Taxmann's CRACKER | Corporate & Economic Laws

1. TAXMANN ® May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 Jan-21 Series1 12 20 16 16 10 4 0 2 4 6 8 10 12 14 16 18 20 22 Marks "Marks Distribution of Past Exams (New Syllabus)" * * * Trend Analysis of Past Exam Questions - New Syllabus Attempt Q. No. Topic Suggested Answer Marks May 18 1(a) Practical Illustration on Secs. 149(4), 149(6) & 197(5) Refer Q. No. 17 8 6(a) Practical Illustration on Sec. 162 Refer Q. No. 68 4 Nov. 18 1(a) Practical Illustration on Sec. 151 & Rule 7 Refer Q. No. 28 8 5(a) Practical Illustration on Secs. 2(6), 149(6) & 169 Refer Q. No. 102 8 6(a) Practical Illustration on Sec. 149(4) and Rule 4 Refer Q. No.20 4 May 19* 1(a) Practical Illustration on Sec. 152(7) Refer Q. No. 39 8 6(a) Practical Illustration on Sec. 161(4) Refer Q. No. 62 4 6(b) Practical Illustration on Sec. 164(2) Refer Q. No. 74 4 Nov. 19* 1(a) Practical Illustration on Sec. 161(2) Refer Q. No. 63 8 6(a) Practical Illustration on Sec. 164(2)/Sec. 165 Refer Q. No. 75/83 4 6(b) Process of Surrendering DIN obtained inadvertently Refer Q. No. 46 4 May 20* Exams Cancelled due to Covid-19 Nov. 20* 6(a) Practical Illustration on Sec. 165(1) Refer Q. No. 78 2 6(a) Practical Illustration on Rule 3 and Sec. 161(1) Refer Q. Nos. 9 & 64 4 6(b) Practical Illustration on Sec. 151 and Rule 7 Refer Q. No. 30 4 Jan. 21* 6(a) Practical Illustration on Sec. 167 Refer Q. No. 88 4 *From May 19 Exam, marks are covered only for descriptive part of the paper as MCQ paper was not issued in public domain by ICAI. 1 $SSRLQWPHQWDQG4XDOL¿FDWLRQV RI'LUHFWRUV C H A P T E R 1.1 SAMPLE CHAPTER

3. © Taxmann Price : ` 895 First Published : December 2020 Published by : Taxmann Publications (P.) Ltd. Sales Marketing : 59/32, New Rohtak Road, New Delhi-110 005 India Phone : +91-11-45562222 Website : www.taxmann.com E-mail : sales@taxmann.com Regd. Office : 21/35, West Punjabi Bagh, New Delhi-110 026 India Printed at : Tan Prints (India) Pvt. Ltd. 44 Km. Mile Stone, National Highway, Rohtak Road Village Rohad, Distt. Jhajjar (Haryana) India E-mail : sales@tanprints.com Disclaimer Every effort has been made to avoid errors or omissions in this publication. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. It is notified that neither the publisher nor the author or seller will be responsible for any damage or loss of action to any one, of any kind, in any manner, therefrom. It is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the publication with original Government publication or notifications. The author has not revealed any confidential facts about any company in the case studies cited herein. Therefore, no part of this book may be reproduced in any arbitration or in courts or legal forum as an evidence for actions and defaults since the cases studies are included as examples for academic purpose only. Care has been taken that no identity of any organization or person is revealed here. The author has used his general knowledge, creativity and innovative ideas to express the theme of disputes through the examples of case studies in India and abroad. Resemblance to any actual case or incidence may be a mere coincidence. No part of this book may be reproduced or copied in any form or by any means [graphic, electronic or mechanical, including photocopying, recording, taping, or information retrieval systems] or reproduced on any disc, tape, perforated media or other information storage device, etc., without the written permission of the publishers. Breach of this condition is liable for legal action. For binding mistake, misprints or for missing pages, etc., the publisher’s liability is limited to replacement within seven days of purchase by similar edition. All expenses in this connection are to be borne by the purchaser. All disputes are subject to Delhi jurisdiction only.

4. Chapter-wise marks distribution of Past Exams I-7 Chapter 1 $SSRLQWPHQWDQG4XDOLÀFDWLRQVRI'LUHFWRUV 1.1 Chapter 2 Meetings of the Board and its Powers 2.1 Chapter 3 Appointment and Remuneration of Managerial Personnel 3.1 Chapter 4 ,QVSHFWLRQ,QTXLUDQG,QYHVWLJDWLRQ 4.1 Chapter 5 RPSURPLVHV$UUDQJHPHQWVDQG$PDOJDPDWLRQV 5.1 Chapter 6 3UHYHQWLRQRI2SSUHVVLRQ 0LVPDQDJHPHQW 6.1 Chapter 7 Winding Up 7.1 Chapter 8 RPSDQLHV,QFRUSRUDWHG2XWVLGH,QGLD 8.1 Chapter 9 0LVFHOODQHRXV3URYLVLRQV 9.1 Chapter 10 $GMXGLFDWLRQDQG6SHFLDORXUWV 10.1 Chapter 11 1DWLRQDORPSDQ/DZ7ULEXQDODQG$SSHOODWH7ULEXQDO 11.1 Chapter 12 RUSRUDWH6HFUHWDULDO3UDFWLFH'UDIWLQJRI1RWLFHV5HVROXWLRQV0LQXWHV 5HSRUWV 12.1 Chapter 13 6HFXULWLHVRQWUDFWV5HJXODWLRQ

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12. TAXMANN ® May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 Jan-21 Series1 12 20 16 16 10 4 0 2 4 6 8 10 12 14 16 18 20 22 Marks Marks Distribution of Past Exams (New Syllabus) * * * Trend Analysis of Past Exam Questions - New Syllabus Attempt Q. No. Topic Suggested Answer Marks May 18 1(a) Practical Illustration on Secs. 149(4), 149(6) 197(5) Refer Q. No. 17 8 6(a) Practical Illustration on Sec. 162 Refer Q. No. 68 4 Nov. 18 1(a) Practical Illustration on Sec. 151 Rule 7 Refer Q. No. 28 8 5(a) Practical Illustration on Secs. 2(6), 149(6) 169 Refer Q. No. 102 8 6(a) Practical Illustration on Sec. 149(4) and Rule 4 Refer Q. No.20 4 May 19* 1(a) Practical Illustration on Sec. 152(7) Refer Q. No. 39 8 6(a) Practical Illustration on Sec. 161(4) Refer Q. No. 62 4 6(b) Practical Illustration on Sec. 164(2) Refer Q. No. 74 4 Nov. 19* 1(a) Practical Illustration on Sec. 161(2) Refer Q. No. 63 8 6(a) Practical Illustration on Sec. 164(2)/Sec. 165 Refer Q. No. 75/83 4 6(b) Process of Surrendering DIN obtained inadvertently Refer Q. No. 46 4 May 20* Exams Cancelled due to Covid-19 Nov. 20* 6(a) Practical Illustration on Sec. 165(1) Refer Q. No. 78 2 6(a) Practical Illustration on Rule 3 and Sec. 161(1) Refer Q. Nos. 9 64 4 6(b) Practical Illustration on Sec. 151 and Rule 7 Refer Q. No. 30 4 Jan. 21* 6(a) Practical Illustration on Sec. 167 Refer Q. No. 88 4 *From May 19 Exam, marks are covered only for descriptive part of the paper as MCQ paper was not issued in public domain by ICAI. 1 $SSRLQWPHQWDQG4XDOL¿FDWLRQV RI'LUHFWRUV C H A P T E R 1.1 SAMPLE CHAPTER

