out of this
situation.
(5 marks each)
Answer 6(a)
UN Global Compact incorporates a transparency and accountability policy known as the Communication
on Progress (COP). The Communication on Progress (COP) is an annual disclosure to stakeholders on
progress made in implementing the ten principles of the UN Global Compact in the areas of human rights,
labour, environment and anti-corruption, and in supporting broader UN development goals. The COP is
posted on the Global Compact website by business participants. Failure to issue a COP will change a
participant's status to non-communicating and can eventually lead to the expulsion of the participant.
Joining the Global Compact is a widely visible as commitment to the ten principles. A company that signs-
on to the Global Compact specifically commits itself to:
— set in motion changes to business operations so that the Global Compact and its principles become part
of management, strategy, culture and day-to-day operations;
— publish in its annual report or similar public corporate report (e.g., sustainability report) a description of
the ways in which it is supporting the Global Compact and its principles (Communication on Progress),
— publicly advocate the Global Compact and its principles via communications vehicles such as press
releases, speeches, etc.
Ideally, COPs should be integrated into a participant's existing communication with stakeholders. such as
an annual or sustainability report. However, in case a participant does not publish such reports, a COP can
be a standalone report that is made available for stakeholders through other public communication channels
(e.g., websites. Newsletters, intranets, company notice boards. included with payroll, etc.). COPs should
be issued in the company’s working language and if the company determines a need, in additional
languages.
Participants are asked to supply a URL link to their COP and to upload the COP itself (as a PDF,
PowerPoint. or word document) to the Global Compact website in order to meet the COP submission
requirement.
Answer 6 (b)
This area of business ethics deals with the duties of a company to ensure that products and production
processes do not cause harm. There is usually a degree of danger in any product or production process
and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the
changing state of preventative technologies or changing social perceptions of acceptable risk. Defective,
addictive and inherently dangerous product sand Ethical relations between the company and the
environment including pollution, environmental ethics, carbon emissions trading. Ethical problems arising
out of new technologies for e.g. genetically modified food. Product testing ethics.
It is a case of ethical dilemma. This decision needs to be cross checked with the company seniors and
policies and prevailing legal provisions. A win-win situation is attainable if the new technology adopted by
the entrepreneur benefits the clients and business. What matters in the end, are profits and customer
satisfaction. There is nothing wrong about growing and automating and bombarding the market with newer
models. However, the company must take steps to mobilize its resources and to maintain his/her reputation
— the company’s goodwill might suffer a major setback in the market share owing to the mass sales of
defective and inferior product. Instead, the company may try to avail any beneficial schemes for writing off
at least some part of such losses. In fact, may offer customer higher exchange value of those defective
models.
Specifically, steps for resolving ethical dilemma are:
1. Considering the options available
2. Considering the consequences of each option
3. Analysing the Actions
4. Decision making and commitment
5. Evaluate the system.
*****
 ADVANCED TAX LAWS
Time allowed : 3 hours Maximum marks : 100
NOTE : 1. Answer ALL Questions.
2. ALL the references to sections in Part-II of the Question Paper relate to the Income- tax
Act, 1961 and relevant Assessment Year 2023-24 unless stated otherwise.
3. Wherever necessary, suitable assumptions can be made and the same be stated clearly in the
answer.
4. Working notes should form part of the answer.
PART I
Question 1.
(a) Vimal Ltd. received the following services from the Government of India during the taxable period
(1st April, 2022 to 31st March, 2023):
(i) Received a registration certificate required under a law by paying ₹20,000 as application fee
(ii) Warehoused his imported goods for an extended period by paying ₹7,000 to customs department
as Merchant Over Time fee
(iii) Obtained a safety certificate on voluntary basis for his factory not covered under the Factories Act
from Inspector of Factories. The fee paid was ₹35,000
(iv) Got security services provided by a government security agency for a period of 5 months from
January 2023 by paying ₹ 1,500 p.m. Find out the taxability or otherwise under GST laws of the above
service charges paid by Vimal Ltd. during the period from 1st April, 2022 to 31st March, 2023.
(5 Marks)
(b) Find out the time of supply in the following cases in which GST is payable under reverse charge
basis:

Date of receipt of Date of payment by recipient of Date of issue of

goods/services goods/services Invoice by
suppliers

(i) Goods – 04/07/2022 12/08/2022 29/06/2022

(ii) Services – 25/06/2022 10/08/2022 29/06/2022
(iii) Goods– 01/07/2022 Entered in the books of accounts on 28/06/2022
30/06/2022 but debited in recipient’s
bank account – 27/06/2022

(iv) Goods – 03/08/2022 26/06/2022

12/08/2022
(v) Services – 08/07/2022 20/07/2022
08/08/2022

(5 marks)
(c) Classify the following supplies into mixed supply and composite supply:
(i) Train ticket including meals supply
(ii) Supply of health care services along with consumables and medicines
(iii) Supply of toothpaste with toothbrush
(iv) Providing lodging facility in hotel along with breakfast and dinner
(v) A laptop seller sold laptop along with laptop bag.
(5 marks)
(d) Rohan is engaged in a variety of businesses at Chennai, Tamil Nadu. He has furnished the following
information with regard to the supplies made in the month January:

(a) Supply of 5,000 Kits to 7,50,000

Angels Beauty Paradise in
Chennai (Each Kit consists
of 1 Scented Perfume bottle,
1 Beauty Soap and 1 Talcum
Powder).

(b) Gift of Microwave oven to his 60,000

employee on the occasion of
his marriage

(c ) Supply of Laptops along with 4,00,000

Laptop bags to M/s LTI Ltd.

(d ) Gift Articles provided free of 70,000

cost to relatives on the
occasion of his brother’s son
birthday function

Assume GST rates are to be as under:

S. No. Particulars GST Rate

(i) Laptop 18%

(ii) Laptop Bag 28%
(iii) Scented Perfume Bottle 5%
(iv) Beauty Soap 18%
(v) Talcum Powder 12%
(vi) Microwave Oven 18%
(vii) Gift Articles 28%
 From the above information, examine each of the above supplies made by Rohan for the month of
January and determine the rate of GST applicable on the same. Reasoning should form part of your
answer.
(5 Marks)
Answer 1(a)
Computation of GST payable

Particulars Result

(i) Application fee paid for issuance of registration certificate required Exempted
by a law

(ii) Merchant Over Time fees paid to Customs Department Exempted

(iii) Fee paid to Inspector of Factories to get Safety certificate on Taxable under
voluntary basis Reverse
Charge
Mechanism

(iv) Fees paid to Government Security agency is taxable only when the Exempted
total consideration paid in a financial year exceeds Rs. 5000. Here,
in this case, out of five months, three months are coming under one
financial year (January, February and March). For the said three
months period the fee paid was Rs. 4,500 (1500 X 3) which is less
than Rs. 5,000.

Hence, the whole amount is exempted.

Answer 1(b)
Time of Supply under Reverse Charge Basis:

Good / Date of Date of Date of Date Time of

Services receipt of payment issue of immediately Supply (5)
goods/ser (2) invoice following 30/60
vices (1) (3) days from date
of Invoice (4)

Goods 04/07/20 12/08/20 29/06/202 30/07/2022 Earlier of (1),

22 22 2
(2) and (4).
04/07/2022

Services 25/06/2022 10/08/2022 29/06/2022 29/08/2022 Earlier of (2)

and (4).
10/08/2022
 Goods 01/07/2022 27/06/2022 28/06/2022 29/07/2022 Earlier of(2)
(Dt. of debit and (4).
in bank a/c) 27/06/2022

Goods 03/08/2022 12/08/2022 26/06/2022 27/07/2022 Earlier of(1),

(2) and (4).
27/07/2022

Services 08/07/2022 08/08/2022 20/07/20222 19/09/2022 Earlier of (2) and

(4).
08/08/2022

Answers 1(c)
Classification of Supplies in to Mixed Supply or Composite supply:
(i) Composite supply
(ii) Composite supply
(iii) Mixed supply
(iv) Mixed Supply (Composite supply, breakfast and dinner with lodging facility in hotel in ordinary
course of business)
(v) Composite supply
Answers 1(d)
Determination of rate of GST:

Particulars Rate of
GST

A Supply of 5,000 Kits to Angels Beauty Paradise in Chennai; 18 %

[It is a Mixed Supply and is treated as Supply of that
particular supply which attracts highest tax rate (Beauty
Soap attracts highest rate) in terms of section 8(b)]

B Gift of Microwave oven to his employee on the occasion of 18 %

his marriage; [It is a transaction between related persons.
(Employer and Employee). Gift not exceeding Rs. 50,000
in value in a financial year by an employer to employee will
not be treated as supply. But in the given case it has
exceeded Rs. 50,000 hence the transaction is taxable
supply attracting 18% GST]
 C Supply of Laptops along with Laptop bags to M/s LTI Ltd.; 18 %
(Naturally bundled, it is a composite service which is treated
as the supply of the principal supply which is laptop as per
section 8(a). Hence the rate of the Laptop which is the
principal supply is charged.)

D Gift articles provided free of cost to relatives on the 28 %

occasion of his brother’s son birthday function shall be
considered as supply since as the gift articles being goods
are being provided free of cost to a related person. It is an
individual supply and the rate applicable to it will be taxed.

(Attempt all parts of either Q. No. 2 or 2A)

Question 2.
(a) Risk Free Ltd. is providing life insurance services to subscribers. It is the policy of the company not
to intimate the amount allocated for investment to the subscribers at the time of taking policy. The
company supplies the following particulars about the premiums received from subscribers during a
period:
Premium collected from new policy subscribers ₹ 60,00,000
Premium received for renewal of policies ₹ 1,30,00,000
Single premium collected on annuity policies ₹ 1,50,00,000
Premium collected from policy holders for risk cover only ₹ 60,00,000
Calculate the value of supply made by the company during the period by assuming that all the above
given premiums are exclusive of taxes.
(5 marks)
(b) Jambu Agencies a registered supplier of goods and services, in Chennai has furnished the following
information for the month of February:

S. Particulars Amount (₹ )
No.

(i) Rent received from Agricultural land used as parking lot 7,00,000

(ii) Service provided to a foreign diplomatic mission in Chennai 3,00,000

(iii) Rent received from an educational Institution for the building used 5,00,000
by it for residential quarters of its teachers
 (iv) Renting of motor vehicle to a Pvt. Ltd. Company. The company uses 50,000
the vehicle for transportation of its staff and goods (in the ratio of 60 :
40)

(v) 10,00,000
Sale proceeds of imported goods lying in the customs bonded
warehouse

Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively unless otherwise mentioned.
The figures given above are exclusive of taxes, wherever applicable.
The turnover of Jambu Agencies for the previous year is ₹ 3 crore. Compute the GST Liability of Jambu
Agencies for the month of February with necessary explanation for treatment of each item.
(5 marks)
(c) Comment on the liability to get registered under the GST law in the given independent situations for
financial year 2022-23. Your answer should also include relevant provisions of law, notifications or
circulars.
(i) Suresh is exclusively engaged in the export of readymade garments from Coimbatore, Tamil Nadu
and his export turnover for the year is ₹ 19,00,000. Apart from export turnover, he also earned interest
on bank FDR ₹ 5,00,000.
(ii) Omega enterprises is exclusively engaged in trading of handloom goods which are exempt from
GST hence it has not taken the GST registration. During the year its turnover is ₹ 60,00,000.
(iii) Balaji is full time trader of shares and he completely operates in Futures and options segment of
the capital market. The income earned through this is categorized as business income under the
Income Tax Act, 1961. Mr. Balaji made ₹ 1,25,00,000 as profit during the year which was also promptly
disclosed in his Income Tax return.
(iv) Senthil is a tour operator and has presence in 2 states i.e. Tamil Nadu and Andhra Pradesh. He
registered his business under GST in the state of Tamil Nadu voluntarily even before crossing the
threshold limit. Is he mandatorily required to get registered in the state of Andhra Pradesh? His turnover
during the year was ₹ 12,00,000 and ₹ 7,00,000 respectively.
(5 marks)
(d) Discuss the validity period of an e-way bill. Who can extend the validity period of e-way bill and what
is the time limit within which such extension is valid ?
(5 marks)
OR (Alternate question to Q. No. 2)
Question 2A. (i)
(a) Jai Hind Ltd. a manufacturing company in Delhi has opted for composition scheme furnishes you the
following information for the financial year 2022-23. You are required to compute the Composition tax and
total tax liability. Its aggregate turnover during previous financial year 2021-22 was ₹ 1,20,00,000. Jai Hind
Ltd. made the following supplies during the year 2022-23:

S. No. Particulars Amount (₹)

(i) Intra-state supply of goods chargeable @ 12% GST 75,00,000

 (ii) Inward supplies on which tax is payable on reverse charge @ 5,00,000
18%
Intra-state supplies of exempt goods
(iii) 10,00,000

Intra-state supply of services chargeable @ 18% GST

(iv) 6,50,000

(b) Jai Hind Ltd. wants to start another unit in Jaipur (Rajasthan) where the company wants to obtain
GST registration under Normal scheme to take advantage of ITC. Can it do so?
(5 marks)
(ii) Ashok Traders, a sole proprietary concern is engaging in the supply of exempted and taxable goods
within Kerala only. The following are the sales made by the dealer in the month of April, 2022. All the
sales amounts are exclusive of GST:
Intra-state sales of non-taxable goods 4,00,000
Intra-state sales of taxable goods 14,00,000
Intra-state sales of tobacco 3,00,000
Intra-state sale of alcoholic liquor for human consumption 4,00,000
With the consideration of the provisions of the CGST Act, 2017 and on the basis of the above given
details:
(i) Compute the aggregate turnover
(ii) State, with reasons whether Ashok Traders is liable to be registered under the Act
(iii) What is the threshold limit for taking registration in the case of Ashok Traders?
(5 marks)
(iii) Write a detailed note on Special Audit under Section 66 of the CGST Act, 2017.
(5 marks)
(iv) NR, a non-resident individual wants to provide taxable supply of goods. He has no fixed place of
business or residence in India. He seeks your advice on the following aspects in the light of the
provisions of the CGST Act, 2017 :
(i) Whether registration is compulsory or optional in the case of NR ?
(ii) When shall he apply for registration ?
(iii) When the tax has to be paid ?
(iv) What is the period of validity of registration certificate granted ?
(v) If he asks for extension, what will be the period of extension ?
(5 marks)
Answers 2(a)
Computation of Value of Supply

Particulars Amount (Rs.)

Premium for New Policy (60,00,000 x 25%) 15,00,000

 Premium from Renewed Policy (1,30,00,000 x 12.5%) 16,25,000

Premium from Annuity Policy (1,50,00,000 x 10%) 15,00,000

Premium from only Risk Cover Policy 60,00,000

Total Value of Supply 1,06,25,000

Answers 2(b)
Computation of GST liability of Jambu Agencies for the month of February

S. Particulars CGST SGST

No.

a. Rent received form Agricultural land used as parking 63,000 63,000

lot. Final use of land is not for agriculture purpose.
Any lease, tenancy, easement licence to occupy
land will be supply of services.

b. Services provided to a foreign diplomatic mission in 27,000 27,000

Chennai is not exempt service tax is to be paid on
this.

c. Rent received form educational institution for the - -

building used by it for residential quarters of its
teachers. As per notification 12/2017 s. no. 66 any
service provided to an educational institute is
exempt. Moreso in this case the building is used as
residential hence is not liable to GST.

d. Renting of motor vehicle to a Pvt. Ltd company. The 750 750

company uses the vehicle for transportation of its
staff and goods (in the ratio of 60:40).
Transportation of staff is exempt and transportation
of goods is not exempt( 30,000*2.5% each)

Alternative Options
Renting of motor vehicle to a Pvt. Ltd company. The
company uses the vehicle for transportation of its
staff and goods (in the ration of 60:40).
 (assuming fuel cost include) Renting of motor
vehicle for passenger with fuel cost is chargeable on
RCM @ 5% if provided by non-body corporate to
body corporate.

If fuel cost is not included, then Supplier will be liable - -

to pay GST on FCM Basis @ 12%

Further services of transportation of goods by GTA

to specified entities is chargeable on RCM Basis @
5% or FCM @ 12%. If services provided by non GTA
, it is exempt

e. Sale proceed of imported goods lying in the customs - -

bonded warehouse.
Any sale before it is cleared for home consumption
is exempt from GST. IGST will be will arise at the
time of clearance from the bonded warehouse.

Gross GST Liability 90,750 90,750

Answers 2(c)
(a) Export of goods is treated as inter-state supply. Suresh is compulsorily required to get himself
registered irrespective of his aggregate turnover since he is engaged in the inter- state supply of goods.
(Exports)
(b) Any person who is exclusively engaged in exempt supplies is not required to get registration. Hence
Omega Enterprises is not required to take registration.
(c) Securities are excluded from the definition of goods as per section 2(52) of the CGST Act as well as
from the definition of services as per section 2(102) of the Act. Hence dealing in shares is not a supply
of goods or services under the GST Act. Thus, Balaji is not liable to obtain registration since he is not
engaged in making a taxable supply.
(d) Any person who is voluntarily registered in one state needs to obtain registration in other states from
where he makes a taxable supply only if his aggregate turnover exceeds applicable threshold limit for
registration. Hence, Senthil is not liable to obtain registration in the state of Andhra Pradesh since his
turnover does not exceed the threshold limit.

Answers 2(d)
Validity period of e-way bill:
The transporter may extend the validity period of e-way bill after updating the details in Part B of Form
GST EWB-01, if required. Further, The Commissioner may, by notification, extend the validity period of
e-way bill for certain categories of goods as may be specified therein
Validity of e-way bill may be extended within 8 hours from the time of its expiry.
 Sr. No. Distance Validity period

1 Up to 200 km One day in cases other than Over Dimensional Cargo or multimodal
shipment in which at least one leg involves transport by ship

2 For every 200 km. One additional day in cases other than Over Dimensional Cargo or
or part thereof multimodal shipment in which at least one leg involves transport by
thereafter ship

3 Up to 20 km One day in cases of Over Dimensional Cargo or Multimodal

shipment in which at least one leg involves transport by ship

4 For every 20 One additional day in cases of Over Dimensional Cargo or

km. or part multimodal shipment in which at least one leg involves transport by
thereof ship
thereafter

Answer 2 (A)(i)
(a) Computation of Taxable Turnover and Tax Liability of Jai Hind Ltd.

S. Particulars Amount
No.
(in Rs.)

A Supplies made under forward charge 75,00,000

B Value of supplies made on which tax is payable on --

reverse charge basis is not to included

C Intra state supply of exempt goods - not to be included --

D Intra-state supply of services (note-1) 6,50,000

E Taxable Turnover 81,50,000

F Total composition tax - CGST 0.5% and SGST 0.5% 81,500

(A)

Tax Payable under reverse charge

G Value of Inward Supplies on which tax payable under 5,00,000

RCM

H Tax payable under RCM- GST rate @ 18% (B) 90,000

 I Total Tax Liability (A+B) 1,71,500

Note: 1
Under section 10 of CGST Act a composition dealer can indulge in service not exceeding Rs.5,
00,000 or 10% of state turnover of last f/y. In this case turnover is 1,20,00,000, 10% of which is
Rs.12,00,000. Hence Jai Hind Ltd will be eligible for composition levy.

(b) According to the proviso to Section 10(2) of the CGST Act, where more than one registered person are
having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered
person shall not be eligible to opt for the composition scheme unless all such registered persons opt to
pay tax under this sub-section.
Thus, if Jai Hind Ltd opts to take registration in Rajasthan under normal scheme, it will have to shift to
normal scheme in the state of Delhi. Else, it will not be able to opt for Normal scheme in Rajasthan by
continuing with the Composition scheme in Delhi

Answer 2 (A)(ii)

(i) Computation of Aggregate Turnover: Amount

Intra-state sales of non-taxable goods - a supply for calculation of aggregate 4,00,000

turnover

Intra-state sales of taxable goods - aggregate turnover includes value of all 14,00,000
outward taxable supplies

Intra-state sales of tobacco – an outward taxable supply 3,00,000

Intra-state sales of alcoholic liquor for human consumption- being an 4,00,000

exempted supply to be considered for the calculation of aggregate turnover

Aggregate Turnover 25,00,000

(ii) Every person engaged in making taxable supply is required to obtain the -
registration if his aggregate turnover exceeds Rs. 20 lakhs in a financial year.
Enhanced threshold limit of Rs. 40 lakhs is for persons exclusively engaged
in intra-state supply of goods in specified states. Kerala is not a specified
state and hence, this provision is not applicable to Ashok Traders.
Ashok Traders is engaged in supply of tobacco, therefore not eligible for
enhanced threshold.
 (iii) In view of all the above, the applicable threshold limit for the dealer is -
Rs.20,00,000. As the aggregate turnover (Rs. 25, 00,000) is more than the
threshold limit, the dealer is liable to get his business registered.

