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Test by CA Amit Popli
Study Law & Audit in Conceptual Manner
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Case Study-1
XYZ Ltd. was incorporated on April 1, 2023. The Board of Directors, within the required timeframe, appointed Mr. A as the
first auditor of the company on April 20, 2023. Mr. A was tasked with auditing the company’s financial statements for
the financial year 2022-23, and he held office until the conclusion of the first Annual General Meeting (AGM), which
was held on September 30, 2023.
During the AGM, the shareholders decided to appoint Mr. B, a partner in the audit firm MNO LLP, as the new auditor.
MNO LLP is a limited liability partnership incorporated under the LLP Act, 2008. Mr. B and his firm were appointed
to hold office from the conclusion of the 1st AGM until the conclusion of the 6th AGM in 2028.
Five years later, in 2028, the company is considering whether to reappoint Mr. B and MNO LLP for another term. The
shareholders are discussing the provisions of the Companies Act, 2013, and the implications of reappointing the
same auditor or audit firm for multiple terms.
On the basis of above facts and by applying applicable provisions of the Companies Act, 2013 and the applicable
Rules therein, choose the correct answer (one out of four) of the following Multiple Choice Questions (MCQs 1-5,
of 2 marks each) given herein under: -
1. Who was responsible for appointing the first auditor of XYZ Ltd., and within what
timeframe should the appointment have been made?
a) Shareholders, within 60 days of registration of company
b) Board of Directors, within 30 days of registration of company
c) Board of Directors, within 60 days of registration of company
d) Shareholders, within 30 days of registration of company
2. How long can MNO LLP, as an audit firm, hold office as the auditor of XYZ Ltd.
according to the Companies Act, 2013?
(a) One term of five consecutive years
(b) Two terms of five consecutive years
(c) One term of six consecutive years
(d) Three terms of five consecutive years
3. If XYZ Ltd. wants to reappoint MNO LLP for another term after 2028, what
does the Companies Act, 2013, mandate?
(a) MNO LLP can be reappointed for another term of five years.
(b) MNO LLP cannot be reappointed, as they have already served one
term.
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Study Law & Audit in Conceptual Manner
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(c) MNO LLP cannot be reappointed, as they have already served two
terms.
(d) MNO LLP can be reappointed, but the tenure must be reduced to
three years.
4. What is the maximum tenure for which Mr. A as the first auditor of XYZ Pvt.
Ltd., can hold office?
(a) From the date of appointment until the conclusion of the first AGM
i.e. 30th September 2023
(b) From the date of appointment until the conclusion of the second AGM
(in 2024)
(c) From the date of appointment until the conclusion of the third AGM
(in 2025)
(d) From the date of registration of company until the conclusion of the
first AGM i.e. 30th September 2023
5. By what date the copy of the annual return is to be filed with the Registrar of
companies in case of first AGM of XYZ Ltd.?
(a) 29th November 2023
(b) 30th December 2023
(c) 31st January 2024
(d) 29th February 2024
Case Study-2
Mr Varinder Singh is a philanthropist apart from being the owner of the renowned textile
brand ‘Paridhaan’. He is running an old age home, a shelter-home for orphans apart from a
chain of art and language schools. These philanthropic initiatives and educational institutions
established by him are operating under the banner of a charitable trust, in which he himself
is one of the trustees. The textile business ‘Paridhaan’ is owned by a private limited company
with paid-up share capital of INR 60 lakhs. ‘Paridhaan is losing market share due to stiff
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competition from readymade brands resulting decline in turnover to ₹180 lakhs during the
immediately preceding financial year, out of which 45% is export sales.
His son Jimmy, who is also a shareholder and director in ‘Paridhaan’, wishes to start a new
business of
e-learning platform and research- based technical education. He has opted for corporate
form for this business, because this may help in reaching out to leading global universities to
sign MoUs for student and faculty exchange programs, in order to establish a global brand,
especially after the rollout of the new education policy. Jimmy wants to retain the entire
control of education activities. Jimmy met their family friend Mr Chawla, who is a renowned
practicing Chartered Accountant. Mr. Chawla explains the various kinds of companies,
including One Person Company (OPC) with the procedural requirements for each which could
be considered by Jimmy for his education business. Jimmy decided to form OPC after
considering the various pros and cons.
Jimmy appoints Mr Wilson as a nominee to his OPC. Mr. Wilson who is in his 30s, is an
academician and scholar, a graduate from MIT in CSE, and has done his masters with Jimmy.
Mr. Wilson is from Cambridge, Massachusetts, USA and is basically a US national. But, he has
been residing in India for the last couple of years. Mr. Wilson helps Jimmy in the promotion
of OPC.