13. TAXMANN ® 1.2 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Companies to have Board of Directors (Sec. 149 Rule 3) Q.1 As per the Articles of Association, the maximum number of Directors of each of the following companies is 9: (i) Good heart Company Limited. (ii) Frontline Trading Private Limited. (iii) Hindustan Zink Limited (a Government company u/s 2(45) of the Companies Act, 2013). The Board of Directors of the aforesaid companies proposes to increase the number of Directors to 15. Advise, whether under the provisions of the Companies Act, 2013, the Board of Directors can do so? Ans : Increase in number of Directors: ‹ Section 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directorsconsistingofindividualsasdirectorsandshallhaveaminimumnumberof 3directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15. ‹ However, a company may appoint more than 15 directors after passing a special resolution. ‹ Limit of Maximum directors and their increase is not applicable to Government Companies ƒ†•‡…Ǥͺ‘’ƒ‹‡•’”‘˜‹†‡†–Š‡•‡…‘’ƒ‹‡•Šƒ•‘–…‘‹––‡†ƒ†‡ˆƒ—Ž–‹ϐ‹Ž‹‰‘ˆ–Š‡‹” ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–•—Ȁ•ͳ͵͹‘”ƒ—ƒŽ”‡–—”—Ȁ•ͻʹ™‹–Š–Š‡‡‰‹•–”ƒ”Ǥ Conclusion:Applyingtheprovisionsofsec.149(1)andexemptionsavailable,followingconclusions may be drawn: (aȌ

14. –Š‡…ƒ•‡‘ˆ–Š‡ϐ‹”•––™‘…‘’ƒ‹‡•ǡi.e. Good Heart Company Limited and Frontline Trading Private Limited, the Board of Directors can increase the number by simply appointing the additional 6 directors at the general meetings of the company after following the prescribed procedure and conditions. But before this, Articles of Association are to be altered so as to provide the maximum number of directors to 15. (b) In case of a Hindustan Zink Limited (a Government company), the limit of maximum directors ƒ†–Š‡‹”‹…”‡ƒ•‡•ŠƒŽŽ‘–ƒ’’Ž›’”‘˜‹†‡†–Š‡…‘’ƒ›Šƒ•‘–…‘‹––‡†ƒ†‡ˆƒ—Ž–‹ϐ‹Ž‹‰ ‘ˆ‹–•ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–•—Ȁ•ͳ͵͹‘”ƒ—ƒŽ”‡–—”—Ȁ•ͻʹ™‹–Š–Š‡‡‰‹•–”ƒ”Ǥ Q.2 In XYZ Ltd., an intermittent vacancy of the women director arises on 15th June 2021. By what time –Š‡˜ƒ…ƒ…›•‘…”‡ƒ–‡†•Š‘—Ž†„‡ϐ‹ŽŽ‡†‹ˆ–Š‡‹‡†‹ƒ–‡‘ƒ”†‡‡–‹‰™ƒ•Š‡Ž†‘ȋƒȌͳͶ–Š—‰—•– 2021 (b) 14th Oct. 2021. Ans : Filling of casual vacancy in case of Woman Director: ‹ —Ž‡͵‘ˆ‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡•–Šƒ–ƒ› ‹–‡”‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘ƒ†‹”‡…–‘”•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›–Š‡‘ƒ”†ƒ––Š‡‡ƒ”Ž‹‡•–„—–‘– later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later. ‹ In the present case, an intermittent vacancy of the women director arises on 15th June, 2021. Conclusion: Applying the provisions of Rule 3, following conclusions may be drawn: (a) If after the vacancy, the immediate next Board meeting was held on 14th August, 2021, then the ˜ƒ…ƒ…›•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›ͳͶ–Š—‰—•–ǡʹͲʹͳ‘”„›ͳͶ–Š‡’–‡„‡”ʹͲʹͳȋ͵‘–Š•ˆ”‘–Š‡ †ƒ–‡‘ˆ•—…Š˜ƒ…ƒ…›Ȍ™Š‹…Š‡˜‡”‹•Žƒ–‡”Ǥ

15. –Š‹•…ƒ•‡ǡ‹–•ŠƒŽŽ„‡ϐ‹ŽŽ‡†—’„›ͳͶ–Š‡’ǤǡʹͲʹͳǤ (b) If after the vacancy, the immediate Board meeting was held on 14th October, 2021 then the ˜ƒ…ƒ…›•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›ͳͶ–Š…–ǤǡʹͲʹͳ‘”„›ͳͶ–Š‡’ǤʹͲʹͳ™Š‹…Š‡˜‡”‹•Žƒ–‡”Ǥ

16. –Š‹• …ƒ•‡‹–•ŠƒŽŽ„‡ϐ‹ŽŽ‡†—’„›ͳͶ–Š…–ǤǡʹͲʹͳǤ

17. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.3 Q.3 Royal Limited is a company listed at Madras Stock Exchange, incorporated on 1st January, 2018. The Board of Directors of the company decides to appoint in its Board ‘Women Director’ and the ‘Resident Director’. (i) Explaining the provisions of the Companies Act, 2013, state whether it is mandatory for the company to appoint such directors in its Board. (ii) What would be your answer in case the company is a non-listed company and the Board of Directors decided not to have the Women Director in the company’s Board? (iii) WhatshallbeyouranswerincasethecompanyinquestionisnotlistedatanyoftheExchanges. The paid-up share capital of the company is ` 50 crore and the turnover of the company is ` 200 crores. Decide whether the company is mandatorily required to appoint the woman director. Ans : Requirement of Woman Director and resident Director: ‹ ”‘˜‹•‘ –‘ ‡…Ǥ ͳͶͻȋͳȌ ”‡ƒ† ™‹–Š —Ž‡ ͵ ‘ˆ ‘’ƒ‹‡• ȋ’’‘‹–‡– ƒ† —ƒŽ‹ϐ‹…ƒ–‹‘ ‘ˆ Directors) Rules, 2014 provides that following class of companies shall appoint atleast one women director: (i) Every listed company; (ii) Every other public company having; (a) paid-up share capital of ` 100 Cr. or more; or (b) turnover of ` 300 Cr. or more. Thepaid-upsharecapitalorturnoverasonthelastdateoflatestauditedF.S.shallbeconsidered for this purpose. ‹ In case of newly incorporated companies covered under prescribed criteria of Rule 3, appointment shall be made within six months from the date of incorporation. ‹ Sec. 149(3) of Companies Act, 2013 provides that every company shall have at least one †‹”‡…–‘”™Š‘•–ƒ›•‹

18. †‹ƒˆ‘”ƒ–‘–ƒŽ’‡”‹‘†‘ˆ‘–Ž‡••–Šƒͳͺʹ†ƒ›•†—”‹‰–Š‡ϐ‹ƒ…‹ƒŽ›‡ƒ”ǣ Provided that in case of a newly incorporated company the requirement u/s 149(3) shall apply ’”‘’‘”–‹‘ƒ–‡Ž›ƒ––Š‡‡†‘ˆ–Š‡ϐ‹ƒ…‹ƒŽ›‡ƒ”‹™Š‹…Š‹–‹•‹…‘”’‘”ƒ–‡†Ǥ Conclusions: Applying the provisions of Sec. 149(1), 149(3) and Rule 3, following conclusions may be drawn: (i) It is mandatory to appoint women director (as company is a listed company) and resident director [as required by Sec. 149(3)]. (ii) Itcaseofunlistedcompany,appointmentofwomendirectorsisnotmandatoryprovidedcompany is not covered under Rule 3. (iii) Appointmentofwomandirectorisnotmandatoryascompanydoesnotfallunderthecategories prescribed in Rule 3. Q.4 The Articles of Association of Rajasthan Toys Private Limited provide that the maximum number of Directors in the company shall be 10. Presently, the company is having 8 directors. The Board of directors of the said company desire to increase the number of directors to 16. Advise whether under the provisions of the Companies Act, 2013 the Board of Directors can do so. [May 10 (5 Marks)]