Answer 2 (A)(iii)
Special Audit:
(i) If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not
below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and
the interest of revenue, is of the opinion that the value has not been correctly declared or the credit
availed is not within the normal limits, he may, with the prior approval of the commissioner, direct such
registered person by a communication in writing to get his records, including books of accounts,
examined and audited by a chartered accountant or a cost accountant as may be nominated by the
Commissioner.
(ii) The chartered accountant or cost accountant so nominated shall, within the period of ninety days,
submit a report of such audit duly signed and certified by him to the said Assistant Commissioner.
(iii) The Assistant Commissioner may on an application made to him in this behalf by the registered person
or the chartered accountant or a cost accountant on sufficient reason, extend the said period for another
ninety days.
(iv) The expenses of an examination and audit including the remuneration of such chartered accountant or
a cost accountant shall be determined and paid by the commissioner.
(v) On the findings of the special audit the proper officer may take action under Section 73 or 74 of the
CGST Act, 2017.
Answer to Question No. 2 (A) (iv)
(i) In the case of Non-Resident, the registration under CGST Act is compulsory under section 24(v) of
the CGST Act, 2017.
(ii) He should apply for registration at least 5 days prior to commencement of business
(iii) Tax has to be paid at the time of registration in advance on the basis of his estimated turnover.
(iv) The certificate shall be valid for the period specified in the application for registration or ninety days
from the effective date of registration, whichever is earlier.
(v) The validity of a certificate of registration in case of non-resident can be extended for a further period
of 90 days provided the applicant shows sufficient cause of doing so.

Question 3.
(a) Discuss the comparative analysis of Sections 73 and 74 of the CGST Act, 2017 with respect to the
applicability of the sections, time limit to issue notice by proper officer, time limit to issue order by proper
officer and penalty.
(4 marks)
(b) Who shall be responsible for the correctness of the particulars furnished in a return filed by a GST
practitioner? What will be the penalty in case of negligence on the part of the practitioner?
(4 marks)
(c) Following are the mistakes noted in the tax invoices issued by Jaipure Ltd., during the month of
March, 2023:
 (i) Due to wrong HSN code being chosen while preparing invoice, an actual tax liability of ₹ 75,000 was
mentioned as ₹ 35,000 in the invoice.
(ii) Due to a mistake in the no. of units taken while preparing an invoice, value charged in the invoice
was ₹ 4, 00,000 against the actual value of ₹ 5,20,000.
With reference to the above mistakes, answer the following questions:
(i) Who has to issue the Debit/Credit notes under the CGST Act?
(ii) State the note to be issued (Debit/Credit) with the amount.
(iii) State the maximum time limit available for declaring the credit note in the GST return.
(4 marks)
(d) Agilitive Appliances Ltd. a registered supplier of refrigerators, is required to send from Chennai
(Tamil Nadu) a consignment of spare parts of refrigerators, to be replaced under warranty at various
client locations in Karnataka. The value of consignment declared in delivery challan accompanying
the goods is ₹ 60,000. Agilitive Appliances Ltd. claims that since the movement of goods to Karnataka
is caused due to reasons other than supply, e-way bill is not mandatorily required to be generated in
this case. Examine whether the claim made by Agilitive Appliances is tenable.
(4 marks)
(e )What is OIDAR ? Who will be responsible for paying tax in case of OIDAR ?
(4 marks)
Answer 3(a)
Comparative Analysis of Section 73 and 74 of the CGST Act, 2017

Basis Section 73 Section 74

Applicability Non-payment payment or Non-payment payment or

short payment of tax without short payment of tax with
fraud or willful misstatement fraud or willful
suppression of facts misstatement suppression
of facts

Time limit for proper At least 3 months prior to At least 6 months prior to
officer to issue notice issue order issue of order

Time limit for proper Within 3 years from the due Within 5 years from the
officer to issue order date for furnishing of annual due date for furnishing of
return annual return

Penalty - before No Penalty 15% of the tax amount

issuance of show cause
notice

Penalty - within 30 days No Penalty 25% of the tax amount

of issuance of show
cause notice
 Penalty - after 30 days 10% of Tax or Rs. 10,000, 50% of the tax amount
of the issuance of whichever is higher
show cause notice Or
after the issuance of
order

In any other case 10% of Tax or Rs. 10,000, 100% of the tax amount
whichever is higher

Answer 3(b)
Responsibility for correctness of particulars furnished in return is of the taxable person but it is the duty
of the professional to furnish the correct return otherwise he may be charged under negligence.
If Practitioner is found guilty of misconduct in connection with any proceedings under the act, he shall
be disqualified under section 48 to function as GST practitioner.
Answer 3 (c)
1. In both the scenarios the supplier i.e., Jaipur Limited has to issue Debit/Credit Notes.
2. (a) In the first scenario, the supplier shall issue a for the differential tax amount of Rs. 40,000
(b) In the second scenario, the supplier shall issue a Debit note with a value of Rs. 1, 20,000 along
with the applicable tax
3. The details of credit note are required to be declared in the return for the month during which such
credit note has been issued but not later than the:
Thirtieth day of November following the end of the financial year in which such supply was made,
Or
The date of furnishing of the relevant annual return, whichever is earlier.
Answer 3 (d)
The goods to be moved to another state for replacement under warranty is not a supply.
However, Rule 138(1) of the CST Rules, 2017, stipulates that every registered dealer who causes
movement of goods of consignment value exceeding Rs. 50,000.
(i) in relation to a supply;
(ii) or for reason other than supply; or
(iii) due to an inward supply from an unregistered person shall, generate an electronic way bill before
commencement of such movement.
Thus, in the given case, since the consignment value exceeds Rs. 50,000, e-way bill is required to be
mandatorily generated. Therefore the contention of Agilitive Appliances Ltd. that e-way bill is not
mandatorily required to be generated as the movement of goods is caused due to reasons other than
supply is not correct.
Answer 3 (e)
OIDAR means Online Information Database Access and Retrieval services provided through the
medium of internet and received by the recipient online without having any physical interface with the
supplier of such services.
Persons responsible for paying tax in case of OIDAR:
(i) In cases where the supplier of such service is located outside India and the recipient is a business
entity (registered person) located in India, the reverse charge mechanism would get triggered and
 the recipient in India who is a registered entity under GST will be liable to pay GST under reverse
charge.
(ii) If the supplier is located outside India and the recipient is in India is an individual consumer, i.e.
unregistered person, the supplier of services located in a non-taxable territory shall be the person
liable for paying integrated tax on such supply of services (IGST).
(iii)In case of intermediary located outside India arranges or facilitates supply of such service to a non-
taxable online recipient in India, the intermediary would be treated as the supplier of the service
and liable to pay GST.

Question 4.
(a) Anand and his wife (Indian residents aged 30 and 32 years respectively) visited USA for some
business prospects and wanted to settle in USA. After being there for a month, they brought to India a
laptop computer valued at ₹ 1,25,000, used personal effects valued at ₹ 2,00,000 and a personal
computer for ₹ 80,000. What is the customs duty payable ? Ignore Agriculture infrastructure and
development cess.
(b) Maruthi car decorators imported car accessories from China. They seek your opinion on the
following issues:
(i) 10 audio systems were pilfered before unloading and before the proper officer have made an
order for clearance for home consumption.
(ii) 10 gear lines were pilfered after unloading and before the proper officer have made an order for
clearance for home consumption.
(iii) 10 decorative steering wheels were damaged after unloading and examination for assessment
by the custom authorities but before actual home clearance.
Maruthi Car decorators seek your expert advice with reason regarding the liability of customs duty
on the said goods.
(5 marks each)
Answer 4(a)
As per Baggage Rules, 2016, an Indian resident arriving from any country other than Nepal, Bhutan or
Myanmar is allowed duty free clearance of used personal effects and travel souvenirs without any value
limit. Articles (other than certain specified articles) upto a value of Rs. 50,000 carried as accompanied
baggage (General duty-free baggage allowance). Further, such general duty-free baggage allowance
of a passenger cannot be pooled with the general duty free baggage allowance of any other passenger.
One laptop computer when imported into India by a passenger of the age of 18 years or above (other
than member of crew) as baggage is exempt from whole of the customs duty [Notification No. 11/2004
Cus. dated 08.01.2004].
Accordingly, there will be no customs duty on used personal effects (worth Rs. 2,00,000 of Mrs. and
Mr. A and laptop computer brought by them will be exempt from duty.
Duty payable on personal computer after exhausting the duty free baggage allowance will
be Rs.80,000 - Rs. 50,000 = Rs.30,000.
Effective rate of duty for baggage =38.5% [including social welfare surcharge @ 10%]
Therefore, total customs duty = Rs. 11,550.
Answer 4(b)
(i) Duty is not leviable on the audio systems pilfered before unloading since the import duty is
leviable only when the import is completed, import gets completed only when the goods
become part of the mass of goods within the country.
 (ii) Under section 13 of the Customs Act, Import duty is not liable to be aid were the goods are
pilfered after unloading but before the order of clearance is made by the proper officer.
Accordingly, in this case, Maruthi car decorators is not liable to pay duty on the gear lines
pilfered after unloading and before the proper officer makes order for clearance for home
consumption
(iii) Abatement of duty on damaged imported goods is available if such imported goods are
damaged accidentally after unloading but before examination for assessment by the customs
authorities. In the given case, since the steering wheels are damaged after examination by the
proper officer, abatement of duty on such goods is not available.
However, If Maruthi Car is able to demonstrate that the steering wheels have been destroyed
after unloading and examination by the proper officer but before order of clearance, the duty
can be remitted provided the importer relinquishes the title to the goods.
PART – II
Question 5.
(a) Mishra, a resident Indian earned some income outside India from country P. India has not
entered into any DTAA with the country P. Examine whether Mishra will be allowed with any
credit for the tax paid by him on the foreign income against his income tax liability in India.
(3 marks)
(b) What is Advance Pricing Agreement ? How long the agreement is valid? Can the agreement be
declared as void during the agreement period?
(3 marks)
(c) Explain the purpose of Tax Information Exchange Agreements (TIEAs)?
(3 marks)
(d) Satish is the director of Games Pvt. Ltd. holds 75% of its paid up capital of ₹ 10 lakh. The
balance as at 31st March, 2022 in general reserve was ₹ 15 lakh. The company on 1st April,
2022 gave an interest free loan of 10 lakh to its Manager having salary of ₹ 50,000 per month
who in turn on 30th April, 2022 advanced the said amount of loan taken from the company to
Satish. The assessing officer had treated the amount of advance as deemed dividend. Is the
action of assessing officer correct?
(3 marks)
(e) From the following particulars, compute the taxable income for assessment year 2023-24 of a
partnership firm engaged in retail trade:
(i) Net profit of ₹ 3,95,000 arrived at after debit of interest on capitals of partners of ₹ 4,90,000.
(ii) Total capital of the partners on which interest paid as debited in the Profit and Loss Account was ₹
10,00,000.
(3 marks)
Answer 5(a)
As per the provision of Section 91 of the Income tax Act, 1961, If any person who is resident in India in any
previous year proves that, in respect of his income which accrued or arose during that previous year outside
India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no
agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise,
under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable
by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said
country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.
In this case, Mr. Mishra is a resident in India and therefore liable to pay tax on his global Income i.e. income
accrue or arise in and outside India. However, a deduction shall be allowed equal to the sum calculated on such
doubly taxed income @ Indian rate of tax or the rate of tax of such foreign country whichever is lower as India
does not have a DTAA with the country P.
Therefore, Mr. Mishra shall not be entitled to tax credit under section 90 of the Income Tax but shall be allowed
a deduction of tax paid in Country P from the income tax payable to the Indian Government.
Answer 5(b)
As per Section 92CC (1) of Income Tax Act, 1961, w.e.f. 1st July, 2012, the Central Board of Direct Taxes
(Board), with the approval of the Central Government, may enter into an Advance Price Agreement with any
person, determining the arm’s length price or specifying the manner in which arm’s length price is to be
determined, in relation to an international transaction to be entered into by that person.
Advance Pricing Agreement (APA) is an agreement between a taxpayer and a taxing authority (Board) on an
appropriate transfer pricing methodology for fixing the arm’s length price for a set of transactions over a fixed
period of time in future.
The Advance Pricing Agreement shall be valid for a period as specified in the Advance Pricing Agreement.
However, this period will not be more than 5 consecutive previous years.
The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab
initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.
Answer 5(c)
The purpose of the TIEA is to promote international co-operation in tax matters through exchange of
information between two jurisdictions. Without such TIEAs, it would not be possible for a tax jurisdiction
to exchange or request information from other jurisdictions for tax purposes.
TIEAs are intended for use with countries for which a DTAA is not considered appropriate, mainly
because they have no, or low, taxes on income or profits. While TIEAs are much narrower in scope
than DTAAs, they are more detailed than DTAAs on the subject of information exchange. They specify
the rules and procedures for how such information exchange is to occur.
Answer 5(d)
The company has advanced a loan to its employee who in turn had advanced the same to the director
of the company holding 75% of its share capital. By virtue of the provisions of section 2(22)(e) of the
Income tax Act, 1961, the same shall be treated as payment by a company in which public are not
substantially interested, on behalf of, or for individual benefit of any such share holder (who holds not
less than 10% of the voting power), to the extent to which company possesses accumulated profits.
In this case, the company i.e. Games Pvt. Ltd. has reserves of Rs. 15 lakhs on 31st March, 2022 and
the amount of loan advanced on 1st April, 2022 is Rs. 10 lakhs. Therefore, the payment is to be treated
as deemed dividend.
The amount of interest free loan of Rs. 10 lakhs given by the company to the manager who in turn has
given the same to Mr. Satish (Director of the company), shall be construed as interest free loan given
for the benefit of Mr. Satish (Director) and would be treated as Deemed Dividend. This has been held
by the Hon’ble Supreme Court in the case of L. Alagusundaram chettiar vs. CIT (2001) 252 ITR 893.
Answer 5 (e)
Computation of Taxable Income of Partnership Firm (AY 2023-24)

