September 20262(c)4 marksNew Scheme
(c)Under the Environment (Protection) Act, 1986, the Central Government proposed draft environmental compliance rules affecting chemical manufacturing industries. The parent Act required rules to be made after previous publication.
Accordingly, draft rules were published in the Official Gazette inviting objections and suggestions from stakeholders within 30 days. Several industry associations submitted objections, but the Government finalized the rules without discussing those objections in detail.
Based on the above facts and as per the applicable provisions of the General Clauses Act, 1897, answer the following questions:
(i)What procedure must be followed where rules are required to be made after previous publication? (2 Marks)
(ii)Whether the authority is required to consider objections received from
stakeholders? (2 Marks)
(c)According to section 23 of the General Clauses Act, 1897, where, by any Central Act or Regulation, a power to make rules or bye-laws is expressed to be given subject to the condition of the rules or bye-laws being made after previous publication, then the following provisions shall apply, namely:-
(1)The authority having power to make the rules or bye-laws shall, before making them, publish a draft of the proposed rules or byelaws for the information of persons likely to be affected thereby;
(2)The publication shall be made in such manner as that authority deems to be sufficient, or, if the condition with respect to previous publication so requires, in such manner as the Government concerned prescribes;
(3)There shall be published with the draft a notice specifying a date on or after which the draft will be taken into consideration;
(4)The authority having power to make the rules or bye-laws, and, where the rules or bye-laws are to be made with the sanction, approval or concurrence of another authority, that authority also shall consider any objection or suggestion which may be received by the authority having power to make the rules or bye-laws from any person with respect to the draft before the date so specified;
(5)The publication in the Official Gazette of a rule or bye-law purporting to have been made in exercise of a power to make rules or bye-laws after previous publication shall be conclusive proof that the rule or bye-laws has been duly made.
Section 23(5) raises a conclusive presumption that after the publication of the rules in the Official Gazette, it is to be inferred that the procedure for making the rules had been followed. Any irregularities in the publication of the draft cannot therefore be questioned.
It is also open to the authority publishing the draft and entitled to make the rules to make suitable changes in the draft before finally publishing them. It is not necessary for that authority to re-publish the rules in the amended form before their final issue so long as the changes made are ancillary to the earlier draft and cannot be regarded as foreign to the subject matter thereof.
(i)In the given question, the Central Government published the draft rules in the Official Gazette and invited objections and suggestions within 30 days. Thus, the requirement of previous publication was initiated in accordance with section 23.
(ii)As per section 23(4) of the General Clauses Act, 1897, the authority having power to make the rules shall consider any objection or suggestion received from any person with respect to the draft before the specified date.
In the given question, several industry associations submitted their objections within the prescribed period of 30 days. Therefore, the Central Government was required to consider those objections and suggestions before finalising the rules.
However, it is important to note that “consider” does not mean that the authority is bound to accept the objections or suggestions. The authority may make suitable changes in the draft or may decide not to accept the suggestions, but the objections/suggestions received within the prescribed period must be considered.
Yes, the authority is required to consider such objections and suggestions.
Therefore, the Government’s failure to consider the objections before finalising the rules would not be in accordance with the procedure prescribed under section 23(4).
Source: ICAI Suggested Answers, September 2026, 2(c) (New Scheme).
May 20263(a)5 marksNew Scheme
(a)Certain members of Shakun Fabrics Ltd. intend to offer a part of their shareholding in the company to the public, in accordance with the provision of law. Discuss the provisions for the offer of sale by such members under Section 28 of the Companies Act, 2013 and procedural aspects under Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
(5 Marks)
(a)According to section 28 of the Companies Act, 2013,
(1)Where certain members of a company propose, in consultation with the Board of Directors to offer, in accordance with the provisions of any law for the time being in force, whole or part of their holding of shares to the public, they may do so in accordance with such procedure as may be prescribed.
(2)Any document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company and all laws and rules made thereunder as to the contents of the prospectus and as to liability in respect of mis-statements in and omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus issued by the company.
(3)The members, whether individuals or bodies corporate or both, whose shares are proposed to be offered to the public, shall collectively authorise the company, whose shares are offered for sale to the public, to take all actions in respect of offer of sale for and on their behalf and they shall reimburse the company all expenses incurred by it on this matter.