19. TAXMANN ® 1.4 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Ans : Increase in number of Directors beyond 15: ‹ Section 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15. ‹ However, a company may appoint more than 15 directors after passing a special resolution. ‹ In the present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings: (i) Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 10 to 16; and (ii) A special resolution is to be passed at a duly convened general meeting of the company to increase the number of directors to 16. Conclusion: BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1). Q.5 Examine the validity of the following appointments with reference to the provisions of the Com- panies Act, 2013. The Board of Directors of MNP Limited appointed Ms. Neha as a Women Director ‹–Š‡‘ƒ”†‡‡–‹‰Š‡Ž†‘ͳͲ–Š‡’–‡„‡”ǡʹͲʹͳǤŠ‡•ƒ‹†ƒ’’‘‹–‡–™ƒ•ƒ†‡–‘ϐ‹ŽŽ–Š‡ vacancy of the Woman Director, which had occurred as a result of resignation of Ms. Sheela on 30th June, 2021. Will your answer differ if the Board Meeting of the company was held on 8th November, 2021? [May 15 (4 Marks)] Ans : Filling of casual vacancy in case of Woman Director: ‹ —Ž‡͵‘ˆ‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡•–Šƒ–ƒ› ‹–‡”‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘ƒ†‹”‡…–‘”•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›–Š‡‘ƒ”†ƒ––Š‡‡ƒ”Ž‹‡•–„—–‘– later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later. ‹ In the present case, an intermittent vacancy of the women director arises on 30th June, 2021. ……‘”†‹‰Ž›ǡ–Š‹•˜ƒ…ƒ…›‡‡†–‘„‡ϐ‹ŽŽ‡†Žƒ–‡•–„›ʹͻ–Š‡’–‡„‡”ǡʹͲʹͳ‘”–Š‡†ƒ›‘ˆ–Š‡‡š– Board Meeting, whichever is later. Ms. Neha was appointed in the next Board Meeting after the vacancy arose, i.e. on 10th Sep., 2021. Conclusion: Appointment of Ms. Neha is valid. The answer will remain the same, even if MNP Ltd. appoints Ms. Neha in the Board Meeting held on 8th Nov., 2021, provided the said meeting is the ϐ‹”•–‡‡–‹‰‘ˆ–Š‡‘ƒ”†ƒˆ–‡”͵Ͳ–Š —‡ǡʹͲʹͳ‹Ǥ‡Ǥƒˆ–‡”–Š‡”‡•‹‰ƒ–‹‘‘ˆ•ǤŠ‡‡ŽƒǤ Q.6 Examine the validity of the following appointments with reference to the provisions of the Com- panies Act, 2013. LKG Limited was incorporated on 5th May, 2021 under the Companies Act, 2013. ”Ǥƒƒ—Œƒ™ƒ•ƒ’’‘‹–‡†ƒ•–Š‡ϐ‹”•–‡•‹†‡–‹”‡…–‘”‘ˆ–Š‡…‘’ƒ›‹–Š‡‘ƒ”†‡‡–‹‰ held on 30th September, 2021. [May 15 (4 Marks)] Ans : Requirement of Resident Director: ‹ Sec. 149(3) of Companies Act, 2013 provides that every company shall have at least one †‹”‡…–‘”™Š‘•–ƒ›•‹

20. †‹ƒˆ‘”ƒ–‘–ƒŽ’‡”‹‘†‘ˆ‘–Ž‡••–Šƒͳͺʹ†ƒ›•†—”‹‰–Š‡ϐ‹ƒ…‹ƒŽ›‡ƒ”ǣ Provided that in case of a newly incorporated company the requirement u/s 149(3) shall apply ’”‘’‘”–‹‘ƒ–‡Ž›ƒ––Š‡‡†‘ˆ–Š‡ϐ‹ƒ…‹ƒŽ›‡ƒ”‹™Š‹…Š‹–‹•‹…‘”’‘”ƒ–‡†Ǥ ‹ Sec. 152(1) of Companies Act, 2013 provides that where no provision is made in the articles of ƒ…‘’ƒ›ˆ‘”–Š‡ƒ’’‘‹–‡–‘ˆ–Š‡ϐ‹”•–†‹”‡…–‘”ǡ–Š‡•—„•…”‹„‡”•–‘–Š‡‡‘”ƒ†—™Š‘ ƒ”‡‹†‹˜‹†—ƒŽ••ŠƒŽŽ„‡†‡‡‡†–‘„‡–Š‡ϐ‹”•–†‹”‡…–‘”•‘ˆ–Š‡…‘’ƒ›—–‹Ž–Š‡†‹”‡…–‘”•ƒ”‡ duly appointed.

21. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.5 ‹ Sec. 152(2) of the Companies Act, 2013 provides that save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting. ‹ In the Present case, LKG Ltd., was incorporated on 5th May, 2021. If no provision is made in –Š‡ƒ”–‹…Ž‡•‘ˆ–Š‡…‘’ƒ›ˆ‘”–Š‡ƒ’’‘‹–‡–‘ˆ–Š‡ϐ‹”•–†‹”‡…–‘”•ǡ–Š‡•—„•…”‹„‡”•–‘–Š‡ ‡‘”ƒ†—™Š‘ƒ”‡‹†‹˜‹†—ƒŽ••ŠƒŽŽ„‡†‡‡‡†–‘„‡–Š‡ϐ‹”•–†‹”‡…–‘”•‘ˆ–Š‡…‘’ƒ›—–‹Ž the directors are duly appointed. Conclusion: Appointment of Mr. Ramanujam as a First Resident Director of the company in the Board Meeting held on 30th Sep., 2021 is not in accordance with provisions of Sec. 152(2). Q.7 Sky Limited, a listed company has been incorporated under the Companies Act, 2013. An inter- ‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘ƒ†‹”‡…–‘”Šƒ•ƒ”‹•‡‘ͳͷ–Š —‡ǡʹͲʹͳǤ†˜‹•‡–Š‡…‘’ƒ›–‘ϐ‹ŽŽ–Š‡ vacancy as per the provisions of the Companies Act, 2013. The Board meeting was held on 14th August, 2021. [Nov. 16 (4 Marks)] Ans : Filling of casual vacancy in case of Woman Director: ‹ —Ž‡͵‘ˆ‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡•–Šƒ–ƒ› ‹–‡”‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘ƒ†‹”‡…–‘”•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›–Š‡‘ƒ”†ƒ––Š‡‡ƒ”Ž‹‡•–„—–‘– later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later. ‹ In the present case, an intermittent vacancy of the women director arises on 15th June, 2021. The immediate next Board meeting was held on 14th August, 2021. Conclusionǣ’’Ž›‹‰–Š‡’”‘˜‹•‹‘•‘ˆ—Ž‡͵ǡ–Š‡˜ƒ…ƒ…›•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›ͳͶ–Š—‰—•–ǡʹͲʹͳ or by 14th September, 2021 (3 months from the date of such vacancy) whichever is later.