Mr Chawla is an auditor of Sirmaur Pharma Limited, the AGM of which was convened on 31st
August 2020. As he had already confirmed his appointment with Jimmy to meet him on that
day, he asked his paid assistant, Mr. Anup, to attend the AGM on his behalf. Mr. Anup is
Chartered Accountant, but in employment with Mr. Chawla’s firm for the last year or so. Mr.
Anup is not holding a certificate of practice. At that AGM, based upon the board’s
recommendation, Sirmaur Pharma Limited decided to issue fully paid-up bonus share to its
members out of its reserve and surplus available with it, which are as follows:
Source Amount in
Free Reserves 1.24 Crores
Securities Premium Account 0.82 Crores
Capital Redemption Reserve Account 1.07 Crores
Capitalizing reserves created by revaluation of assets 0.63 Crores
1. Considering the validity of nominating Mr. Wilson to the One Person Company of
Jimmy, out of the following, which statement holds truth?
(a) Mr. Wilson is a valid nominee because he is a natural person.
(b) Mr. Wilson is a valid nominee because he is a natural person and resides in India.
(c) Mr. Wilson is a valid nominee because he attains the majority and also engaged in
the promotion of OPC.
(d) Mr. Wilson is not a valid nominee, because he is not a citizen of India.
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2. What is the maximum amount, up to which fully paid bonus shares can be issued by
Sirmaur Pharma Limited?
(a) 2.06 Crores
(b) 3.13 Crores
(c) 3.76 Crores
(d) 2.69 Crores
3. Mr. Varinder wants to take the benefits of relaxation available to a small company.
Does Paridhaan meet the criteria to be classified as a small company?
(a) Yes, because turnover is less than prescribed limit
(b) Yes, because both paid-up share capital and turnover are less than the prescribed
limit
(c) No, because paid-up share capital is more than the prescribed limit
(d) No, because both paid-up share capital and turnover are more than the
prescribed limit
4. Jimmy is already a member of Paridhaan and has now promoted his own OPC. Is
Jimmy eligible to Incorporate OPC as being an existing member and Director of
‘Paridhaan’, which of the following statements is correct?
(a) Not eligible, because a person who is a member of any other company cannot
incorporate an OPC.
(b) Not eligible, because a person who is director of any other company cannot
incorporate an OPC as a member.
(c) Eligible, because a person can incorporate one OPC as a member despite being a
member in any other form of companies, other-than OPC.
(d) Eligible, because a person can be a member of any number of companies including
any number of OPCs.
Case Study-3
Dr. N. Kulshrestha is a renowned professional and a director on the Board of various
companies. Two among these are Mount Electrolux Limited (MEL) and Rock Electronics
Limited (REL). Both are unlisted public companies.
MEL accepts a contract from State Power Corporation to replace electromechanical meters
with automated ("smart") meters for residential connections and fixing them out-side the
properties. The expected duration of the project is 150 days. MEL is presently considering
alternate sources of finance. The Board of MEL is looking forward to inviting deposits to ₹
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80 Crores, but Dr. Kulshrestha is of the opinion that deposits are meant for funding long
term requirements and the present need is for the short term period. A special resolution
to give effect to the same was duly passed and the same is filed with ROC.
Extracts from the latest financial statement of MEL are as follows;
Particulars Amount in INR Crores
Turnover 980
Paid-up share capital 410
Free Reserve 240
Capital Redemption Reserve 120
Security Premium Amount 150
REL purchased an immovable property for its corporate office from GDI (Goenka Developer
and Infrastructure). An agreement to sell was entered on 21st August 2020. On 31st
August 2020 Property was registered in name of REL. One-month after the date of
registration, on 30th September 2020, REL comes to know that title of the property was
encumbered as there was a previous loan due to a financial institution, through a letter from
such financial institution. In the letter it was mentioned that charge on such property was
registered in the name of the financial institution from 16th May 2019.
21st AGM of REL was concluded on 30th May 2019 for the financial year 2018-19. The 22nd
AGM for considering the financial statements of the year 2019-20 could not be convened
till 30th September due to out- break of COVID-19. Hence an application for extension was
filed with the ROC. The ROC granted extension of two months and finally the 22nd AGM
was convened and conducted on 9th November 2020.
At the said 22nd AGM, the Chairman of the Board of Directors was not present. In his
absence, a member (Mr. Venugopal) having the largest voting right proposed that he be
elected as chairperson, and members holding the majority of voting rights were in favour of
this. But on the show of hands Mr. Anand is identified as chairman of the meeting. The
other members demanded for a poll. The board members present were unanimously willing to
appoint Dr. Kulshrestha as chairperson of the meeting and Dr. Kulshrestha also agreed for
the same. The Articles of Association of REL is silent regarding election of chairman at
general meetings.