As per Rule 8 of the The Companies (Prospectus and Allotment of Securities) Rules, 2014-
(1)The provisions related to “Prospectus and Allotment of Securities” and rules made there under shall be applicable to an offer of sale referred to in section 28 except for the following, namely:-
(a)the provisions relating to minimum subscription;
(b)the provisions for minimum application value;
(c)the provisions requiring any statement to be made by the Board of directors in respect of the utilization of money; and
(d)any other provision or information which cannot be compiled or gathered by the offeror, with detailed justifications for not being able to comply with such provisions.
(2)The prospectus issued under section 28 shall disclose the name of the person or persons or entity bearing the cost of making the offer of sale along with reasons.
In the given case, the members of the Shakun Fabrics Ltd. may offer for sale of shares to the public by following the above provisions of Section 28 read with Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
Source: ICAI Suggested Answers, May 2026, 3(a) (New Scheme).
September 20252(b)5 marksNew Scheme
(b)Sridha Bookmarks Ltd. a public limited company engaged in the publication of books related to labour and industrial laws is planning to raise ₹ 10 crore from the public, to fund its upcoming projects.
Sridha Bookmarks Ltd. has assigned two different merchant bankers namely ZFG & Associates and Bull Investments Ltd. to act as intermediaries for 60% of the above fund and the rest to be directly issued to Mr. Kuber an investment banker who intends to offer the shares for sale (OFS) to the public through inviting bids above the floor price at the stock exchange platform.
ZFG & Associates is a partnership firm and were allotted equity shares worth ₹ 4 crore on 01.04.2024 to be sold by them to retail investors.
Bull Investments Ltd. a company by incorporation were allotted equity shares of ₹ 2 crore for the above purpose as well on the same date.
The offer documents were issued by ZFG & Associates and Bull Investments Ltd. on 10.10.2024 and 25.09.2024 respectively. The offer document in case of Bull Investments Ltd. was signed by only one director of such company. Both the intermediaries have paid off the full consideration to Sridha Bookmarks Ltd. till date of offer to the public.
Mr. Kuber to whom 40% of the balance shares were issued, further offered to the public shares through an offer document. The Board of Directors of Sridha Bookmarks Ltd. have opposed such offer document claiming that the same does not contain the name of the person or persons or entity bearing the cost of making such offer of sale.
In view of provisions of the Companies Act, 2013:
(i)Whether the offer for sale made by the intermediaries namely ZFG & Associates and Bull Investments Ltd. is valid at law?
(ii)Whether the objection made by the Board of Directors about defect in the offer document issued by Mr. Kuber sustain? (5 Marks)
(b)(i) As per the provision of section 25(1) of the Companies Act, 2013, where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public, any document by which the offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company.
As per the provision of section 25(2), for the purposes of this Act, it shall, unless the contrary is proved, it shall be evidence that an allotment of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the public if it is shown:
(a)that an offer of the securities or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or
(b)that at the date when the offer was made, the whole consideration to be received by the company in respect of the securities had not been received by it.
As per the provision of section 25(4), where a person making an offer to which this section relates is a company or a firm, it shall be sufficient if the document referred to in sub-section (1) is signed on behalf of the company or firm by two directors of the company or by not less than one-half of the partners in the firm, as the case may be.
Let us examine the situation in terms of the provision of Section 25(2) and Section 25(4).
Here, ZFG & Associates and Bull Investments Ltd., the two merchant bankers were allotted shares by Sridha Bookmarks Ltd. On the same day, i.e. 01.04.2024. Whereas ZFG & Associates issued the offer documents on 10.10.2024, i.e. beyond the period of six months after the allotment, Bull Investments Ltd. issued the offer documents on 25.09.2024, i.e. within the stipulated period of six months after the allotment.
Both the intermediaries have paid off the whole consideration to Sridha Bookmarks Ltd. till date of offer to the public.
The offer document was signed by only one director of Bull Investments Ltd., whereas at least two directors were required to sign the same.
Offer of sale made by the intermediary (of Sridha Bookmarks Ltd.), ZFG & Associates is not in compliance with the requirements of section 25(2) since it issued the offer documents on 10.10.2024, i.e. beyond the period of six months after the allotment and therefore is invalid.