22. –Š‹•…ƒ•‡ǡ‹–•ŠƒŽŽ„‡ϐ‹ŽŽ‡†—’„›ͳͶ–Š‡’ǤǡʹͲʹͳǤ Q.8 KMR Limited, a listed public company, has 15 directors on its Board. The Articles of Association of the said company provide for the maximum number of Directors in the company to be 15. Due –‘†‹˜‡”•‹ϐ‹…ƒ–‹‘ƒ†‡š’ƒ•‹‘‘ˆƒ…–‹˜‹–‹‡•ǡ–Š‡‘ƒ”†‘ˆ‹”‡…–‘”•‘ˆ–Š‡•ƒ‹†…‘’ƒ›†‡•‹”‡–‘ increase the number of Directors to 18. Decide with reference to the applicable provisions of the Companies Act, 2013: (i) Whether the Board of Directors can do so? (ii) Will your answer differ if the said Company would have been a Government Company? [May 19 - Old Syllabus (4 Marks)] Answer: Increase in number of Directors: ‹ Sec. 149(1) of the Companies Act, 2013 provides that every company shall have a Board of Directors consisting of individuals as directors and shall have a minimum number of 3 directors in the case of a public company, 2 directors in the case of a private company, and one director in the case of a One-Person Company. The maximum number of directors shall be 15. ‹ However, a company may appoint more than 15 directors after passing a special resolution. ‹ Limit of Maximum directors and their increase is not applicable to Government Companies ƒ†‡…Ǥͺ‘’ƒ‹‡•’”‘˜‹†‡†–Š‡•‡…‘’ƒ‹‡•Šƒ•‘–…‘‹––‡†ƒ†‡ˆƒ—Ž–‹ϐ‹Ž‹‰‘ˆ–Š‡‹” ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–•—Ȁ•ͳ͵͹‘”ƒ—ƒŽ”‡–—”—Ȁ•ͻʹ™‹–Š–Š‡‡‰‹•–”ƒ”Ǥ ‹ In the present case, the number of directors is proposed to be increased to 16, company will be required to comply with the followings: (i) Alter the Articles of Association u/s 14, so as to increase the number of directors in the Articles from 15 to 18; (ii) A special resolution is to be passed at a duly convened general meeting of the company to increase the number of directors to 18.

23. TAXMANN ® 1.6 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Conclusion:ApplyingtheprovisionsofSec.149(1)andexemptionsavailable,followingconclusions may be drawn: (i) BOD can increase the number of directors after altering AOA u/s 14 and by passing a Special resolution u/s 149(1). (ii) In case of Govt. companies limit of maximum directors not applicable, hence, BOD can increase the number. Q.9 Ms. Nisha was appointed as director of LMN Limited on 10th Oct., 2021 in place of Ms. Rachna, who resigned from her office on 31st May, 2021 six months before expiry of term of her office. LMN Limited had its Board meeting on 31st July 2021. Whether appointment of Ms. Nisha is valid? [Nov. 20 - New Syllabus (2 Marks)] Answer: Filling of casual vacancy in case of Woman Director: ‹ —Ž‡͵‘ˆ‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”ǯ•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡•–Šƒ– ƒ›‹–‡”‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘ƒ†‹”‡…–‘”•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›–Š‡‘ƒ”†ƒ––Š‡‡ƒ”Ž‹‡•– but not later than immediate next Board meeting or 3 months from the date of such vacancy whichever is later. ‹ In the present case, an intermittent vacancy of the women director arises on 31st May, 2021. The immediate next Board meeting was held on 31st July, 2021. Conclusion: Applying the provisions of Rule 3, the vacancy shall be filled-up by 31st August, 2021 (3 months from the date of such vacancy). Hence, appointment of Ms. Nisha is invalid. Note: Answer given in suggested answers of ICAI consider 1st Sep. as the last date by which ˜ƒ…ƒ…›‹•–‘„‡ϐ‹ŽŽ‡†—’Ǥ Independent Director [Sec. 149(4) - 149(13), Sec. 150, Rules 4, 5 6] Q.10 Explaining the regulatory provisions of the Companies Act, 2013 and the rules thereof regarding the appointment of independent directors on a company’s Board, state whether BCD company Ltd. is required to appoint Independent directors in the following situations: (a) The company has a paid-up share capital of ` 10 crores. (b) What shall be your answer in case the company’s paid up share capital is only ` 2 crores. (c) Whether a person who hold the position of a Key Managerial Personnel can be appointed as an Independent Director? Ans : Appointment of Independent Director: ‹ As per sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. As per Rule 4 of the Companies ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ˆ‘ŽŽ‘™‹‰…Žƒ••‘”…Žƒ••‡•‘ˆ companies shall have at least 2 directors as independent directors: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding 50 crore rupees. ‹ As per section 149(6) of Companies Act, 2013, a person is not eligible to be appointed as independent director if he holds or has held the position of a KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 FYs immediately preceding the FY in which he is proposed to be appointed. Conclusion: Applying the provisions of Sec. 149(4), Sec. 149(6) and Rule 4, following conclusions may be drawn: (a) Asthecompanyhaspaidupsharecapitalof ` 10Crores,2independentdirectorsaremandatory as per requirement of Rule 4. (b) Incasepaidupsharecapitalofthecompanyis `2Crores,independentdirectorsarenotmandatory. (c) As provided by sec. 149(6), KMP cannot be appointed as Independent Director.

24. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.7 Q.11 Mr. Azad, an independent director of X company, was appointed in the AGM for a period of three years. After the expiry of 3 years he was re-appointed for a period of 5 years. Considering that though Mr. Azad has completed two tenures/terms but hasn’t completed ten years in total, therefore he may be appointed in the upcoming AGM for another 2 years to complete his total term of 10 years. Conferring in the light of the Companies Act, 2013, state the validity of reappointment of Mr. Azad for further term in the company. Ans : Tenure of Independent Auditor ‹ ‡…ǤͳͶͻȋͳͲȌ‘ˆ‘’ƒ‹‡•…–ǡʹͲͳ͵’”‘˜‹†‡•–Šƒ–ƒ‹†‡’‡†‡–†‹”‡…–‘”•ŠƒŽŽŠ‘Ž†‘ˆϐ‹…‡ˆ‘”ƒ termupto5consecutiveyearsontheBoardofacompanybutshallbeeligibleforreappointment on passing of a special resolution by the company and disclosure of such appointment in the ‘ƒ”†ǯ•”‡’‘”–Ǥ ‹ ‡…–‹‘ͳͶͻȋͳͳȌ‘ˆ‘’ƒ‹‡•…–ǡʹͲͳ͵’”‘˜‹†‡•–Šƒ–‘‹†‡’‡†‡–†‹”‡…–‘”•ŠƒŽŽŠ‘Ž†‘ˆϐ‹…‡ formorethan2consecutiveterms,butsuchindependentdirectorshallbeeligibleforappointment after the expiration of 3 years of ceasing to become an independent director, provided that he shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly. ‹

25. –‹•…Žƒ”‹ϐ‹‡†„›–Šƒ–‘‡–‡—”‡‘ˆ‹†‡’‡†‡–†‹”‡…–‘”•ƒ›„‡ˆ‘”ƒ’‡”‹‘†Ž‡••–Šƒͷ ›‡ƒ”•ƒ†‹ˆ–‡—”‡‘ˆ‹†‡’‡†‡–†‹”‡…–‘”•‹•ϐ‹š‡†ˆ‘”ƒ’‡”‹‘†Ž‡••–Šƒͷ›‡ƒ”•ǡ–Šƒ…‘‘Ž‹‰ period of 3 years arises on completion of two tenures even if the total number of years of his appointment in such two consecutive terms is less than 10 years. ‹ Inthepresentcase,Mr.Azad,anindependentdirector,hascompletedtwotenuresinthecompany, one for three years and second for 5 years. Conclusion: Reappointment for third term is not allowed in continuation, a cooling off period of 3 years will be required after completion of two tenures, irrespective that period served under two tenures is less than 10 years. Q.12 MLtd.isanunlistedcompanyengagedinFMCGsectorhaving11directorsonitsBoard.Thecompany has paid-up share capital of ` 300 crore and a turnover of ` 500 crore. The provisions contained in the Companies Act, 2013 require the companies to have the following categories of directors on their Board (a) Woman director (b) Independent director Keeping in view of the provisions of the Companies Act, 2013, M Ltd. appointed the directors as required by the Act. State the relevant provisions. Ans : Appointment of Woman Director: ‹ ”‘˜‹•‘ –‘ ‡…Ǥ ͳͶͻȋͳȌ ”‡ƒ† ™‹–Š —Ž‡ ͵ ‘ˆ ‘’ƒ‹‡• ȋ’’‘‹–‡– ƒ† —ƒŽ‹ϐ‹…ƒ–‹‘ ‘ˆ Directors) Rules, 2014 provides that following class of companies shall appoint atleast one women director: (i) Every listed company; (ii) Every other public company having; (a) paid-up share capital of ` 100 Cr. or more; or (b) turnover of ` 300 Cr. or more. Thepaid-upsharecapitalorturnoverasonthelastdateoflatestauditedF.S.shallbeconsidered for this purpose.