Particulars Amount (Rs.)

Net Profit 3,95,000

Add: Interest on Capital of Partners 4,90,000

8,85,000
Less: Allowable Interest as per section 40(b) 12% of Rs. 10,00,000 (1,20,000)

Taxable Income 7,65,000

(Attempt all parts of either Q. No. 6 or 6A)

Question 6.
(a) GA Ltd., a German automobile company manufactures an important component used in SUV
cars. It has a subsidiary S Ltd. in India. GA Ltd. sells the components @ ₹ 22,000 p.u. to S
Ltd. for resale in India. GA Ltd. also sells components to another retailer RT Ltd. in India @ ₹
17,000 p.u. Number of units sold to S Ltd. is 5,000. With regard to annual maintenance of the
components sold by RT Ltd, GA Ltd. is taking the responsibility for 5 months and leaving the
responsibility with S Ltd. with respect to component sold by it. Both GA Ltd. and S Ltd. offered
extended annual maintenance at a standard rate of ₹ 1,200 p.a. Calculate the changes to be
made in the total income of S Ltd., by applying a most appropriate method of transfer pricing.
Assume that there is no advance price agreement and also assume that Safe Harbour Rules
have not been opted.
(5 marks)
(b) Analyze the following situations and find out whether the entities are deemed associated
enterprises or not:
(i) A Inc., an American Company has a total loan of 20 lakh dollars with United Bank of
America. Out of that B Ltd., an Indian company guaranteed 1.6 lakh dollars of loan against
any default to be committed by A Inc.
(ii) In the Board of Directors of C Ltd., there are 12 Directors. Out of that, six Directors have
been appointed by D Ltd.
(iii) E Ltd. directly participated in the management of F Ltd. and F Ltd. directly participated in
the management of G Ltd.
(iv) H Ltd. holds 30% of voting power in I Ltd., and I Ltd., holds 75% of voting power in J Ltd.
(v)K Ltd. has total assets having a book value of ` 200 crores. For K Ltd., L Ltd. advanced a
loan equal to 26% of the book value (` 52 lakhs) of assets of K Ltd.
(5 marks)
(c)Explain the various methods of Advance Pricing Agreement (APA). Specify the validity period
of an Advance Pricing Agreement.
(5 marks)
OR (Alternate question to Q. No. 6)
Question 6A.
(i) Explain the primary factors taken into account in the process of determination of Place of Effective
Management (POEM).
(5 marks)
(ii) State with reasons whether the following acts can be considered as Tax Planning or Tax
Management or Tax Evasion ?
(i) A Partnership firm made a payment of ₹ 70,000 towards purchase of Television which is kept
at the residence of one of the partners. However the firm is claiming depreciation by showing
its installed location as office.
 (ii) An individual assessee deposits a sum of ₹ 20,000 in the name of his children in a post office
savings scheme eligible for section 80C benefit so that his total income is reduced from ₹
5,18,000 to ₹ 4,98,000 and he can claim rebate u/s 87A and consequently his tax liability
becomes Nil.
(iii) Raja an individual, engaged in business pays his wife as salary ₹ 15,000 per month. She is an
MBA by profession but does not take part in his business and is a Housewife. This is done to
create some income for his wife and to take advantage of the exemption available to individuals
upto ₹ 2,50,000 and also to reduce his income from business.
(iv) S Finance Ltd. obtains Form 60 in lieu of PAN card from all its customers for whom PAN is not
yet allotted.
(v) X Ltd. engaged in manufacturing business has opened a 3 star hotel near its factory to claim
deduction u/s 35AD.
(5 marks)
(iii)ANZ Ltd. is a resident company. Its profit and loss account for the year ended 31st March, 2023
shows a net profit of ₹ 2 crore after debiting/crediting the following items :
(a) Depreciation on Assets (Incl. depreciation on revaluation of ₹ 5 Lakh) ₹ 45 Lakh
(b) Provision for tax ₹ 30 Lakh
(c) Proposed dividend ₹ 20 Lakh
(d) Interest income from Bank fixed deposits ₹ 5 Lakh
The following additional information is provided by the company:
(i) Provision for leave encashment (Scientifically calculated) ₹ 3 Lakh
(ii) Provision for actual loss from subsidiary ₹ 10 Lakh
(iii) Transfer to general reserve ₹ 5 Lakh
(iv) Depreciation computed as per Income Tax Act ₹ 28 Lakh
The details of brought forward business loss and unabsorbed depreciation from the books are as given
below:

Financial year Unabsorbed Business loss (₹)

depreciation (₹)

2018-19 2,00,000 7,00,000

2019-20 1,00,000 3,00,000

You are required to compute the Minimum Alternate Tax under section 115JB for the assessment year
2023-24.
(5 marks)
Answer 6(a)
GA Ltd. is the holding company and S Ltd. is the subsidiary company. Therefore, GA Ltd. and S Ltd.
are associated enterprises. Holding company sold identical product to another company in India who
is not an associated enterprise. Hence, the most appropriate method of transfer pricing for
determination of arm’s length price is Comparable Uncontrolled Price (CUP) Method.

Particulars Amount (in Rs.)

Price charged per unit by GA ltd. to RT ltd. 17,000

 Less: Cost of annual maintenance service included in price (5,00)
(1200*5/12)

Arm’s Length Price 16,500

Actual Price Charged 22,000

Difference in price per unit 5,500

No. of units sold to S Ltd. 5000 unit

Addition required to be made in the total income of S Ltd. 2,75,00,000

(5500*5000)

Answer 6(b)
(i) Since B Ltd. guarantees only 8% of the total borrowings of A Inc. (i.e. less than 10%), B Ltd. and A
Inc. are not deemed associated enterprises under section 92A(2)(d) of the Income Tax Act, 1961.
(ii) In this case, D Ltd. appointed half of the directors in C Ltd. Company’s board, not more than half.
Therefore, C Ltd. and D Ltd. are not deemed associated enterprises under section 92A(2)(f) of the
Income Tax Act, 1961.
(iii) In this case, E Ltd. directly participated in the management of F Ltd. and F Ltd. directly participated
in the management of G Ltd. Therefore E Ltd. indirectly participated in the management of G Ltd.
Hence, F Ltd. and G Ltd. are associated enterprises of E Ltd, not deemed associated enterprises.
(iv) In this case, H Ltd. holds 26% or more voting power in I Ltd. Therefore, H Ltd. and I Ltd are deemed
to be associated enterprises. However, H Ltd. indirectly holds only 22.5% of voting power in J Ltd. [less
than 26%] therefore not deemed to be associated enterprises.
(v) In this case, L ltd. advanced loan to K ltd. for less than 51% of the book value of assets (i.e. 26%
only). Therefore, K ltd. and L ltd. are not deemed associated enterprises.
Answer 6(c)
Advance Pricing Agreement or APA is further segregated into various types based on the number of
related parties involved.
 Unilateral APAAs the name itself signifies, Unilateral Advance Pricing Agreement involves only the
taxpayer company and just the tax authority of the country where the company is located.
 Bilateral APA: Bilateral APA actually involves four entities in total. First is the taxpayer located in the
country. Second is the tax authority of the taxpayer's location. The third entity is the associated
enterprise (AE) of the taxpayer in a foreign country and fourth if the tax authority of the country where
the associated enterprise is located.
 Multilateral APA: multilateral APA involves multiple entities which get into an agreement about transfer
pricing. These entities include the taxpayer in a country, the tax authority of the taxpayer's company,
two or more associated enterprises of the taxpayer and the respective tax authorities of the countries
where these AEs are located.
The Advance Pricing Agreement shall be valid for a period as specified in the Advance Pricing
Agreement. However, this period will not be more than 5 consecutive previous years.
Answer 6A (i)
Primary factor to be considered in the process of determination of Place of Effective Management
(POEM):
i. The location where a company’s Board regularly meets and makes decisions.
ii. A company’s Board may delegate some or all of its authority to one or more committees such as an
executive committee consisting of key members of senior management. In these situations, the location
where the members of the executive committee are based and where that committee develops and
formulates the key strategies and policies.
iii. The location of a company’s head office will be a very important factor in the determination of the
company’s place of effective management because it often represents the place where key company
decisions are made.
iv. The use of modern technology impacts the place of effective management in many ways. It is no longer
necessary for the persons taking decision to be physically present at a particular location. Therefore,
physical location of Board meeting or executive committee meeting or meeting of senior management
may not be where the key decisions are in substance being made. In such cases the place where the
Directors or the persons taking the decisions or majority of them usually reside may also be a relevant
factor.
v. v. In case of circular resolution or round robin voting the factors like, the frequency with which it is used,
the type of decisions made in that manner and where the parties involved in those decisions are located
etc. are to be considered.
vi. Day to day routine operational decisions undertaken by junior and middle management shall not be
relevant for the purpose of determination of Place of Effective Management ‘POEM’.
vii. The decisions made by shareholder on matters which are reserved for shareholder decision under the
company laws are not relevant for determination of a company’s place of effective management.
Alternative Solution to 6A (i)

The process of determination of POEM would be primarily based on the fact as to

whether or not the company is engaged in Active Business Outside India (ABOI).
A company shall be said to be engaged in ‘Active Business Outside India’,
- If passive income is not more than 50% of its total income; and
- Less than 50% of its total assets are situated in India; and
- Less than 50% of its total number of employees are situated in India or are
residents in India and
- The payroll expenses incurred on such employees is less than 50% of its payroll
expenditure.
A company is said to be engaged in ‘Active Business Outside India’ (ABOI) if it satisfies
all the above conditions and hence its POEM is outside India.