Whereas offer of sale made by the intermediary (of Sridha Bookmarks Ltd.) Bull Investments Ltd. is also invalid due to absence of signature of at least 2 directors thus not meeting the requirements mentioned above in the section 25(4).
(ii)Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 deals with the offer of Sale by Members.
As per sub-rule (2) of the above Rule, the prospectus issued under section 28 shall disclose the name of the person or persons or entity bearing the cost of making the offer of sale along with reasons.
Since the offer document issued by Kuber did not contain the name of the person or persons or entity bearing the cost of making such offer for sale, the offer document will be treated as defective and therefore the objection raised by the Board of Directors in this regard will be valid.
Source: ICAI Suggested Answers, September 2025, 2(b) (New Scheme).
September 20252(c)4 marksNew Scheme
(c)Jumbo Road lines Ltd. is a public limited company engaged in business of inter-state goods transportation. The company owns a fleet of more than ten heavy-duty trucks which have the capacity to transport up-to 1000 tons of goods in one consignment as per the registration. The transportation company received an order to transport 1000 tons of goods particularly plastic parts of automobiles to be loaded from a production facility in Surat, Gujarat and offloaded in an automobile factory in Pune, Maharashtra.
The driver loaded the heavy-duty truck to its maximum capacity. On its way to Pune, the driver further loaded 100 tons of other goods from a local trader who lured him for some extra payment. The driver on his way with his overloaded truck rammed into a road divider causing damage to the public property.
The local traffic police charged Jumbo Road lines Ltd. for overloading the truck under the Motor-Vehicles Act, 1988 and filed a suit against the transport company. Further the Highway Authority filed another suit against the company under the Prevention of Damage to Public Property Act, 1984 for damaging the dividers and iron girders installed on the road-sides.
The Jumbo Road lines Ltd. opposed the suits on the plea of double-jeopardy and double punishment for the same act under two different legislations.
Whether the plea given by the road-lines of double-jeopardy be accepted by the court?
Discuss based on underlying principle and concepts referring the provisions of the General Clauses Act, 1897. (4 Marks)
(c)As per section 26 of the General Clauses Act, 1897, where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments but shall not be punished twice for the same offence.
As per Article 20(2) of the Constitution, no person shall be prosecuted and punished for the same offence more than once.
The combined reading of provisions of section 26 of the General Clauses Act, 1897 and Article 20(2) of the Constitution apply only when the two offences which form the subject of prosecution is the same, i.e., the ingredients which constitute the two offences are the same. If the offences under the two enactments are distinct and not identical, none of these provisions will apply.
In the given question, the local police charged Jumbo Road Lines Limited for overloading the truck under the Motor Vehicles Act, 1988. The Highway Authority filed another suit for damage of public property (iron girders installed on roadside), under the Prevention of Damage to Public Property Act, 1984. As the offences under the two enactments are distinct and not identical, hence the plea given by the road lines of double jeopardy cannot be accepted by the Court.
Source: ICAI Suggested Answers, September 2025, 2(c) (New Scheme).
September 20255(c)4 marksNew Scheme
(c)Explain the provision relating to making of rules or bye-laws after previous publications as laid in the General Clauses Act, 1897? (4 Marks)
(c)Section 23 of the General Clauses Act, 1897 describes the provisions applicable to making of rules or bye-laws after previous publication. As per this section:
Where, by any Central Act or Regulation, a power to make rules or byelaws is expressed to be given subject to the conditions of the rules or bye-laws being made after previous publication, then the following provisions shall apply, namely:
(1)The authority having power to make the rules or bye-laws shall, before making them, publish a draft of the proposed rules or byelaws for the information of persons likely to be affected thereby;
(2)The publication shall be made in such manner as that authority deems to be sufficient, or, if the condition with respect to previous publication so requires, in such manner as the Government concerned prescribes;
(3)There shall be published with the draft a notice specifying a date on or after which the draft will be taken into consideration;
(4)The authority having power to make the rules or bye-laws, and, where the rules or bye-laws are to be made with the sanction, approval, or concurrence of another authority, that authority also, shall consider any objection or suggestion which may be received by the person with respect to the draft before the date so specified;
(5)The publication in the Official Gazette of a rule or bye-law purporting to have been made in exercise of a power to make rules or bye-laws after previous publication shall be conclusive proof that the rule or bye-law has been duly made.