26. TAXMANN ® 1.8 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‹ IncaseofnewlyincorporatedcompaniescoveredunderprescribedcriteriaofRule3,appointment shall be made within six months from the date of incorporation. Appointment of Independent Director: ‹ As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. ‹ •’‡”—Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ following class or classes of companies shall have at least 2 directors as independent directors: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding 50 crore rupees. Conclusion:Consideringtherequirementsofsec.149(1)readwithRule3andsec.149(4)readwith Rule 4, company must have one woman director and two independent directors. Q.13 XYZ Limited is an unlisted public company having a paid-up capital of ` 20 crores as on 31st March, 2021 and a turnover of ` 150 crores during the year ended 31st March, 2021. The total number of directors is 13. State the following answers: (i) Minimum number of directors appointed as Independent Director in XYZ Limited. (iiȌ Šƒ–™‹ŽŽ„‡–Š‡…‘•‡“—‡…‡•™Š‡”‡–†Ǥ…‡ƒ•‡•–‘ˆ—Žϐ‹Žƒ›‘ˆ–Š‡”‡“—‹”‡†…‘†‹–‹‘• with respect to appointment of Independent directors for three continuous years? (iii) If suppose XYZ Ltd. (Unlisted public company) is a dormant company, what shall be the law related to the appointment of Independent director? [MTP-March 18] Ans : Requirement of Independent Directors: ‹ As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. ‹ •’‡”—Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ following class or classes of companies shall have at least 2 directors as independent directors: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding 50 crore rupees. Š‡”‡ƒ…‘’ƒ›…‡ƒ•‡•–‘ˆ—Žϐ‹Žƒ›‘ˆ–Š‡ƒ„‘˜‡͵…‘†‹–‹‘•ˆ‘”͵…‘•‡…—–‹˜‡›‡ƒ”•ǡ‹–•ŠƒŽŽ‘– be required to comply with these provisions until such time as it meets any of such conditions. ‹ Followingclassesofunlistedpubliccompaniesshallnotberequiredtohaveminimumindependent director: (a) A Joint venture (b) A wholly owned subsidiary, and (c) A dormant company. Conclusion:ApplyingtheprovisionsofSec.149(4)andRule4,followingconclusionsmaybedrawn: (i) Company must appoint 2 independent directors; (ii) Exemption from requirement of independent director will be available till such time company meet the conditions as prescribed in Rule 4. (iii) In case of dormant company, requirement of minimum number of independent director does not apply. Q.14 XYZ Limited is an unlisted public company having a paid-up capital of ` 20 crores as on 31st March, 2021 and a turnover of ` 150 crores during the year ended 31st March, 2021. The total number of directors is 13. State the minimum number of directors appointed as Independent Director in XYZ Limited. What, if XYZ Ltd. is a dormant company. [MTP-April 18]

27. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.9 Ans : Requirement of Independent Directors: Refer answer of Q. No. 13. Conclusion: Company must appoint 2 independent directors. In case of dormant company, requirement of minimum number of independent director does not apply. Q.15 XYZ Limited is an unlisted public company having a paid-up capital of ` 20 Cr. as on 31st March, 2021 and a turnover of ` 150 Cr. during the year ended 31st March, 2021. The total number of directors is 13. Referring to the provisions of the Companies Act, 2013 answer the following: (i) State the minimum number of independent directors that the company should appoint. (ii) HowmanyindependentdirectorsaretobeappointedincaseXYZLimitedisalistedcompany? [May 16 (4 Marks)] Ans : Requirement of Independent Directors: (iȌ —Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ’”‘˜‹†‡• that the following class of companies shall have at least 2 directors as independent directors: (a) the Public Companies having paid up share capital of ` 10 crore or more; or (b) the Public Companies having turnover of ` 100 crore or more; or (c) thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding ` 50 crore. The paid-up share capital or turnover or outstanding loans, debentures and deposits as on the last date of latest audited F.S. shall be considered for this purpose. In the present case, XYZ Limited is an unlisted public company having a paid-up capital of ` 20 crores as on 31st March, 2021 and a turnover of ` 150 crores during the year ended 31st March, 2021. Conclusion: Company must have at least 2 directors as independent directors. (ii) Section149(4)oftheCompaniesAct,2013providesthateverylistedpubliccompanyshallhaveat least 1/3rd of the total number of directors as independent directors. The explanation to section ͳͶͻȋͶȌ•’‡…‹ϐ‹‡•–Šƒ–ƒ›ˆ”ƒ…–‹‘…‘–ƒ‹‡†‹•—…ŠͳȀ͵”†—„‡”••ŠƒŽŽ„‡”‘—†‡†‘ˆˆƒ•‘‡Ǥ Incase,XYZLimitedisalistedcompany,1/3rdoftotalnumberofdirectorsshallbetheindependent directors. Conclusion: Company must have atleast 5 directors (1/3rd of 13 = 4.33 rounded as 5) as independent directors. Q.16 The composition of the Board of Directors of a listed company as on 31-03-2021 comprised of (i) Mr. A, Director, (ii) Mr. B, Director, (iii) Mr. C, Director, (iv) Mr. D, Director, (v) Mrs. E, Independent Director, (vi) Mr. F, Independent Director and (vii) Mr. G, Independent Director. ”ǤƬ”•Ǥ˜ƒ…ƒ–‡†–Š‡‹”‘ˆϐ‹…‡‘ˆ‹”‡…–‘”‘ͳͷǦͲͶǦʹͲʹͳǤ You are required to examine with reference to the provisions of the Companies Act, 2013 and what course of action would you suggest which can be taken up by the Company in this regard? [May 17 (4 Marks), RTP-May 18] Ans : Requirement as to woman director and independent director: ‹ ”‘˜‹•‘ –‘ ‡…Ǥ ͳͶͻȋͳȌ ”‡ƒ† ™‹–Š —Ž‡ ͵ ‘ˆ ‘’ƒ‹‡• ȋ’’‘‹–‡– ƒ† —ƒŽ‹ϐ‹…ƒ–‹‘ ‘ˆ Directors) Rules, 2014 provides that following class of companies shall appoint atleast one women director: (i) Every listed company; (ii) Every other public company having; (a) paid-up share capital of ` 100 Cr. or more; or (b) turnover of ` 300 Cr. or more. Thepaid-upsharecapitalorturnoverasonthelastdateoflatestauditedF.S.shallbeconsidered for this purpose.