If a company is not engaged in ABOI, that is for companies not fulfilling the conditions
of ABOI, the determination of POEM would be done in two stages:
i. Identify the person/s who actually make the key management and commercial
decision for the conduct of the company’s business as a whole.
ii. Determination of the place where the decisions are de facto made.

Answer 6 A(ii)
i. Tax Evasion: A television placed at partner’s house is wrongly shown as installed at firm’s office for
the purpose of claiming depreciation is a clear case of providing false information in the books of
accounts for the purpose of decreasing profits to evade tax and therefore is an act of Tax Evasion.
 ii. Tax Planning: Amount deposited in children’s name in a post office saving scheme for claiming
deduction u/s 80C benefits so that his total income is reduced from Rs. 5,18,000 to Rs. 4,98,000 and
he can claim rebate u/s 87A and consequently his tax liability becomes Nil is an act of tax planning
through which the individual is able to take advantage of the deductions provided under the Income
tax laws.
iii. Tax Evasion: Payment of Rs. 15,000 per month to house wife, who does not take part in the
business, to reduce the profits of his business and also claiming separate exemption limit of Rs.
2,50,000 for wife’s income is an act of tax evasion. The professional qualification of his wife is not
relevant in this case.
iv. Tax Management: Obtaining Form 60 in lieu of PAN card for the sake of compliance of Income tax
laws is an act of tax management. The company obtaining Form 60 in lieu of PAN cards to avoid any
future compliance issues from tax authorities.
v. Tax Planning: This is the case of tax planning. A company to take advantage of the provisions of
Income tax laws, for set-off and carried forward of losses and tax holiday adapts such expansion /
diversification.

Answer 6(A)(iii)
Computation of Book Profits

Particulars Amount Amount

(Rs.) (Rs.)

Net profit as per P&L 2,00,00,000

Add: items to be added as per explanation 1 to 115JB

Transfer to General Reserve 5,00,000

Proposed Dividend 20,00,000

Provision for Tax 30,00,000

Loss from subsidiary 10,00,000

Depreciation including revaluation reserve 45,00,000 1,10,00,000

Less: items to be deducted

Allowable depreciation 28,00,000

Cumulative B/F loss or depreciation whichever is less 3,00,000 (31,00,000)

Book Profit for computation of MAT u/s 115JB 2,79,00,000

Computation of MAT
15% of Book Profit Rs. 41,85,000
Add: Surcharge Rs. 2,92,950
Add: Health and Education Cess Rs. 1,79,118
MAT Payable Rs. 46,57,068
 DRAFTING, PLEADINGS AND APPEARANCES

Time allowed : 3 hours Maximum marks : 100

NOTE : Answer ALL Questions.

Question 1.
(a) A, B and C decided to form a Housing Finance Company. As a Company Secretary draft an Object
clause for the same. Assume other facts, if required.
(b) Mr. X was appointed as Additional Director by Board of Directors of the Company to hold the office up
to the date of the Annual General Meeting in which resolution is to be passed to appoint Mr. X as a Director
of the Company liable to be retired by rotation. Draft the resolution for the appointment of Mr. X.
(c) Mr. A supplied certain goods to XYZ Ltd. for a sum of ` 500.00 Lakhs. Before the payment of said
amount, the XYZ Ltd. gone into liquidation. Mr. A has to submit an affidavit before the Hon’ble High Court
of Orissa to support his case. Draft an affidavit; assume other facts, if required.
(d) Mr. Ramestha Dher, a patwari of a village, is put up for trial of an offence under section 409 of Indian
Penal Code (Criminal breach of Trust by a Public Servant). He is being prosecuted for non-deposition of
the collected land revenue of ` 1,000/- to the Government Treasury. An offence under section 409 is a non-
bailable offence. The accused, an under-trial prisoner, is now 60 years old man. Draft a bail application on
behalf of Mr. Ramestha Dher.
(5 marks each)
Answer 1(a)
Object clause for Housing Finance Company
1. To provide long term finance to any individual, person or persons or co-operative society or association
of persons or body of individuals, company or corporate, either at interest or without and/or with or without
any security for construction, purchase, enlarge, or repair of any house, flats, raw houses, bungalows,
rooms, huts used for residential purposes either in total or part thereof or to purchase any free hold or lease
hold lands, estate or interest in any property to be used for residential purposes.
2. To carry on the business of providing loans to persons and other entities engaged in the business of
construction of houses or flats for residential or non-residential/ commercial purpose upon such terms and
conditions as the Company may think fit and proper.
3. To carry on the business of providing loan to Individuals, Co-operative Societies, Association of Persons,
Companies or Corporations or such other persons or entities for any purpose, upon such securities and on
such other terms and conditions as the Company may think fit and proper.
Answer 1(b)
Resolution for the appointment of Mr. X as a director
RESOLVED THAT pursuant to the provisions of Section 152 and other applicable provisions of the
Companies Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014,
Mr. X (DIN ______________), who was appointed as an Additional Director of the Company with effect
from _________ by the Board of Directors of the Company pursuant to Section 161(1) of the Companies
Act, 2013 and the Articles of Association of the Company and who holds office upto the date of this Annual
General Meeting, and being eligible, offer himself for appointment and in respect of whom the Company
has received a notice in writing under Section 160 of the Companies Act, 2013 from a member signifying
his intention to propose the candidature of Mr X for the office of Director, be and is hereby appointed as a
Director of the Company, liable to retire by rotation with effect from the date of this Meeting.
Answer 1(c)
Affidavit of Creditor in proof of his debt in Proceeding for the Liquidation of a Company

IN THE HIGH COURT OF ORISSA

The matter of Companies Act, 2013
and
The matter of the liquidation of XYZ Limited

I, A, son of Shri________________ aged about ______ years resident

of______________________________ do hereby solemnly affirm on oath state as follows:
1. That the above-named company XYZ Limited was on the _____day of____________, 20____, the date
of the order for winding up the same, and still is justly and truly indebted to me for a sum of Rupees 5 Crore
(Rs 5,00,00,000/-) only on account of goods supplied to XYZ Ltd.
2. That in proof of aforesaid debt, I attach hereto the Invoice for goods supplied, copy of Goods Receipt
(GR) and Account Statement duly marked as Annexure 1, 2 and 3 respectively.
3. That I have not, nor have any person or persons by my order or to my knowledge or belief for my use,
received the aforesaid sum of Rs. 5,00,00,000/- (Five Core only) or any part thereof, or any security or
satisfaction for the same or any part thereof.
4. That this affidavit is true and, that it conceals nothing and no part of it is false.
Dated:__________ Deponent
Verification
I, the above named deponent, verify that the contents of paragraphs 1 to 4 of this affidavit are true to the
best of my knowledge and belief.
Deponent
Answer 1(d)
IN THE COURT OF THE JUDICIAL MAGISTRATE, F.C. , ____________
Misc. Application No. _____ of 2023
In
C.R. No. ________________ of 2023 of Police Station _________/Cri. Case No. _______ of 2017