Source: ICAI Suggested Answers, September 2025, 5(c) (New Scheme).
May 20253(a)5 marksNew Scheme
(a)Comment on the following:
(i)Disclosure required to be made on the face of the Prospectus.
(ii)Conditions in regard to Experts' Statement.
(iii)Date of publication of prospectus. (5 Marks)
(a)(i) Disclosure on the face of Prospectus [Section 26(6)]
The prospectus issued as per Section 26(1) of the Companies Act, 2013 (the Act) shall, on the face of it, state/specify:
a.That a copy has been delivered for filing to the Registrar
b.Documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents.
(ii)Conditions in regard to Experts’ Statement [Section 26(5)]
A prospectus issued under Section 26(1) of the Act shall not include a statement purporting to be made by an expert, if any of following condition met:
a.If he is engaged or interested in the formation or promotion or management of the company, or
b.If the expert has not given written consent to the issue of the prospectus, or
c.If he has withdrawn the consent before the delivery of a copy of the prospectus to the Registrar for filing.
A statement to that effect (non-existence of conditions, if expert’s statement is included) shall also be included in the prospectus.
(iii)Date of Publication of Prospectus [Explanation to Sub-Section 3]
The date indicated in the prospectus shall be deemed to be the date of its publication.
Source: ICAI Suggested Answers, May 2025, 3(a) (New Scheme).
May 20235(a)5 marksOld Scheme
(a)MBL Pharmaceutical Limited is committed to provide quality medicines at an affordable cost through relentless pursuit of excellence in its operations, product quality, documentation and services. The company is now focusing on oncology therapeutics & other generies with a vision to be a Global Leader in Oncology. The prospectus issued by the company contained some important extracts of the expert's report on research by oncology department. The report was found untrue. Mr. Diwakar purchased the shares of MBL Pharmaceutical Limited on the basis of the expert's report published in the prospectus. Will Mr. Diwakar have any remedy against the company? State also the circumstances where an expert is not liable under the Companies Act, 2013. (5 Marks) The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares held by the existing shareholders.
The balance sheet of Frontline Limited showed the following positions as at 31st March 2022:
(a)Remedy against the company: Under section 35 (1) of the Companies Act 2013, where a person has subscribed for securities of a company acting on any statement included in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person including an expert shall be liable to pay compensation to the person who has sustained such loss or damage.
In the present case, Mr. Diwakar purchased the shares of MBL Pharmaceutical Limited on the basis of the ex pert’s report published in the prospectus. Mr. Diwakar can claim compensation for any loss or damage that he might have sustained from the purchase of shares. Further, section 35 also mentions punishment prescribed by section 36 i.e., punishment for fraud under section 447.
Circumstances when an expert is not liable: An expert will not be liable for any misstatement in a prospectus under the following situations:
(i)Under section 26 (5): It states that having given his consent, the expert withdrew it in writing before delivery of the copy of prospectus for filing, or
(ii)Under section 35 (2) (b): It states that the prospectus was issued without his knowledge/consent and that on becoming aware of it, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent;
(iii)An expert will not be liable in respect of any statement not made by him in the capacity of an expert and included in the prospectus as such;
(iv)Under section 35 (2) (c): As regards every misleading statement purported to be made by an expert /contained in a copy of / an extract from a report / valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by section 26(5) to the issue of the prospectus and had not withdrawn that consent before filing of a copy of the prospectus with the Registrar or, to the defendant's knowledge, before allotment thereunder.
OR
Source: ICAI Suggested Answers, May 2023, 5(a) (Old Scheme).
May 20235(d)3 marksOld Scheme
(d)“ No shall be prosecuted and punished for the same offence more than once." Explain in the light of provisions of section 26 of the General Clauses Act, 1897. (3 Marks)
(d)“Provision as to offence punishable under two or more enactments” [Sec tion 26 of
the General Clauses Act, 1897]: Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be punished twice for the same offence.
Even Article 20(2) of the Constitution states that no person shall be prosecuted and punished for the same offence more than once.