28. TAXMANN ® 1.10 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS ‹ ›‹–‡”‹––‡–˜ƒ…ƒ…›‘ˆƒ™‘‡†‹”‡…–‘”•ŠƒŽŽ„‡ϐ‹ŽŽ‡†Ǧ—’„›–Š‡‘ƒ”†ƒ––Š‡‡ƒ”Ž‹‡•–„—– not later than immediate next Board meeting or three months from the date of such vacancy whichever is later. ‹ Section 149(4) provides that every listed company shall have at least 1/3rd of the total number of Directors as Independent Directors. ‹ In the present case, composition of board of directors of listed company as on 31-3-2021 comprised of total 7 directors. Out of which 4 were directors and 3 were independent directors. ƒ–‡””Ǥȋ‹”‡…–‘”Ȍƒ†”•Ǥȋ

29. †‡’‡†‡–‹”‡…–‘”Ȍ˜ƒ…ƒ–‡†–Š‡‹”‘ˆϐ‹…‡•‘ͳͷǦͶǦʹͲʹͳǤ Conclusion: Applying the provisions of Sec. 149(1) read with Rule 3 and Sec. 149(4), following conclusions may be drawn: (i) OnewomendirectorshallbeappointedbytheBoardattheearliestbutnotlaterthanimmediate next Board meeting or 3 months from the date of such vacancy whichever is later. (ii) Section 149(4) is already compiled with as 1/3rd of the total number of remaining directors (i.e. 5) arrives at 1.67 rounded off as 2. Company is already having two independent directors ”Ǥ ƒ† Ǥ˜‡ƒˆ–‡”ϐ‹ŽŽ‹‰‘ˆ…ƒ•—ƒŽ˜ƒ…ƒ…›‹‘ˆϐ‹…‡‘ˆ™‘ƒ†‹”‡…–‘”ǡ”‡“—‹”‡‡–‘ˆ ‹†‡’‡†‡–†‹”‡…–‘””‡ƒ‹•ˆ—Žϐ‹ŽŽ‡†Ǥ Q.17 CTC Limited is an unlisted public company having a paid-up capital of ` 100 crores as on 31st March, 2021. The company made a turnover of ` ͵ͲͲ…”‘”‡•ˆ‘”–Š‡ϐ‹ƒ…‹ƒŽ›‡ƒ”‡†‡†͵ͳ•– March, 2021. The Articles of Association of the company provides for payment of sitting fee to Directors for each board meeting/committee thereof subject to a maximum of ` 40,000 per meeting. The board of directors is comprised of Independent Directors and woman directors also. The company is having 7 directors in its Audit Committee. Shri PKV, working as Financial Advisor ‘ˆ–Š‡…‘’ƒ›ǡ™ƒ•†‡•‹‰ƒ–‡†ƒ•Š‹‡ˆ ‹ƒ…‹ƒŽˆϐ‹…‡”ˆ”‘ͳ•–’”‹ŽǡʹͲͳͻǤ‡”‡–‹”‡†ˆ”‘ service on 31st March, 2020, He is in receipt of monthly pension of ` 80,000 from the company. It is proposed to appoint Shri PKV as Independent Director of the company. The board of director ’”‘’‘•‡–‘ϐ‹š•‹––‹‰ˆ‡‡‘ˆ`50,000permeetingtoIndependentdirectorand`30,000permeeting –‘‘ƒ‹”‡…–‘”–ƒ‹‰‹–‘…‘•‹†‡”ƒ–‹‘–Š‡‹”‡š’‡”‹‡…‡ƒ†“—ƒŽ‹ϐ‹…ƒ–‹‘Ǥ

30. –Š‡Ž‹‰Š–‘ˆ the provisions of the Companies Act, 2013, advise the board of directors in the following matters: 1. Appointment of Mr. PKV as independent director. 2. Fixing sitting fee of ` 50,000 to independent director and ` 30,000 to Woman Director. 3. Minimum number of independent directors. 4. Maximum sitting fee to a director. AssumingCTCLtd.isaGovernmentCompany,whatwillbeyouradviseinthematterofappointment of Mr. PKV as independent director. [May 18 - New Syllabus (8 Marks)] Ans : Appointment of Independent Directors and Sitting Fees: (i) Appointment of Mr. PKV as Independent Director: ‹ As per section 149(6) of Companies Act, 2013, a person is not eligible to be appointed as independent director if he holds or has held the position of a KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 FYs immediately preceding the FY in which he is proposed to be appointed. ‹ In the present case, Mr. PKV had worked as CFO of the company for the year 2019-20. Hence Mr. PKV cannot be appointed as independent director of the company. (ii) Fixing Sitting Fees of ` 50,000 to independent director and ` 30,000 to woman director: ‹ As per section 197(5) read with Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for

31. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.11 attending board or committee meetings, such sum as may be decided by Board which shall notexceed` 1Lacpermeeting.Itisalsoprovidedthatforindependentdirectorandwoman director the sitting fees shall not be less than the sitting fees payable to other directors. ‹

32. –Š‡’”‡•‡–…ƒ•‡ǡ‘ƒ”†‹•™‹ŽŽ‹‰–‘ϐ‹š•‹––‹‰ˆ‡‡•‘ˆ` 50,000 to independent director and ` 30,000 to woman director. It is being allowed subject to condition that it shall not be less than the sitting fees payable to other directors and altering the Articles of Association by Special Resolution. (iii) Minimum number of independent director: ‹ As per sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one-third of the total number of directors as independent directors. As per Rule 4 of the ‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ˆ‘ŽŽ‘™‹‰…Žƒ•• or classes of companies shall have at least 2 directors as independent directors: (a) the Public Companies having paid up share capital of 10 crore rupees or more; or (b) the Public Companies having turnover of 100 crore rupees or more; or (c) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees. ‹ However, in case a company covered under rule 4 is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it. ‹ As per section 177(2) of the Companies Act, 2013, the Audit Committee shall consist of a minimum of three directors with independent directors forming a majority. ‹ In the present case, CTC Ltd. is having 7 directors in its audit committee, therefore the number of independent directors so as to form a majority should be 4. (iv) Maximum sitting fees to a director: ‹ As per sec. 197(5) read with Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending board or committee meetings, such sum as may be decided by Board which shall not exceed ` 1 Lac per meeting. ‹ Hence the maximum sitting fees payable to a director will be ` 1,00,000 provided there is no restriction in the Articles of Association. (v) Appointment of Mr. PKV as independent director in case of government company: ‹ As per section 149(6) of Companies Act, 2013, a person is not eligible to be appointed as independent director if he holds or has held the position of a KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 FYs immediately preceding the FY in which he is proposed to be appointed. ‹ No exemption is granted to government company from application of this clause. So, Mr. PKV cannot be appointed as independent director of the company, as he had worked as CFO of the company for the year 2019-20. Q.18 M/s. Bosch and Lawrence Limited, an unlisted company has a paid up equity share capital of ` 11 crores as on 31st March, 2016. Mr. Robert was appointed as an Independent Director at the AGM of the company held on 29-9-2018 for a period of one year. Again, he was appointed in the subsequent AGM held on 28-9-2019 for a period of two years as his second consecutive term. Examine under the provisions of the Companies Act, 2013 whether he can be again appointed in the AGM to be held in September 2021 for another period of 2 years to complete his total term of 5 years? [RTP-Nov. 18]

33. TAXMANN ® 1.12 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Ans : Tenure of Independent Auditor ‹ ‡…ǤͳͶͻȋͳͲȌ‘ˆ‘’ƒ‹‡•…–ǡʹͲͳ͵’”‘˜‹†‡•–Šƒ–ƒ‹†‡’‡†‡–†‹”‡…–‘”•ŠƒŽŽŠ‘Ž†‘ˆϐ‹…‡ˆ‘”ƒ termupto5consecutiveyearsontheBoardofacompanybutshallbeeligibleforreappointment on passing of a special resolution by the company and disclosure of such appointment in the ‘ƒ”†ǯ•”‡’‘”–Ǥ ‹ ‡…ǤͳͶͻȋͳͳȌ‘ˆ‘’ƒ‹‡•…–ǡʹͲͳ͵’”‘˜‹†‡•–Šƒ–‘‹†‡’‡†‡–†‹”‡…–‘”•ŠƒŽŽŠ‘Ž†‘ˆϐ‹…‡ˆ‘” more than 2 consecutive terms, but such independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director, provided that he shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly. ‹