State of ____________
…Complainant
Versus
Mr. Rameshtha Dher
…Accused
FIR No. __________
U/S 409___________
P.S _______________
 Application for bail under Section 437, Cr. P. C.
May it please your honour
1. The accused was arrested by the ______ Police Station on ______________ under section 409 of Indian
Penal Code, 1860, and is in Police custody for the last ten days.
2. The main allegation is that the accused who is a patwari of ___________ village, in the capacity of a
public servant has failed to account for a paltry sum of Rs. 1,000/- (One Thousand Only) to Government
treasury, and has thereby committed criminal breach of trust.
3. Though the offence is a non-bailable one, yet considering such a small amount involved, it is highly
improbable that he would even think of misappropriating such a paltry sum. There must by some honest
mistake on the part of the accused concerned which can well be attributed to his old age.
4. The accused is a respectable family man and has roots in his society. The accused has immovable
property of his own and he is not likely to abscond.
5. Under the above circumstances, it is requested that the accused may be released on bail. The accused
is ready and willing to give such surety as the court would be pleased to order. And for this Act of Kindness
the accused as in duty bound shall ever pray.
Place:__________
Date:___________
Sd/-
Advocate for Accused
Attempt all parts of either Q. No. 2 or Q. No. 2A
Question 2.
Explain the following:
(a) Secretarial Standard-1 in respect of alteration of minutes of the meeting of Board of Directors once
signed by the Chairman.
(b) Importance of Force Majeure clause in commercial contracts.
(c) National Company Law Tribunal as quasi-judicial body.
(d) Notice period to convey meeting of Board of Directors. State whether company may prescribe a longer
Notice period through its Articles?
(4 marks each)
OR (Alternate question to Q. No. 2)
Question 2A.
Distinguish between the following:
(i) The Shrink-Wrap Agreements and Electronic Data Interchange (EDI).
(ii) Revocable and Irrevocable Power of Attorney
(iii) License and Lease
(iv) Ordinary Resolution and Special Resolution
(4 marks each)
Answer 2(a)
Minutes once signed by the Chairman shall not be altered, save as mentioned in Secretarial Standard-1
(SS-1). SS-1 specifically provides for that any alteration in the minutes, as entered, should be made only
by way of an express approval of the Board at its subsequent Meeting at which the minutes are to be noted
by the Board and the fact of such alteration shall be recorded in the Minutes of such subsequent meeting.
Within 15 days of signing of the Minutes, a copy of the said Signed Minutes certified by the Company
Secretary or if there is no Secretary then any of the director authorized by the Board, shall be circulated to
all the director as on date of meeting and appointed thereafter. But if any Director has waived right of
receiving the said copy of signed Minutes either in writing or his waiver is recorded in Minutes then there is
no need of sending him such copy.
Answer 2(b)
A very important provision witnessed in modern commercial contracts relates to force majeure or excuses
for non-performance. This provision defines as to what particular circumstances or events beyond the
control of the seller would entitle him to delay or refuse the performance of the contract, without incurring
liability for damage. It is usual to list the exact circumstances or events, like natural calamity, strike, lockout,
riot, civil commotion, Government prohibition, etc. which would provide an excuse to the seller to delay or
refuse the performance. It may be further provided that events of a similar nature, which are beyond the
control of the parties and which could not have been avoided with due diligence would also furnish the
above relief.
For example, the Govt. of India has issued memo and clarified that disruption of the supply chains due to
spread of corona virus in China or any other country will be covered in force majeure clause and it should
be considered as a case of natural calamity and force majeure clause may be invoked whenever considered
appropriate.
The purpose of a force majeure clause is to relieve a party from performing its contractual obligations when
an unexpected, external event has occurred which prevents it from performing.
Answer 2(c)
National Company Law Tribunal (NCLT) is a quasi-judicial body exercising equitable jurisdiction, which was
earlier being exercised by the High Court or the Central Government. It has been established by the Central
government under section 408 of the Companies Act, 2013 with effect from 1st June 2016. The Tribunal
has powers to regulate its own procedures.
The establishment of the National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of
the following authorities:
i) Company Law Board
ii) Board for Industrial and Financial Reconstruction.
iii) The Appellate Authority for Industrial and Financial Reconstruction
iv) Jurisdiction and powers relating to winding up restructuring and other such provisions, vested
in the High Courts.
Answer 2 (d)
According to section 173(3) of the Companies Act, 2013, a meeting of the Board of Directors shall be called
by giving not less than seven days’ notice in writing to every director at his address registered with the
company and such notice shall be sent by hand delivery or by post or by electronic means:
However, 1st proviso to section 173(3) provides that a meeting of the Board may be called at shorter notice
to transact urgent business subject to the condition that at least one independent director, if any, shall be
present at the meeting:
Further, 2nd proviso to section 173(3) provides that in case of absence of independent directors from such
a meeting of the Board of Directors, decisions taken at such a meeting shall be circulated to all the directors
and shall be final only on ratification thereof by at least one independent director, if any.
Accordingly, Notice convening the Meeting of Board of Directors shall be given at least seven days before
the date of the Meeting, unless the Articles prescribe a longer period. However, clear seven days are not
required. Adequate notice of meeting should be given so that Directors can plan their schedule as to attend
and participate in the Meeting. Participation in Meeting is central to the discharge of a Director’s
responsibilities.
The Company may prescribe a longer Notice period through its Article, in which case the Articles should
be complied with. The statutory notice period of seven days cannot be reduced by the company in its
Articles.
Answer 2A (i)
The Shrink-wrap Agreements and Electronic Data Interchange (EDI) are distinguished are under:
The Shrink-wrap Agreements
Shrink wrap contracts are license agreements or other terms and conditions which can only be read and
accepted by the consumer after opening the product like CD ROM of software. The terms and conditions
are printed on the cover of CD ROM. Sometimes additional terms are imposed when in such licenses
appear on the screen when the CD is downloaded to the computer. The user has right to return if the new
terms and conditions are not to his liking.
Electronic Data Interchange (EDI)
These contracts, used in trade transactions which enable the transfer of data from one computer to another
in such a way that each transaction in the trading cycle (for example, commencing from the receipt of an
order from an overseas buyer, through the preparation and lodgment of export and other official documents,
leading eventually to the shipment of the goods), can be processed with virtually no paperwork. Here unlike
the other two, there is exchange of information and completion of contracts between two computers and
not an individual and a computer.
Answer 2A (ii)
The Revocable and Irrevocable Power of Attorney are distinguished as under:
 A power of attorney executed in favour of a person can always, at the discretion of the donor
thereof, be revoked. While, irrevocable power of attorneys is rarely used and mostly limited to a
specific purpose.
 A power of attorney is said to be revocable if the principal has the right to revoke power at any time.
The agent can no longer act on the principal's behalf once the principal revokes the power. But
agency coupled with interest cannot be terminated without the consent of the other party (Section
202 of the Indian Contract Act, 1872). Therefore, a power of attorney executed, in which the donee
himself has an interest, is irrevocable.
 If a firm gives Power of Attorney to an agent, such power of attorney gets revoked automatically
upon dissolution of the firm. While irrevocable powers of attorney are executed in favour of the
financial institutions by a company who offer financial assistance to the latter. Through such
irrevocable powers of attorney, powers are given to the financial institutions for executing a security
document for securing the financial assistance in the event of a company failing to execute such a
document by a certain date.
 Irrevocable power of attorney needs registration if it relates to immovable property. While revocable
POA can be registered or unregistered.
Answer 2A (iii)
License and Lease is distinguished inter se with following characteristics:

Basis License Lease

Heritage License is a personal non-heritable Lease is a heritable right in rem

right

Interest Creates no interest in the guarantee Interest created in the lessee

 Assignment Non assignable Usually assignable

Revocation Always permissive and normally Permissive but not normally revocable
revocable

Exclusivity Not exclusive user Exclusive user

Forfeiture Denial of grantor’s title does not Denial of lessor’s title results in forfeiture
necessarily result in forfeiture.

Remedy Remedy for breach is damages Specially enforceable

Notice No notice necessary to terminate Notice necessary to terminate relationship

relationship

Registration Instrument granting right does not Instrument creating right requires registration
require registration.

Suits Does not entitle licensee to sue Can sue in his own name
strangers in his own name

Vote A licensee does not qualify for a vote May qualify for a vote

Rents Not liable for rents Liable for rents

Liability of User not liable for public nuisance Liable for public nuisance
Public Nuisance