1. With reference to convening 22nd AGM of REL, which of the following statements
is correct?
(a) ROC has to grant an extension of 3 months
(b) REL has complied with the legal provisions relating to holding the AGM, by
convening the 22nd AGM with the period of extension.
(c) REL has failed to comply with the legal provisions because AGM must be held
with six months from the end of the financial year in all cases.
(d) REL has failed to comply with the legal provisions because the time gap between
21st and 22nd AGM is more than 17 months
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2. With reference to the encumbered nature of the property purchased by REL from
GDI; identify the date from which REL has notice of charge against such property.
(a) 16th May 2019
(b) 21st August 2020
(c) 31st August 2020
(d) 30th September 2020
3. With reference to the legal provisions, regarding chairman at AGM, in the context
of 22nd AGM of REL; pick the right option.
(a) Dr. Kulshrestha will be the chairperson, because present board members are
unanimously willing to appoint him and it’s the discretion of the board to accept
the demand of poll or not.
(b) Mr. Anand will be the chairman of the meeting until conclusion, because he is
elected through a show of hands.
(c) Mr. Anand will be the chairman of the meeting, but only until some other person
is elected as Chairman as a result of a poll, if any.
(d) Mr. Venugopal will be the chairman of the meeting, because he is favoured by
members holding the majority of voting rights.
INDEPENDENT MCQS [ 2 MARKS EACH ]
1. ABC Private Limited is a project engineering, procurement and construction company. The
company has bagged a contract from the Government of State of Kerala for construction of Water
Dam. The company has involved a project consultancy firm situated in Australia for preparing techno-
economic feasibility report to enable it to start construction work of dam. The company had paid
USD 7,000,000 to vendor of Australia.
The company also availed the services of Software Company situated in Denmark for the
migration of its accounting software from SAP to Oracle for which the company had paid USD
2,000,000 to the software company.
Considering the provisions of Foreign Exchange Management Act, 1999, which of the below
mentioned statement is correct:
(a) The company can make payment of USD 7,000,000 and USD 2,000,000 without any
approval.
(b) The company can make payment of USD 7,000,000 without any approval and USD
2,000,000 after obtaining prior approval of the Reserve Bank of India (RBI).
(c) The company can make payment of USD 7,000,000 and USD 2,000,000 after obtaining prior
approval of RBI.
(d) The company can make payment of USD 7,000,000 after obtaining prior approval of RBI
and USD 2,000,000 without any approval.
2. Mr. Narain Srinivas had enrolled himself for management course of three years with IOL,
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Mumbai. Out of three years, two years of educational course would be provided at the campus of
IOL, Mumbai and one year of educational course would be provided at University of Auckland under
student exchange program. Mr. Narain Srinivas is required to pay tuition fee of `10 lakh directly to
IOL, Mumbai for two years course and USD 200,000 to University of Auckland.
Mr. Narain had left India on 20th August 2022 to complete his degree from University of Auckland.
In the last month of final year of the course, he got an offer from one of the reputed company situated
in Auckland and had accepted the offer and he decided to work there. On 1st September 2023, Mr.
Narain had visited India for 30 days to meet his family and on 1st October 2023 had left India to
carry on his employment.
Considering the provisions of Foreign Exchange Management Act, 1999, which of the below
mentioned options correctly determined the residential status of Mr. Narain Srinivas:
(a) Mr. Narain Srinivas to be treated as resident in India for Financial Year (FY) 2023-2024
and FY 2024-2025.
(b) Mr. Narain Srinivas to be treated as resident in India for FY 2022-2023 and FY 2023-
2024.
(c) Mr. Narain Srinivas to be treated as non-resident for FY 2023-2024 and FY 2024-2025 as
he left India for higher studies.
(d) Mr. Narain Srinivas to be treated as resident in India for FY 2023-2024 since he stays in
India for more than 182 days and non-resident for FY 2024-2025.
3. Mr. X had resided in India for less than 182 days during the financial year 2022-2023. He arrived
in India on April 1, 2023, to conduct business and intends to leave the business on April 30, 2024, with
plans to depart from India on June 30, 2024. What is Mr. X's residential status for the financial year
2023-2024 under the FEMA, 1999? How many days did Mr. X stay in India during the financial year
2023-2024?
(a) Non-Resident, 182 days
(b) Resident, 365 days
(c) Resident but Not Ordinarily Resident (RNOR), 240 days
(d) Resident, 91 days
4. Athlete Rajiv Sharma, a professional tennis player from India, achieved remarkable success by
winning a prestigious international tennis tournament held in Paris, France. As a result of his victory,
he received a prize money of $150,000 from the event organizers. Rajiv was excited about his
winnings and planned to use a portion of the prize money to fund his training and future
tournaments abroad.