34. –‹•…Žƒ”‹ϐ‹‡†„›–Šƒ–‘‡–‡—”‡‘ˆ‹†‡’‡†‡–†‹”‡…–‘”•ƒ›„‡ˆ‘”ƒ’‡”‹‘†Ž‡••–Šƒͷ ›‡ƒ”ƒ†‹ˆ–‡—”‡‘ˆ‹†‡’‡†‡–†‹”‡…–‘”•‹•ϐ‹š‡†ˆ‘”ƒ’‡”‹‘†Ž‡••–Šƒͷ›‡ƒ”ǡ–Šƒ…‘‘Ž‹‰ period of 3 years arises on completion of two tenures even if the total number of years of his appointment in such two consecutive terms is less than 10 years. ‹ In the present case, Mr. Robert was appointed as an Independent Director at the AGM of the company held on 29-9-2018 for a period of one year. Again, he was appointed in the subsequent AGM held on 28-9-2019 for a period of two years as his second consecutive term. Conclusion: Reappointment for third term is not allowed in continuation, a cooling off period of 3 years will be required after completion of two tenures, irrespective that period served under two tenures is less than 10 years. Q.19 Considering the regulatory provisions of the Companies Act, 2013 and the rules thereof regarding the appointment directors on a company’s Board, state whether Z Limited, a listed public company is required to appoint Independent Directors. Also, state whether appointment of Independent Director is required in the following cases: (i) The public company has a paid-up share capital of ` 10 crores (ii) What shall be your answer in case the company’s paid up share capital is only ` 2 crores. (iii) WhetherapersonwhoholdsthepositionofaKeymanagerialpersonnelinthesamecompany can be appointed as an Independent Director? (iv) In relation to mandatory women directors as required under the Companies Act, 2013 should such directors also be Independent Directors? [Nov. 18-Old Syllabus (6 Marks)] Ans : Requirement of Independent Director: ‹ As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. ‹ •’‡”—Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ following class or classes of companies shall have at least 2 directors as independent directors: a. the Public Companies having paid up share capital of 10 crore rupees or more; or b. the Public Companies having turnover of 100 crore rupees or more; or c. thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding 50 crore rupees. Conclusion: Z Ltd., being a listed company is required to have 1/3rd of total number of directors as independent directors. Requirement of Independent Directors in other cases: (i) Assumingthatcompanyisanunlistedcompany,itshallhaveatleast2independentdirectors as per requirements of Rule 4 as discussed above.

35. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.13 (ii) Assuming that company is an unlisted company, it does not require to have independent director as paid up capital is less than ` 10 Cr. (iii) As per provisions of Sec. 149(6) of Companies Act, 2013, a person who holds the position of a Key managerial personnel in the same company, cannot be appointed as independent director. (iv) It is not mandatory that women directors should be Independent Directors. Q.20 ABC Limited is an unlisted public company having a paid up equity share capital of ` 20 Crores and a turnover of ` 150 Crores as on 31st March, 2021. The total number of directors on the Board is 13. Referring to the provisions of the Companies Act, 2013 answer the following: (i) The minimum number of Independent Directors that the company should appoint. (ii) How many Independent Directors are to be appointed in case ABC Ltd. is a listed company? [Nov. 18-New Syllabus (4 Marks)] Ans : Requirement of Independent Directors: (iȌ —Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ’”‘˜‹†‡• that the following class of companies shall have at least 2 directors as independent directors: (a) the Public Companies having paid up share capital of ` 10 crore or more; or (b) the Public Companies having turnover of ` 100 crore or more; or (c) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding ` 50 crore. The paid-up share capital or turnover or outstanding loans, debentures and deposits as on the last date of latest audited F.S. shall be considered for this purpose. In the present case, ABC Limited is an unlisted public company having a paid-up capital of ` 20 crores as on 31st March, 2021 and a turnover of ` 150 crores during the year ended 31st March, 2021. Conclusion: Company must have at least 2 directors as independent directors. (ii) Sec. 149(4) of the Companies Act, 2013 provides that every listed public company shall have at least 1/3rd of the total number of directors as independent directors. The explanation to •‡…–‹‘ͳͶͻȋͶȌ•’‡…‹ϐ‹‡•–Šƒ–ƒ›ˆ”ƒ…–‹‘…‘–ƒ‹‡†‹•—…ŠͳȀ͵”†—„‡”••ŠƒŽŽ„‡”‘—†‡† off as one. In case, ABC Limited is a listed company, 1/3rd of total number of directors shall be the independent directors. Conclusion: Company must have atleast 5 directors (1/3rd of 13 = 4.33 rounded as 5) as independent directors. Q.21 Rudraksh Ltd., a public company, was incorporated for supply of solar panels for the emerging project of government for construction of highways. However, the said project did not turn up for –™‘›‡ƒ”•†—‡–‘•‘‡Ž‡‰ƒŽ‹’Ž‹…ƒ–‹‘•Ǥ—”‹‰–Š‡•ƒ‹†’‡”‹‘†ǡ‘ƒ›•‹‰‹ϐ‹…ƒ–ƒ……‘—–‹‰ –”ƒ•ƒ…–‹‘™ƒ•ƒ†‡ƒ†•‘–Š‡…‘’ƒ›†‹†‘–ϐ‹Ž‡ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–•ƒ†ƒ—ƒŽ”‡–—”• †—”‹‰–Š‡Žƒ•––™‘ϐ‹ƒ…‹ƒŽ›‡ƒ”•Ǥ

36. –Š‡‡ƒ–‹‡ǡ–Š‡‘ƒ”†’”‘’‘•‡†ˆ‘””ǤƒƬ”ǤƒŠ‹ to be appointed as an Independent Directors for their independent and expertise knowledge and ‡š’‡”‹‡…‡ˆ‘”„‡––‡”™‘”‹‰ƒ†‹’”‘˜‡‡–‘ˆϐ‹ƒ…‹ƒŽ’‘•‹–‹‘‘ˆ–Š‡…‘’ƒ›Ǥ Evaluate in the light of the given facts, nature of the proposal for an appointment of Mr. Ram Mr. Rahim in the Rudraksh Ltd. for improvement of the company. [RTP-May 19]

37. TAXMANN ® 1.14 APPOINTMENT AND QUALIFICATIONS OF DIRECTORS Ans : Requirement of Independent Directors: ‹ As per Sec. 149(4) of Companies Act, 2013, every listed public company shall have at least one- third of the total number of directors as independent directors. ‹ •’‡”—Ž‡Ͷ‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶǡ–Š‡ following class or classes of companies shall have at least 2 directors as independent directors: (1) the Public Companies having paid up share capital of 10 crore rupees or more; or (2) the Public Companies having turnover of 100 crore rupees or more; or (3) thePublicCompanieswhichhave,inaggregate,outstandingloans,debenturesanddeposits, exceeding 50 crore rupees. Š‡”‡ƒ…‘’ƒ›…‡ƒ•‡•–‘ˆ—Žϐ‹Žƒ›‘ˆ–Š‡ƒ„‘˜‡͵…‘†‹–‹‘•ˆ‘”͵…‘•‡…—–‹˜‡›‡ƒ”•ǡ‹– shall not be required to comply with these provisions until such time as it meets any of such conditions. ‹ However, following classes of unlisted public companies shall not be required to have minimum independent director: (a) A Joint venture (b) A wholly owned subsidiary, and (c) A dormant company. ‹