Provisions of section 26 of General Clauses Act, 1897 read with Article 20(2) of the Constitution apply only when the two offences which form the subject of prosecution is the same, i.e., the ingredients which constitute the two offences are the same. If the offences under the two enactments are distinct and not identical, none of these provisions will apply.
Source: ICAI Suggested Answers, May 2023, 5(d) (Old Scheme).
November 20223(a)5 marksOld Scheme
(a)Referring the relevant provisions of the Companies Act, 2013, examine, whether following companies will be considered as listed company or unlisted company:
(i)ABC Limited, a public company, has listed its non-convertible Debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
(ii)CHG Limited, a public company, has listed its non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013.
(iii)PRS Limited, a public company, which has not listed its equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Companies Act,
2013. (5 Marks)
(a)According to Section 2(52) of the Companies Act, 2013, listed company means a company which has any of its securities listed on any recognised stock exchange.
RULE 2A: According to Rule 2A of the Companies (Specification of definitions details) Rules, 2014, the following classes of companies shall not be considered as listed companies, namely:-
(a)Public companies which have not listed their equity shares on a recognized stock exchange but have listed their -
(i)non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(ii)non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
(iii)both categories of (i) and (ii) above.
(b)Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.
In view of the above provisions of the Act:
(i)ABC Limited is an unlisted company.
(ii)CHG Limited is an unlisted company.
(iii)PRS Limited is an unlisted company.
Source: ICAI Suggested Answers, November 2022, 3(a) (Old Scheme).
November 20225(a)5 marksOld Scheme
(a)Aarna Ltd. was dealing in export of cotton fabric to specified foreign countries. The company was willing to purchase cotton fields in Punjab State. The prospectus issued by the company contained some important extracts of the expert report. The report was found untrue. Mr. Nick purchased the shares of Aarna Ltd. on the basis of the expert's report published in the prospectus. However, he did not suffer any loss due to purchase of such shares. Would Mr. Nick have any remedy against the company? State the circumstances where an expert is not liable under the Companies Act, 2013.
The Article of Association (AOA) of AB Ltd. provides that documents may be served upon the company only through Speed Post. Suresh dispatches some documents to the company by courier, under certificate of posting. The company did not accept it on the ground that it is in violation of the AOA. As a result, Suresh suffered from loss. Explain with reference to the provisions of the Companies Act, 2013:
(a)(i) Whether Mr. Nick has any Remedy?
Under Section 35 (1) of the Companies Act 2013 (the Act), where a person has subscribed for securities of a company acting on any statement included in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person including an expert shall be liable to pay compensation to the person who has sustained such loss or damage.
In the present case, Mr. Nick purchased the shares of Aarna Limited on the basis of the expert’s report published in the prospectus. Mr. Nick can claim compensation for any loss or damage that he might have sustained from the purchase of shares. Since, Mr. Nick did not suffer any loss due to purchase of such shares, he cannot claim any compensation for any loss or damage. Further, Section 35 of the Act also mentions punishment prescribed by Section 36 of the Act i.e. punishment for fraud under Section 447.
(ii)Circumstances when an expert is not liable: An expert will not be liable for any mis-statement in a prospectus under the following situations:
(i)Under Section 26 (5) of the Act: It states that having given his consent, the expert withdrew it in writing before delivery of the copy of prospectus for filing, or
(ii)Under Section 35 (2) (b) of the Act: It states that the prospectus was issued without his knowledge/consent and that on becoming aware of it, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent;
(iii)An expert will not be liable in respect of any statement not made by him in the capacity of an expert and included in the prospectus as such;
(iv)Under Section 35 (2) (c) of the Act: It states that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by Section 26(5) of the Act to the issue of the prospectus and had not withdrawn that consent before filing of a copy of the prospectus with the Registrar or, to the defendant's knowledge, before allotment thereunder.
(OR)
(i)Serving of document to Company
In terms of Section 20(1) of the Companies Act, 2013, a document may be served on a company or an officer thereof by sending it to the company or the officer at the registered office of the company by-
| ➢ | registered post, or | | |
| ➢ | speed post, or | | |
| ➢ | courier service, or | | |
| ➢ | | leaving it at its registered office, or | |
| ➢ | | | means of such electronic or other mode as may be prescribed. |
In the instant case, Suresh dispatches some document to AB Ltd. by courier whereas the AOA of said company provides that documents may be served upon the company only through Speed Post. AB Ltd. did not accept the documents on the ground that it is in violation of the AOA.