Rajiv decided to remit $150,000 to his personal account in France to manage his finances and cover
his training expenses. However, before proceeding, he needed to ensure that the remittance
complied with the Foreign Exchange Management Act (FEMA), 1999, specifically concerning
the remittance of prize money or sponsorship of sports activities abroad.
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Under FEMA regulations, individuals other than international, national, or state-level sports
bodies are subject to specific guidelines when remitting amounts exceeding $100,000. Rajiv
was aware that the amount involved in his case exceeded this threshold and sought advice on
the necessary steps and compliance.
Enumerate in the given instance, according to FEMA regulations, what must Rajiv Sharma do if he
wishes to remit prize money exceeding US $100,000 abroad?
(e) Remit the amount directly without any additional requirements.
(f) Obtain approval from Paris Government before remitting the amount
(g) Only provide proof of winning the prize
(h) Require prior approval of Ministry of Human Resource Development (Department of
Youth Affairs and Sports)
5. Kite Sports Academy, a private coaching club, provides coaching for cricket, football and other
similar sports. It coaches sports aspirants pan India. It also conducts various sports events and
campaigns, across the country. In 2022, to mark the 25th year of its operation, a cricket tournament
(akin to the format of T-20) is being organized by Kite Sports Academy in Lancashire, England,
in the first half of April. The prize money for the ‘winning team’ is fixed at USD 40,000 whereas in
case of ‘runner-up’, it is pegged at USD 11,000. You are required to choose the correct option
from the four given below which signifies the steps to be taken by Kite Sports Academy for
remittance of the prize money of USD 51,000 (i.e. USD 40,000+USD 11,000) to England keeping
in view the relevant provisions of Foreign Exchange Management Act, 1999:
a) For remittance of the prize money of USD 51,000, Kite Sports Academy is required to obtain
prior permission from the Ministry of Human Resource Development (Department of Youth
Affairs and Sports).
b) For remittance of the prize money of USD 51,000, Kite Sports Academy is required to obtain
prior permission from the Reserve Bank of India.
c) For remittance of the prize money of USD 51,000, Kite Sports Academy is not required to obtain
any prior permission from any authority, whatsoever, and it can proceed to make the remittance.
d) For remittance of the prize money of USD 51,000, Kite Sports Academy is required to obtain
prior permission from the Ministry of Finance (Department of Economic Affairs).
DESCRIPTIVE QUESTIONS
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Quest-1 Prashant incorporated a "One Person Company" making his sister Priya as the
nominee. Priya is an Indian citizen. She was born and brought up in Kanpur. However,
[ 4 Marks] now Priya and her husband are leaving India permanently to stay with their son who
is settled abroad for the last 15 years. Due to this fact, she is withdrawing her
consent of nomination in the said One Person Company. Taking into considerations
the provisions of the Companies Act, 2013 answer the questions given below.
(i) If Priya is leaving India permanently, is it mandatory for her to withdraw
her nomination in the said One Person Company?
(ii) In case Priya withdraws her nomination as a nominee to the OPC, whether Prashant can
appoint his minor son Rushang as the nominee of the OPC?
Quest-2 Prism Ltd. (registered in India), a wholly owned subsidiary company of
Gram Pte decided to follow different financial year for consolidation of
[ 3 Marks] its accounts outside India. State the procedure to be followed in this
regard.
Quest-3 The information extracted from the audited Financial Statement of Pacific
Solutions Private Limited as on 31st March, 2023 is as below:
[ 5 Marks] (1) Paid-up equity share capital ₹ 50,00,000 divided into 5,00,000 equity shares
(carrying voting rights) of ₹ 10 each. There is no change in the paid-up share capital
thereafter.
(2) The turnover is ₹ 2,00,00,000.
It is further understood that Smart Software Limited is holding 2,00,000 equity
shares, fully paid- up, of Pacific Solutions Private Limited. Pacific Solutions Private
Limited has filed its Financial Statement for the said year with the Registrar of
Companies (ROC) excluding the Cash Flow Statement within the prescribed time
line during the financial year 2023-24. The ROC has issued a notice to Pacific
Solutions Private Limited as it has failed to file the Cash Flow Statement along
with the Balance Sheet and Profit and Loss Account. You are to advise on the
following points explaining the provisions of the Companies Act, 2013:
(i) Whether Pacific Solutions Private Limited shall be deemed to be a small
company whose significant equity shares are held by a public company?
(ii) Whether Pacific Solutions Private Limited has defaulted in filing its
financial statement?
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Study Law & Audit in Conceptual Manner
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