Answer 2A (iv)
Ordinary Resolution and Special Resolution are distinguished are under:
Ordinary Resolution
According to section 114(1) of the Companies Act, 2013(the Act), a resolution shall be an ordinary
resolution if the notice required under the Act has been duly given and it is required to be passed by the
votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the
resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do,
vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast
against the resolution by members, so entitled and voting.
Special Resolution
According to section 114(2) of the Companies Act, 2013(the Act), a resolution shall be a special resolution
when—
(a) the intention to propose the resolution as a special resolution has been duly specified in the notice
calling the general meeting or other intimation given to the members of the resolution;
(b) the notice required under the Act has been duly given; and
(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as
the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot,
are required to be not less than three times the number of the votes, if any, cast against the resolution by
members so entitled and voting.
 Attempt all parts of either Q. No. 3 or Q. No. 3A
Question 3.
Explain the following:
(a) Importance of Skeleton draft and its self-appraisal in drafting of documents.
(b) Rule of Adverse Inference.
(c) Form and manner of filing complaint.
(d) Who can be a partner as per Partnership Act, 1932?
(4 marks each)
OR (Alternate question to Q. No. 3)
Question 3A.
Elucidate the following:
(i) Significance of attestation, registration and stamp duty with regard to execution of an
Agreement.
(ii) In case of transfer of immovable properties, no right, title or interest can be transferred in
the absence of Deed of Conveyance.
(iii) Interlocutory Proceedings.
(iv) What a Company Secretary should bear in mind while appearing before any judicial
authority?
(4 marks each)
Answer 3(a)
Importance of Skeleton draft and its self-appraisal in drafting of documents
After the general scheme of the draft has been conceived, the draftsman should note down briefly the
matters or points which he intends to incorporate in his intended draft. In other words, he should frame what
is called a “skeleton draft” which should be filled in or elaborated as he proceeds with his work. It is important
to note that a skeleton draft will not be perfect and polished. It consists of unfinished sentences and ideas
that are unpolished. The main aim of skeleton draft is to figure out the key events in the document being
drafted and how they lead into one another. One should not be afraid to make skeleton draft messy,
unpolished, and even incomplete.
After preparing skeleton draft it is time to appraise it. For that draftsman should go through it all again and
clean things up to create his first draft proper. Once the draft of the document is ready, the draftsman should
appraise it with reference to the available facts, the law applicable in the case, logical presentation of the
facts, use of simple language intelligible to layman, avoidance of repetition and conceivable mis-
interpretation, elimination of ambiguity of facts, and adherence to the use of Fowlers’ Rules of drafting so
as to satisfy himself about its contents.
Answer 3(b)
Rule of Adverse Inference
An adverse inference is a discretionary tool available to courts, and a remedy for the parties to seek to
discharge a party from its burden of proof in the face of non-disclosure of evidence by the opposing party.
This tool is usually employed when a party is silent or fails to disclose despite having the obligation or being
ordered to do so.
No evidence is required of matters which are, either formally admitted for the purposes of the trial, in civil
cases, by the pleadings, by answer to interrogatories, by agreement or otherwise and in criminal cases, as
regards proof of those documents admitted under Section 294 of the Code of Criminal Procedure, 1973.
It is incumbent upon a party in possession of best evidence on the issue involved, to produce such evidence
and if such party fails to produce the same, an adverse inference is liable to be drawn against such party.
The Court will be justified in drawing an adverse inference against that party. [Ms. Shefali Bhargava v.
Indraprastha Appollo Hospital & Anr., 2003 NCJ 787 (NC)].
Answer 3(c)
Form and manner of filing complaint
A complaint in a criminal case is what a plaint is in a civil case. The requisites of a complaint are:
(i) an oral or a written allegation;
(ii) some person known or unknown has committed an offence;
(iii) it must be made to a magistrate; and
(iv) it must be made with the object that he should take action
Form & Manner of Complaint:
 There is no particular form for narration of the incident in the body of complaint.
 It is sufficient if it contains a valid and correct description how and in what manner the offence was
committed.
 Only facts which are connected with the incident have to be stated in the complaint.
 Facts which can prove involvement of the accused in the offence should also be mentioned.
 The petition of complaint must disclose the names of the witnesses of the offence.
 The petition of complaint shall thus set out in clear and unambiguous terms all the points essential
for establishing the case.
 Complaint need not be presented in person. A letter to a magistrate stating facts constituting an
offence and requesting to take action is a complaint.
A petition addressed to the Magistrate containing an allegation that an offence has been committed, and
ending with a prayer that the culprit be suitably dealt with is a complaint (Mohd. Yousuf v. Afaq Jahan, AIR
2006 SC 705).
Note: Police report is expressly excluded from the definition of complaint but the explanation to Section
2(d) makes it clear that such report shall be deemed to be a complaint where after investigation it discloses
commission of a non-cognizable offence. Police report means a report forwarded by a police officer to a
Magistrate under Subsection (2) of Section 173 of the Code of Criminal Procedure, 1973.
Answer 3(d)
Who can be a partner as per Partnership Act, 1932
The word “person” in Section 4 of the Indian Partnership Act, 1932 contemplated only natural and legal
persons (Duli Chand v. C.I.T., AIR, 1956 SC 354). Partnership relation is one of contractual nature.
Therefore, such persons who are competent to contract can enter into partnership. A firm or a Hindu
Undivided Family is not a legal person and cannot enter into partnership with any person. When the Karta
of a Joint Hindu Family enters into a partnership with strangers the other members of the family do not ipso
facto become partners (Firm Bhagat Ram v. Comm. of Excess Profits Tax, AIR 1956 SC 374).
A minor cannot be a partner in a firm but, with the consent of all the partners, he can be admitted to the
benefits of partnership. He is entitled to share in the profits and his share is liable for the acts of the firm,
but he is not personally liable. He cannot be made liable for the losses of the firm. Within six months of
attaining majority or obtaining knowledge of his admission, whichever is later, the minor may elect to
become or not to become a partner in the firm.
Two partnership firms cannot enter into partnership as such but its partners can certainly form a new
partnership.
A body corporate can be a partner in the firm, provided the relevant clause in this regard is entered in the
Memorandum of Association (MOA) and Articles of Association (AOA) of the Company. As such while
considering applications for registration of firms with bodies corporate as partners under the Indian
Partnership Act, 1932, the State Government should examine the applications before them and find out
whether the memorandum and articles of association of the applicant incorporated companies contain any
special clause which authorised the incorporated companies to enter into partnership.
Answer 3A (i)
Significance of attestation, registration and stamp duty with regard to execution of an Agreement
Attestation: It is not necessary for an agreement to be attested by any witness. But agreements are usually
attested by one witness. Where registration is desired, the agreement should be attested by two witnesses.
The purpose of attesting an agreement is to authorise it simply. A document’s attestation is required under
Indian law for several reasons. According to section 68 of the Indian Evidence Act, 1872, if a document is
required by law to be attested, it shall not be used as evidence until one attesting witness at least has been
called for the purpose of proving its execution, if there be an attesting witness alive, and subject to the
process of the Court and capable of giving evidence. However, it shall not be necessary to call an attesting
witness in proof of the execution of any document, not being a will, which has been registered in accordance
with the provisions of the Indian Registration Act, 1908, unless its execution by the person by whom it
purports to have been executed is specifically denied.
Registration: Agreements not relating to immovable property and agreements not creating an interest in
immovable property are not compulsorily registrable. Only agreements creating an interest in immovable
property worth more than Rs. 100 are required by law to be registered.
Significance of Registration:
 It provides authenticity and validity to a document.
 The use of registered documents aids in protection from fraud and misappropriation.
 Registered document can also be used as legitimate court evidence.
 Registered document ensures transparency in deals.
If the document is registered, it becomes easier to find out if there’s any kind of dispute or ongoing litigation
with regard to a property.
Stamp Duty: For the purpose of stamp duty, agreements are covered by Article 5 of Schedule I to the
Indian Stamp Act, 1899. The stamp duty for different kinds of agreements varies from State to State. While
drafting an agreement, the draftsman should ascertain the proper stamp duty having regard to the changes
made in the Stamp Act in the State where the agreement is executed.
The stamp duty is necessary for all agreements such as agreement to sale, conveyance deed, gift deed,
mortgage deed, partition deed, power of Attorneys, leave and license agreement, lease deeds and so on.
Basically, stamp duty and stamp papers are commonly used in almost all of the commercial transactions.
To be precise stamp duty is not a transaction duty but a document impost.
Answer 3A (ii)
Usually a transaction of a sale of immovable property involves two documents, e.g., Agreement to sell and
the Conveyance Deed i.e. sale deed. But with only a Sale Deed the transaction of sale can be completed.
In Suraj Lamp & Industries Pvt Ltd. v. State of Haryana, the Supreme Court of India observed that it has
become common practice to effect transfers of immovable property by way of either General Power of
Attorney (GPA) sales or sale agreement, GPA or will transfers in order to evade, inter-alia, the payment of
duties, taxes and other fees payable on transfer and registration (e.g., stamp duty or registration fees).
The Apex Court held that such transactions are illegal and cannot be recognized as valid under law. Hon’ble
Supreme Court further sought to distinguish these illegal transactions from genuine transactions entered
into by parties in good faith. While referring to Sections 53A and 54 of the Transfer of Property Act, 1882
and its decisions in earlier cases, it further observed that a transfer of immovable property by way of sale
can be effected only by a deed of conveyance. In the absence of a deed of conveyance, duly stamped and
registered, no right, title or interest in an immovable property can be transferred.
Answer 3A (iii)
Interlocutory Proceedings
Interlocutory proceedings are court hearings that focus on a specific matter related to a trial during the life
cycle of the case. Interlocutory proceedings concern issues brought before the court in civil proceedings
the disposal of which does not result in a final determination of the case. Interlocutory proceedings are
conducted during the period involved between initiation and disposal of litigation which is substantially long.
The intervention of the court may sometimes be required to maintain the position as it prevailed on the date
of litigation. In legal parlance, it is known as “status quo”. It means preserving existing state of things on a
given day. In that context interlocutory orders are provisional, interim, temporary as compared to final. It
does not finally determine cause of action but only decides some intervening matter pertaining to the cause.
The procedure followed in the court is that the separate application for interim relief is moved at the time of
filing of suit or at a subsequent stage. The court either grants the order ex-parte or issues urgent show
cause notice and the reply is to be filed within short time.
One of the most common interlocutory reliefs sought is that of ‘injunction’.
Answer 3A (iv)
A Company Secretaries should bear in mind the following while appearing before Tribunals or other quasi-
judicial bodies:
(i) Clarity: The judge’s time is limited, so make the most of it.
(ii) Credibility: The judge needs to believe that what you are saying is true and that you are on the right
side.
(iii) Demeanour: We do not have a phrase “hearing is believing”. Humans which includes the human judge,
is far more video than audio. The way we collect most of our information is through our eyesight.
(iv) Eye contact: While pleading, maintain eye contact with your judge.
(v) Voice modulation: Voice modulation is equally important. Modulating your voice allows you to
emphasize the points you want to emphasize. Be very careful about raising your voice. Use your anger
strategically. But use is rarely. Always be in control of it.
(vi) Psychology: Understand judge’s psychology as your job is to make the judge prefer your version of
the truth.
(vii) Be likeable: At least be more likeable than your opponent. If you can convert an unfamiliar Bench into
a group of people who are sympathetic to you personally, you perform a wonderful service to your client.
(viii)Learn to listen.
(ix) Entertain your judge: Humour will often bail you out of a tough spot.
Question 4.
Explain the following:
(a) ‘Goodwill is an intangible, but not necessarily a fictitious asset’.
(b) ‘Utmost care is required to draft the Articles’.
(c) Important points which should be kept in mind while drafting pleadings.
(d) Judgment and write a note on it.
(4 marks each)
Answer 4(a)
Goodwill is an intangible, but not necessarily a fictitious asset, representing the value, however, difficult its
appraisement may be to its owner, of benefits arising from the business in question, such as the sole right
to enjoy the profits of the business, and, where goodwill has been acquired, the sole right of succession to
the advantages of the business, which have been built up in the past. Goodwill arises mainly:
(a) by personal reputation of the owners;
(b) by reputation of the goods dealt in;
(c) by site monopoly or advantage;
(d) by access to sources of supply, e.g., large quotas;
(e) for patent and trade-mark protection;
(f) effectiveness of publicity;
(g) reputation of the first’s goods and methods;
(h) relationship between firm and personnel; and
(i) growth element.
The purchaser of goodwill acquires the trade marks, patents, copyrights etc. of the business as well as the
benefits of contacts and all the benefits accruing from the location, reputation, connections, organisation
and other exceptional features of the business. The purchaser will seek to express the sum payable in
terms of the compound or capitalised value of an annuity of future differential or “super” profits that is those
profits in excess of the marginal return normally arising.

Answer 4(b)
Utmost care is required to be taken to draft the Articles. It should contain strictly only relevant and necessary
matters. In its draft, all efforts must be made to incorporate comprehensive provisions so as to cover all
statutory requirements and all possible contingencies. Any alteration requires cumbersome procedure to
be followed which is expensive and time consuming.
Articles, as a public document of the company, have evidentiary value in matters which involve dealing of
the company with its own members or third parties. Any outsider has constructive notice of the contents of
Articles and expected to inspect before entering into any transaction with the company. Articles must be
signed by the subscribers of the Memorandum and be registered along with the Memorandum. Articles
shall be divided into paragraph numbered consecutively. This will help the company to alter the articles
conveniently.
After drafting a proper balancing should be done with Memorandum’s contents, as to coverage,
inconsistencies with it, contradictions occurred etc. to enable proper modification in time. It is better to have
an Article of an existing company in the same field of activity, either to modify it or at least to know the
relevant matters which can be included in the Draft.
Answer to question no. 4(c)
The following points should be kept in mind while drafting a pleading:
a) The names of persons and places should be accurately given and correctly spelt; spellings adopted at
one place should be followed throughout the pleading.
b) Facts should be stated in active and not in the passive voice omitting the nominative.
c) All circumstances and paraphrases should be avoided.
d) ‘Terse’, ‘Short’, ‘Blunt’ sentences should be used as far as possible. All ‘its’ and ‘buts’ should be avoided.
e) Pronouns like “he” “she” or “that” should be avoided if possible. Anyway, such pronouns when used
should clearly denote the person or the thing to which such pronouns refer.
f) The plaintiff and the defendant should be referred not only by their names. It is better to use the word
“plaintiff’ or “defendant”.
g) Things should be mentioned by their correct names and the description of such things should be adhered
to throughout.
h) Where an action is found on some statute, the exact language of the statute should be used.
i) In any pleading, the use of “if’, “but” and “that” should be, as far as possible, avoided. Such words tend
to take away the “certainty” and can cause ambiguity
j) Necessary particulars of all facts should be given in the pleading. If such particulars are quite lengthy,
then they can be given in the attached schedule, and a clear reference made in the pleading. Repetitions
should be avoided in pleadings.
k) Every pleading shall, when necessary, be divided into paragraphs, numbered consecutively, each
allegation being, so far as is convenient, contained in a separate paragraph. The division of the pleading
into paragraphs should be so done as to endure that each paragraph deals with one fact. At the same time,
the entire pleading should appear a running and well-knit matter, must not look like isolated fact placed
together. Inter-relations ships of paragraphs must seem to exist. All the relevant facts must be stated in
strict chronological order.
l) Dates, sums and numbers shall be expressed in a pleading in figures as well as in words.
Answer 4(d)
Judgement means the statement given by the judge on ground of which a decree or order is passed. The
court after the case has been heard shall pronounce judgement in open court either within one month of
completion of arguments or as soon thereafter as may be practicable, and when the judgement is to be
pronounced judge shall fix a day in advance for that purpose.
Where judgement is not pronounced within 30 days from the date on which hearing of case was concluded,
the court shall record the reasons for such delay.
The last paragraph of the judgement shall indicate in precise terms the relief, which has been granted by
such judgement. Every endeavor shall be made to ensure that the decree is drawn as expeditiously as
possible and in any case within 15 days from the date on which the judgement is pronounced.
The court also has the power to award ‘cost’. If on any date fixed for hearing, a party to the suit fails to take
step or obtains adjournment for producing evidence, the court may also award costs for causing delay. If
the court finds, that the claim or defence as against the objector is false or vexatious to the knowledge of
the party by whom it has been put forward, and if such claim is disallowed, abandoned or withdrawn, court
holding the claim false or vexatious may order compensatory costs.
Question 5.
(a) ‘The articles may contain provisions for entrenchment to the effect that specified provisions of
the articles be altered.’ Comment and discuss.
(4 marks)
(b) Before incorporation, the promoters of ABC Mills Ltd., Ms. Desai & Mr. Advani entered into an
agreement with Mr. Dalvi to buy a plot of land in Pune, on behalf of a Company. After
incorporation, ABC Mills Ltd. refuses to ratify the agreement. Does Mr. Dalvi have remedies
against promoters Ms. Desai and Mr. Advani ? Explain.
(6 marks)
(c) A Company wishes to shift its registered office from Mumbai to New Delhi. An extra-ordinary
general meeting is called for this purpose, where the shareholders passed an ordinary
resolution in this regard. A petition is then filed before the Company Law Board for its approval.
Examine the validity of the shifting of registered office of the company.
(6 marks)
Answer 5(a)
According to section 5(3) of the Companies Act, 2013(the Act), the articles may contain provisions for
entrenchment to the effect that specified provisions of the articles may be altered only if conditions or
procedures as that are more restrictive than those applicable in the case of a special resolution, are met or
complied with.
Further, section 5(4) of the Act provides that the provisions for entrenchment referred to in section 5(3) of
the Act shall only be made either on formation of a company, or by an amendment in the articles agreed to
by all the members of the company in the case of a private company and by a special resolution in the case
of a public company.
The Companies Act 2013, recognizes an interesting concept of entrenchment. Essentially, the
entrenchment provisions allow for certain clauses in the articles to be amended upon satisfaction of certain
conditions or restrictions greater than those prescribed under the Act (such as obtaining 100% consent of
members). This provision acts as a protection to the minority shareholders and is of specific interest to the
investment community. This shall empower the enforcement of any pre-agreed rights and provide greater
certainty to investors, especially in joint ventures.
According to section 5(5) of the Act read with rule 10 of The Companies (Incorporation) Rules, 2014, where
the articles contain the provisions for entrenchment, the company shall give notice to the Registrar of such
provisions in Form No.INC.2 or SPICe+ (Simplified Proforma for Incorporating company Electronically
Plus: INC-32) as the case may be, along with the fee as provided in the Companies (Registration offices
and fees) Rules, 2014 at the time of incorporation of the company or in case of existing companies, the
same shall be filed in Form No. MGT.14 within thirty days from the date of entrenchment of the articles, as
the case may be, along with the fee as provided in the Companies (Registration offices and fees) Rules,
2014.