Taking into account the above provision,
(i)Refusal of documents by AB Ltd. is not valid as sending of documents by courier to AB Ltd. is complying with the provisions given under section 20(1) of the Act.
(ii)Since, the AB Ltd. is at fault by not accepting the documents sent by Suresh, YES, he can claim the damages for any loss occurred to him.
Source: ICAI Suggested Answers, November 2022, 5(a) (Old Scheme).
November 20225(a) OR5 marksOld Scheme
(i)Whether refusal of document by the company is valid?
(ii)Whether Suresh can claim damages for it? (5 Marks)
(a)(i) Whether Mr. Nick has any Remedy?
Under Section 35 (1) of the Companies Act 2013 (the Act), where a person has subscribed for securities of a company acting on any statement included in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person including an expert shall be liable to pay compensation to the person who has sustained such loss or damage.
In the present case, Mr. Nick purchased the shares of Aarna Limited on the basis of the expert’s report published in the prospectus. Mr. Nick can claim compensation for any loss or damage that he might have sustained from the purchase of shares. Since, Mr. Nick did not suffer any loss due to purchase of such shares, he cannot claim any compensation for any loss or damage. Further, Section 35 of the Act also mentions punishment prescribed by Section 36 of the Act i.e. punishment for fraud under Section 447.
(ii)Circumstances when an expert is not liable: An expert will not be liable for any mis-statement in a prospectus under the following situations:
(i)Under Section 26 (5) of the Act: It states that having given his consent, the expert withdrew it in writing before delivery of the copy of prospectus for filing, or
(ii)Under Section 35 (2) (b) of the Act: It states that the prospectus was issued without his knowledge/consent and that on becoming aware of it, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent;
(iii)An expert will not be liable in respect of any statement not made by him in the capacity of an expert and included in the prospectus as such;
(iv)Under Section 35 (2) (c) of the Act: It states that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by Section 26(5) of the Act to the issue of the prospectus and had not withdrawn that consent before filing of a copy of the prospectus with the Registrar or, to the defendant's knowledge, before allotment thereunder.
(OR)
(i)Serving of document to Company
In terms of Section 20(1) of the Companies Act, 2013, a document may be served on a company or an officer thereof by sending it to the company or the officer at the registered office of the company by-
| ➢ | registered post, or | | |
| ➢ | speed post, or | | |
| ➢ | courier service, or | | |
| ➢ | | leaving it at its registered office, or | |
| ➢ | | | means of such electronic or other mode as may be prescribed. |
In the instant case, Suresh dispatches some document to AB Ltd. by courier whereas the AOA of said company provides that documents may be served upon the company only through Speed Post. AB Ltd. did not accept the documents on the ground that it is in violation of the AOA.
Taking into account the above provision,
(i)Refusal of documents by AB Ltd. is not valid as sending of documents by courier to AB Ltd. is complying with the provisions given under section 20(1) of the Act.
(ii)Since, the AB Ltd. is at fault by not accepting the documents sent by Suresh, YES, he can claim the damages for any loss occurred to him.
Source: ICAI Suggested Answers, November 2022, 5(a) OR (Old Scheme).
May 20224(c)4 marksOld Scheme
(c)The Ministry of Corporate Affairs (MCA) published in the Gazette of India, the proposed draft of Rules further to amend certain rules under the Companies Act, 2013. The MCA made some modifications in the draft Rules already published. In the light of the provisions of the General Clauses Act, 1897, answer the following:
(i)Is it required for MCA to publish a draft of the proposed Rules?
(ii)In case of any irregularities in the publication of the draft, can it be questioned?
(iii)Is MCA entitled to make suitable changes in the draft?
(iv)Is it necessary to re-publish the Rules in the amended form when the changes made are ancillary to the earlier draft? (4 Marks)
(c)The answer can be given in terms of section 23 of the General Clauses Act, 1897. Following shall be the answers in the light of the given information and the relevant legal provisions:
(i)Yes, MCA is required to publish a draft of the proposed Rules for the information of persons likely to be affected thereby.