38. –Š‡’”‡•‡–…ƒ•‡ǡ—†”ƒ•Š–†ǤŠƒ•‘–ϐ‹Ž‡†ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–•‘”ƒ—ƒŽ”‡–—”•ˆ‘”ʹ ϐ‹ƒ…‹ƒŽ›‡ƒ”•…‘•‡…—–‹˜‡Ž›ǡ•–ƒ–—•‘ˆ–Š‡…‘’ƒ›™‹ŽŽ„‡‘ˆ†‘”ƒ–…‘’ƒ›Ǥ Conclusion: Proposal for appointment of Independent Director (Mr. Ram Mr. Rahim) is not necessitated as a dormant company is not required to have independent director. Appointment of Directors elected by Small shareholders (Sec. 151 Rule 7) Q.22 The Board of directors of M/s ABC Limited, an unlisted company having a paid-up capital of ` 6 crores consisting of equity share capital of ` 5 crores and preference share capital of ` 1 crore and also 1,100 ‘Small Shareholders’ holding equity shares seeks your advice on the following: “IsitnecessaryfortheCompanytoappointaDirectortorepresentthe‘SmallShareholders’”?Advise explaining the relevant provisions of the Companies Act, 2013 and the Rules. Ans : Requirement of Small Shareholder’s Director: ‹ Section 151 of Companies, Act, 2013 read with Rule 7 of the Companies (Appointment and —ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡•–Šƒ–ƒlisted company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. ‹ In the present case, the Board of directors of M/s ABC Limited, an unlisted company having a paid-up capital of ` 6 crores consisting of equity share capital of ` 5 crores and preference share capital of ` ͳ…”‘”‡ƒ†ƒŽ•‘ͳǡͳͲͲǮƒŽŽŠƒ”‡Š‘Ž†‡”•ǯŠ‘Ž†‹‰‡“—‹–›•Šƒ”‡••‡‡‹‰ advice for requirement of director to represent the small shareholders. Conclusion: Requirement of Small shareholder director applies in case of listed company. Whereas in the present case, ABC Ltd. is an unlisted company, so requirement of director to represent small shareholder is not applicable. Q.23 M/s. Bharat Pharma Limited is a company listed with Bombay Stock Exchange. The company were having 500 small shareholders in the said company, so they wanted to appoint Mr. A as a Director as their representative on the Board of Directors of the said company. Mr. A is holding 1000 equity

39. TAXMANN ® APPOINTMENT AND QUALIFICATIONS OF DIRECTORS 1.15 shares of 10 each in the said company. State in the light of the Companies Act, 2013 whether the proposaltoappointMr.AasaSmallShareholders’Directorcanbeadoptedbythecompany.Examine, if Mr. A is already holding a position of small shareholders director in more than two companies. Ans : Appointment of director elected by small shareholders: ‹ Section 151 of Companies Act, 2013 provides that a listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. ‹ —Ž‡͹‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡• that a listed company, may upon notice of not less than 1,000 small shareholders or 1/10th of –Š‡–‘–ƒŽ—„‡”‘ˆ•—…Š•Šƒ”‡Š‘Ž†‡”•ǡ™Š‹…Š‡˜‡”‹•Ž‘™‡”ǡŠƒ˜‡ƒ•ƒŽŽ•Šƒ”‡Š‘Ž†‡”•ǯ†‹”‡…–‘” elected by the small shareholders. ‹ In the present case, there are 500 small shareholders in the company who wanted to appoint Mr. A as a Director as their representative on the Board of Directors of the said company. Mr. A is holding 1000 equity shares of 10 each in the said company. ‹ Sec. 151 read with Rule 7 does not prescribe any eligibility criteria in terms of shareholding in the company for being appointed as a small shareholder director. ‹ —Ž‡͹ˆ—”–Š‡”’”‘˜‹†‡•–Šƒ–‘’‡”•‘•ŠƒŽŽŠ‘Ž†–Š‡’‘•‹–‹‘‘ˆ•ƒŽŽ•Šƒ”‡Š‘Ž†‡”•ǯ†‹”‡…–‘” in more than two companies at the same time. Conclusion: Assuming that the notice is being served by minimum prescribed number of small shareholders (1/10th of total number), Mr. A can be appointed as director. If Mr. A is already holding a position of small shareholders director in more than 2 companies, then he cannot be appointed. Q.24 M/s. Neemuch Pharma Limited is a company listed with Malhargarh Stock Exchange. Some small shareholders of the said company want to appoint Mr. Avadhesh as a Director as their representative on the Board of Directors of the said company. Mr. Avadhesh is holding 1000 equity shares of 10 each in the said company. State the provisions of the Companies Act, 2013 in relation to the proposal to appoint Mr. Avadhesh as a Small Shareholders’ Director. [Nov. 11 (8 Marks)] Ans : Appointment of director elected by small shareholders: ‹ Section 151 of Companies, Act, 2013 provides that a listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. ‹ —Ž‡͹‘ˆ–Š‡‘’ƒ‹‡•ȋ’’‘‹–‡–ƒ†—ƒŽ‹ϐ‹…ƒ–‹‘‘ˆ‹”‡…–‘”•Ȍ—Ž‡•ǡʹͲͳͶ’”‘˜‹†‡• that a listed company, may upon notice of not less than 1,000 small shareholders or 1/10th of –Š‡–‘–ƒŽ—„‡”‘ˆ•—…Š•Šƒ”‡Š‘Ž†‡”•ǡ™Š‹…Š‡˜‡”‹•Ž‘™‡”ǡŠƒ˜‡ƒ•ƒŽŽ•Šƒ”‡Š‘Ž†‡”•ǯ†‹”‡…–‘” elected by the small shareholders. ‹ Inthepresentcase,somesmallshareholdersinthecompanywantedtoappointMr.Avadheshas a Director as their representative on the Board of Directors of the said company. Mr. Avadhesh is holding 1000 equity shares of 10 each in the said company. ‹ Sec. 151 read with Rule 7 does not prescribe any eligibility criteria in terms of shareholding in the company for being appointed as a small shareholder director. Conclusion: Assuming that the notice is being served by minimum prescribed number of small shareholders(1000smallshareholdersor1/10thoftotalnumber,whicheverislower),Mr.Avadhesh can be appointed as director.

40. ORDER NOW Description: Taxmann’s CRACKER for Corporate Economic Laws is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the entire revised, new syllabus as per ICAI. The Present Publication is the 7th Edition Updated till 30th April 2021 for CA-Final | New Syllabus, authored by Pankaj Garg, with the following noteworthy features: Strictly as per the New Syllabus of ICAI [600+ Questions and Case Studies] with complete answers Coverage of this book includes: • All Past Exam Questions » CA Final July 2021 (New Syllabus) – Suggested Answers • Questions from RTPs and MTPs of ICAI [Chapter-wise] marks distribution for Past Exams [Most Updated Amended] This book is updated amended as per the following: • Companies (Amendment) Act, 2020 • Companies (Appointment and Qualifications of Directors) fifth Amendment Rules, 2020 • Schedule V of the Companies Act, 2013 • Master Directions – External Commercial Borrowings (Updated as of 12th April 2021) • Foreign Exchange Management (Export of Goods and Services) (Amendment) Regulations, 2021 • Foreign Contribution (Regulation) Amendment Act, 2020 • Arbitration and Conciliation (Amendment) Act, 2021 • Insolvency and Bankruptcy (Amendment) Ordinance, 2021 Rs. 725 | USD 43 CRACKER CORPORATE ECONOMIC LAWS Author : PANKAJ GARG Publisher: TAXMANN Edition : 7th Edition ISBN No.: 9789391596033 Date of Publication: July 2021 No. oF Pages: 444

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