Answer 5(b)
The legality of the contracts formed before the incorporation stage is a little difficult to define because it was
entered on behalf of company by promoters but company is not in existence. But anyhow, the promoters
are themselves liable for all the contracts entered by them.
Further, according to section 19(e) of the Specific Relief Act, 1963, except as otherwise provided by Chapter
II, specific performance of a contract may be enforced against when the promoters of a company have,
before its incorporation, entered into a contract for the purpose of the company and such contract is
warranted by the terms of the incorporation, the company:
Provided that the company has accepted the contract and communicated such acceptance to the other
party to the contract.
In the given situation, Mr Dalvi can hold Ms. Desai and Mr. Advani personally liable and sue them to
specifically enforce his right to sell the Pune land in accordance with Specific Relief Act, 1963 or take action
in accordance with Indian Contract Act, 1872. Pre-incorporation contracts in general are void ab initio and
hence not binding on the company.
Thus, Mr. Dalvi can take action against Mr. Desai and Mr. Advani.
Answer 5(c)
According to section 12(5) of the Companies Act, 2013(the Act), except on the authority of a special
resolution passed by a company, the registered office of the company shall not be changed,—
(a) in the case of an existing company, outside the local limits of any city, town or village where
such office is situated at the commencement of the Act or where it may be situated later by virtue
of a special resolution passed by the company; and
(b) in the case of any other company, outside the local limits of any city, town or village where such
office is first situated or where it may be situated later by virtue of a special resolution passed by
the company:
However, no company shall change the place of its registered office from the jurisdiction of one Registrar to
the jurisdiction of another Registrar within the same State unless such change is confirmed by the
Regional Director on an application made in this behalf by the company in the prescribed manner.
Further, According to 13(4) of the Companies Act, 2013, the alteration of the memorandum relating to the
place of the registered office from one State to another shall not have any effect unless it is approved by
the Central Government on an application in such form and manner as may be prescribed.
The power of Central Government under section 13(4) of the Act, has been delegated to the Regional
Directors.
If a company wishes to shift its registered office from Mumbai to New Delhi, a company has to:
1. Comply with the provisions of Section 12(5) of the Companies Act, 2013 by passing a Special
Resolution.
2. Obtaining approval of Central Government in accordance with section 13(4) of the Companies
Act, 2013.
In the given situation, the company has passed ordinary resolution only which is not in accordance with the
provisions of Section 12(5) of the Act as provided above and also not approached the appropriate authority
as they approached erstwhile Company Law Board(Now, National Company Law Tribunal). As now, the
power of Central Government under section 13(4) of the Act, has been delegated to the Regional Directors.
Therefore, shifting of registered office of the company from Mumbai to New Delhi is not valid in given
situation.
Question 6.
(a) Under agreement between X Ltd. and A Ltd., X Ltd. was awarded with the contract for supply of
Machinery. Draft an Arbitration Agreement to refer disputes, if any, to two Arbitrators which are to be
appointed by both the parties to the agreement. Assume other facts, if required.
(b) Mr. A and Mr. B are running business in Partnership and sharing Profits/Losses in equal proportion;
name of the Firm is X & Co. They want to introduce Mr. C into the firm as a new partner with 30% share in
firm and Rs. 10.00 Lakhs as Capital Contribution. Draft a Partnership Deed for admission of Mr. C as a new
partner. Assume other facts, if required.
(8 marks each)
Answer 6(a)
Arbitration Agreement to Refer the Dispute to two Arbitrators

This agreement is made and entered on ____ Day of ______, 20___ at ____________.

Between
X Ltd. acting through its __________________________________ s/o
___________________________________ r/o ___________________________________, hereinafter
referred to as the First Party

AND

A Ltd. acting through its __________________________________ s/o

_____________________________________ r/o ____________________________________,
hereinafter referred to as Second Party.
WHEREAS differences and disputes have arisen between the above-mentioned parties regarding the
matter of contract for supply of Machinery and parties could not settle the matter mutually. Now, the parties
agree that the matter as under be referred to arbitration to obtain an award:

NOW THIS DEED WITNESSETH AS FOLLOWS:

1. For the purpose of final determination of the dispute, the matter will be referred to Mr____________
nominated by one party and Mr ________________ nominated by the other party as arbitrators and their
award shall be final and binding on both the parties.
2. If differences should arise between the said two arbitrators on the questions referred to them, the said
arbitrators shall select an umpire and the award to be given by the umpire shall be final and both the parties
hereby agree that the award so given by the umpire or arbitrators shall be binding on both the parties.
3. A reasonable time-limit may be fixed after consulting the arbitrators for the grant of the award by them
and umpire if appointed and the said time may be extended in consultation with the arbitrators or umpire if
need be.
4. The provisions of the Arbitration and Conciliation Act, 1996 so far as applicable and as are not
inconsistent or repugnant to the purposes of this reference shall apply to this reference to arbitration.
5. Both the parties agree that they would co-operate and lead evidence etc. with the arbitrators so appointed
as expeditiously as possible and it is an express condition of this agreement, that if any of the parties does
not cooperates or is absent at the reference, the arbitrators would be at liberty to proceed with the reference
ex-parte.
6. The parties hereto agree that this reference to arbitration would not be revoked either by death of either
party or any other cause.
7. If the arbitrators or anyone of them as chosen under this agreement become incapacitated either by
death or sickness or other disability, the parties retain the right of nominating substitutes and no fresh
agreement therefor would be necessary.
8. It is an express stipulation that any award passed by the said arbitrators shall be binding on the parties,
their heirs, executors and legal representatives.
Having agreed to the above by both the parties, the said parties affix their signatures to this agreement on
this____ day of ___________, 20____ (month and year) at __________(place).

___________________________ ______________________________
Signed by the above named first party Signed by the above named second party

Witnesses
1. ___________________________
2. ___________________________

Answer 6(b)
Deed of Partnership for admission of Mr. C as a New Partner
This deed of partnership is made on this ____ day of ______, 20____ at _________ by and amongst the
following:
Mr. A S/o _____________ aged about ______ years r/o _______________________ (hereinafter referred
to as First Party);

Mr. B S/o _____________ aged about ______ years r/o _______________________ (hereinafter referred
to as Second Party);

Mr. C S/o _____________ aged about ______ years r/o _______________________ (hereinafter referred
to as Third Party)
WHEREAS the above mentioned First party and Second party were carrying on the business of
__________________ in partnership in the name and Style of X & Co. under the duly executed partnership
deed dated ______________.
AND WHEREAS First Party and Second Party decided to admit Third Party Mr. C into Partnership. Third
party shall bring Rs. 10,00,000/- (Ten Lakh Only) as his capital contribution to the Firm for his share of 30%
in profit/losses in the firm.
NOW THIS DEED WITNESSETH AS UNDER
1. That the Partnership Business shall be carried out under the same name and style of X & Co.
2. That the principle place of business shall continue to be located at ________________.
3. That this deed of partnership shall come into effect on ______________.
4. That the main business of the firm shall remain the same.
5. That interest @ ______ per annum shall be payable on Partners’ capital account.
6. That the profit or losses of the Partnership shall be shared in the following ratio:
First Party: 35%
Second party: 35%
Third Party: 30%
7. That each partner shall be just and faithful to other at all the times and shall keep others duly informed
as to the activities of the firm.
8. That each partner shall have free access to the books of account of the firm.
9. That the partnership shall be at “Will”.
10. That dispute, if any arises amongst the partners shall be referred to Arbitrators chosen by each of the
Partner and the representatives of their umpire to be appointed in the manner provided by the law and such
reference shall be in all respect, as to the mode and consequence thereof conform to the provisions in that
behalf contained in the Arbitration and Conciliation Act, 1996 or any other statutory amendments thereof.

IN WITNESS WHEREOF the said First Party, Second Party and Third Party have hereto at ____________
signed on the day and the year mentioned above.
Witnesses _______________
1.__________________ First Party
2. _________________ _______________
Second party
_______________
Third party