(ii)No, in case of any irregularities in the publication of the draft, it cannot be questioned. The publication in the Official Gazette of a rule or bye-law after previous publication, shall be conclusive proof that the rule or bye-laws has been duly made. It raises a conclusive presumption that after the publication of the rules in the Official Gazette, it is to be inferred that the procedure for making the rules had been followed. Any irregularities in the publication of the draft cannot therefore be questioned.
(iii)Yes, MCA is entitled to make suitable changes in the draft before finally publishing them.
(iv)No, it is not necessary to re-publish the Rules in the amended form when the changes made are ancillary to the earlier draft.
Source: ICAI Suggested Answers, May 2022, 4(c) (Old Scheme).
January 20262(a)5 marksNew Scheme
(a)Amrit Praksh Ltd. was incorporated in 1996 and its registered office is in Dehradun. For expanding the business in manufacturing Mobile equipment (including its Spare Parts) to mobile accessories also, it required capital and for this the Company issued 10,00,000 equity shares of ₹ 10 each at par to the public by issuing a prospectus. The prospectus discloses the minimum subscription amount of ₹ 50,00,000 required to be received on application of shares and share application money shall be payable at ₹ 5 per share. The prospectus further reveals that Amrit Praksh Ltd. has applied for listing of shares in recognized stock exchanges of which application has been rejected.
The issue was fully subscribed and Amrit Praksh Ltd. received an amount of ₹ 50,00,000 on share application. Amrit Praksh Ltd., then proceeded for allotment of shares.
Examine the disclosures in the above case study which are the deciding factors in an allotment of shares and the consequences for violation, if any under the provisions of the Companies Act, 2013. (5 Marks)
(a)According to Section 39 of the Companies Act, 2013, no allotment of any securities of a company offered to the public for subscription shall be made unless-
(1)the amount stated in the prospectus as the minimum amount has been subscribed, and the sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.
(2)The amount payable on application on every security shall not be less than five per cent of the nominal amount of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board by making regulations in this behalf.
The provisions of Section 40(1) of the Companies Act, 2013 states that every company making public offer shall, before making such offer, make an application to one or more recognized stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.
In the question, Amrit Prakash Ltd. issued shares to public by issuing prospectus, disclosing minimum subscription; and sum payable on application for the amount; and the amount received on share application is more than 5% of the nominal amount (5% of ₹ 10 = ₹ 0.5 per share) of
the security. This clearly indicates that the provisions of subsection (1) and sub-section (2) of Section 39 have been complied with.
Further, it revealed that Amrit Prakash Ltd. has applied for listing of shares in recognized stock exchanges which has been rejected. This indicates that the provision of subsection (1) of Section 40 has not been complied with since the Company has made public offer without obtaining permission of one stock exchange.
Therefore, this shall be deemed to be irregular allotment of shares. Amrit Prakash Ltd. shall be required to refund the application money to the applicants in the prescribed manner within the stipulated time frame. In case of delay in refund, applicable interest is also payable by the Company.
Simultaneously, since the Company has violated the provision of Section 40, the Company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the Company who is in default shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees or with both.
Source: ICAI Suggested Answers, January 2026, 2(a) (New Scheme).
May 20223(b)5 marksOld Scheme
(b)The Board of Directors of ABC Limited are proposing to raise funds from the public through issue of equity shares. However due to volatile financial markets, the price per share and the number of shares to be issued are left open and to be decided post closure of the issue. As a financial advisor of the company, what would you suggest to the Board in this regard as per the provisions of the Companies Act, 2013? (5 Marks)
(b)As a financial consultant the Board of Directors of ABC Limited would be advised to issue a Red Herring Prospectus. The expression “red herring prospectus” means a prospectus which does not include complete particulars of the quantum or price of the securities included therein. [Explanation to Section 32]
Thus, ABC Limited may raise funds from public through red herring prospectus whereby the price per security and number of securities are left open to be decided post closure of the issue.
The company may follow the provisions of section 32 in issuing a red herring prospectus:
(1)Red Herring Prospectus is issued prior to issue of Prospectus: A company
proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.
(2)Filing with the registrar: A company proposing to issue a red herring prospectus shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer.
(3)Obligations under Red Herring Prospectus vis-à-vis Prospectus: A red herring
prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
(4)Filing of Red Herring Prospectus with Registrar and SEBI upon closing of
Offer: Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.
Source: ICAI Suggested Answers, May 2022, 3(b) (Old Scheme).
December 20215(a)5 marksOld Scheme
(a)Examine that following offers of ABC Limited are in compliance with provisions of the Companies Act, 2013, related to private placement or should these offers be treated as public:
(i)ABC limited wants to raise funds for its upcoming project. It has issued private placement offer letters to 55 persons in their individual name to issue its equity shares. Out of these four are qualified institutional buyers.
(ii)If in case (i) before allotment under this offer letter company issued another private placement offer to another 155 persons in their individual name for issue of its debentures.
(iii)Being a public company can it issue securities in a private placement offers?
(5 Marks)
(a)According to section 42 of the Companies Act, 2013 any private or public company may make private placement through issue of a private placement offer letter.
However, the offer shall be made to the persons not exceeding fifty or such higher number as may be prescribed, in a financial year. For counting number of persons, Qualified Institutional Buyers (QIBs) and employees of the company being offered securities under a scheme of employees’ stock option wi ll not be considered.
Further, Rule 14 (2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes maximum of 200 persons who can be offered securities under the private placement in a financial year, though this limit should be counted separately for each type of security.
It is to be noted that if a company makes an offer or invitation to more than the prescribed number of persons, it shall be deemed to be an offer to the public and accordingly, it shall be governed by the provisions relating to prospectus.
Also, a company is not permitted to make fresh offer under this section if the allotment with respect to any offer made earlier has not been completed or otherwise, that offer has been withdrawn or abandoned by the company. This provision is applicable even if the issue is of different kind of security.
Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions will apply accordingly.
(i)In the given case ABC Limited, though is a public company but the private placement provisions allow even a public company to raise funds through this route. The company has given offer to 55 persons out of which 4 are qualified institutional buyers and hence, the offer is given effectively to only 51 persons which is well within the limit of 200 persons. From this point of view, the company complies the private placement provisions.
(ii)However, as per the question, the company has given another private placement offer of debentures before completing the allotment in respect of first offer and therefore, the second offer does not comply with the provisions of section 42. Hence, the offers given by the company will be treated as public offer.
In case the company gives offer for debentures in the same financial year after allotment of equity shares is complete then both the offers can well be treated as private placement offers.
(iii)According to section 42 of the Companies Act, 2013 any private or public company may make private placement through issue of a private placement offer letter. Hence, ABC Limited can issue securities in a private placement offer.
Source: ICAI Suggested Answers, December 2021, 5(a) (Old Scheme).
December 20213(a)5 marksOld Scheme
(a)(i) RD Ltd. issued a prospectus. All the statements contained therein were literally true. It also stated that company had paid dividends for a number of years but did not disclose the fact that the dividends were not paid out of trading profits but out of capital profits. An allotee of shares claims to avoid the contract on the ground that the prospectus was false in material particulars. Decide that the argument of shareholder, as per the provision of the Companies Act, 2013, is correct or not?
(3 Marks)
(ii)Define “Small Company”. (2 Marks)
(a)(i) According to section 34 of the Companies Act, 2013, where a prospectus, issued, circulated or distributed, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorises the issue of such prospectus shall be liable under section 447.
Further, Section 35(3) provides that, where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in sub-section
(1)of section 35, shall be personally responsible, without any limitation of liability,
for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.
In the given question, the non-disclosure of the fact that dividends were paid out of capital profits is a concealment of material fact as a company is normally required to distribute dividend only from trading or revenue profits and under exceptional circumstances it can pay dividend out of capital profits. Hence, a material misrepresentation has been made.
Accordingly, in the given case the allottee can avoid the contract of allotment of shares.
(ii)According to section (85) of the Companies Act, 2013, ‘Small company’ me ans a company, other than a public company, -
(i)paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii)turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to -
(A)a holding company or a subsidiary company;
(B)a company registered under section 8; or
(C)a company or body corporate governed by any special Act.
As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.
Source: ICAI Suggested Answers, December 2021, 3(a) (Old Scheme).