CS Professional – Page 13

Time of Supply GST – Advanced Tax Laws and Practice Important Questions

December 28, 2022

Time of Supply GST – Advanced Tax Laws and Practice Important Questions

Question 1.
Determine (with brief reason) the time of supply of goods in the following cases, where the supply involves movement of goods (in one lot):

Date of removal of goods	Date of invoice	Date of Payment
1. 10-06-2020	12-06-2020	20-05-2020
2. 10-11-2020	20-10-2020	29-11-2020
3. 07-09-2020	02-10-2021	06-12-2019
4. 10-12-2020	20-11-2020	22-09-2020
5. 27-12-2020	29-12-2020	22-12-2020

Answer:

Time of supply

As per Section 12(2) of CGST Act, 2017, the time of supply of goods shall be the earlier of the following dates, namely:

(a) the date of issue of invoice by the supplier or the last date on which he is required to issue invoice under section 31; or
(b) the date on which the supplier receives the payment with respect to the supply.

However, advance received in respect of supply of goods is not liable to be taxed at the time of receipt vide Notification No. 66/2017-CT dated 15.11.2017. Therefore, the date of payment in respect of supply of goods shall not be relevant for determining the time of supply.

Further, Section 31 of the CGST Act provides that a registered person supplying taxable goods shall issue a tax invoice, before or at the time of,

(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or
(b) delivery of goods or making available thereof to the recipient, in any other case.

In view of the above stated legal position, the time of supply of goods in each of the independent cases shall be as tabulated below:-

Case 1:
In this the earliest date is the date of removal of goods [as date of payment is not relevant] Hence, the time of supply is 10-6-2020.

Case 2:
In this case, the earliest is the date of invoice and whereas the removal of goods is much later. The time of supply hence is 20.10.2020.

Case 3:
In this case, the date of removal of goods is much before date of invoice and therefore the time of supply is 07.09.2020.

Case 4:
Since the date of payment is not relevant for supply of goods and the date of invoice is earlier than the date of removal, the time of supply is 20.11.2020.

Case 5:
In this case, time of supply shall be date of removal of goods, being the due date of issue of invoice or the actual date of invoice, whichever is earlier. Hence, it shall be 27.12.2020.

Question 2.
Ganesh, a registered person, has received the supply of services from non-taxable territory. Accordingly, the tax is liable to be paid by the recipient on reverse charge basis. Ganesh provides the following information in respect of such service received by him:

Transaction	Event Date
1. Date of payment as entered in the books by service receiver (Ganesh)	10-12-2020
2. Date on which above payment is debited in Bank account of Ganesh	17-12-2020
3. Date on of issue of invoice by supplier of service	20-11-2020

You are required to:

Explain the relevant provision of Section 13(3) of the CGST, Act 2017 regarding determination of time of supply of service under reverse charge basis. Determine the point of supply in respect of service received by Ganesh.
Answer:
Time of supply under reverse charge basis

(i) Under section 13(3) of the CGST Act, 2017, in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be earliest of the following dates:

(a) The date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or;

(b) The date immediately following 60 days from the date of issue of invoice or any other document, by whatever name called in lieu thereof by the supplier.

In this case, the time of supply shall be the earliest of the following dates:

(a) Date of payment as entered in the books by service receiver (Ganesh) – 10-12-2018
(b) Date on which above payment is debited in Bank account of Ganesh – 17-12-2018
(c) The date immediately following the 60 days from the date of issue of invoice (20.11.2018 + 61days = 20.01.2019) – 20-01-2019

Time of supply: 10.12.2018 (Earliest)

Question 3.
Determine by giving brief reasons the Time of supply in each of the following independent cases in accordance with the provisions of section 12 of CGST Act, 2017 where supply involves movement of goods supplied in one lot:

Date of removal	Date of Invoice	Date when goods made available to recipient	Date of receipt of payment
1. 01.12.2020	02.12.2020	03.12.2020	15.01.2021
2. 03.11.2020	01.11.2020	04.11.2020	05.12.2020
3. 04.11.2020	04.11.2020	06.11.2020	01.10.2020

Answer:
As per Section 12(2) of CGST Act, 2017, the time of supply of goods shall be the earlier of the following dates, namely:

(a) the date of issue of invoice by the supplier or the last date on which he is required to issue invoice under section 31; or;
(b) the date on which the supplier receives the payment with respect to the supply.

Further, Section 31 of the CGST Act provides that a registered person supplying taxable goods shall issue a tax invoice, before or at the time of,

(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or;
(b) delivery of goods or making available thereof to the recipient, in any other case.

In view of the above stated legal position, the time of supply of goods in each of the independent cases shall be as tabulated below:-

Time of supply	Reasons in brief
1. 1.12.2020	Invoice is not issued on or before the date of removal of goods, hence TOS is the date of removal of goods
2. 1.11.2020	TOS is date of issuance of invoice because the invoice is issued prior to the date of removal of goods
3. 4.11.2020	TOS is date of issue of invoice. Advance received in respect of supply of goods is not liable to be taxed at the time of receipt vide Notification No. 66/2017-CT dated 15.11.2017.

Question 4.
Harivallabh, a registered supplier, rendered taxable service for ₹2 lakhs on 1-11-2020. The tax invoice was raised on 9-12-2020. Payment was received the next day. Ascertain the time of supply for GST purposes.
Answer:
Tax Invoice should have been issued by Mr. Harivallabh within 30 days from the date of providing of service Le. from 01-11-2020. Tax invoice issued/raised on 09-12-2020, this has been issued beyond the stipulated time limit.

The time of supply as per section 13(2) of CGST Act, 2017 would be 01.11.2020 Le. earliest of the following:

(a) Date of provision of service (01.11.2020)
(b) Date of receipt of payment (10.12.2020)

Question 5.
Padmaja, a registered supplier, rendered taxable service for ₹2 lakhs on 01.12.2020. The tax invoice was raised on 09.12.2020. Payment was received on 22.11.2020. Determine the time of supply for GST purposes.
Answer:
As per section 13(2) of CGST Act, where invoice is issued within 30 days from the date of provision of service, the time of supply shall be earliest of the following:

(a) Date of Invoice; or;
(b) Date of receipt of payment

Hence, in given case, it shall be earlier of 9.12.2020 (Date of issue of invoice) and 22.11.2020 (Date of receipt of payment). Therefore, it shall be 22.11.2020.

Question 6.
Cotton Ltd. being a cloth merchant sold gift voucher to customer for ₹2,000 on 10th November to purchase specific cloth from its showroom, Goods actually purchased by customer on 15th November for ₹2,400. Find the time of supply and value of supply with regard to gift voucher in the hands of Cotton Ltd.
Answer:
Time of supply as per section 12(4) of CGST Act is at the time issue of voucher i.e. 10th November as supply is identifiable at time of issue of voucher. Further, Value of supply = ₹2,000 for gift voucher.

Question 7.
Mr. Muktinath, a service provider registered under GST law under the regular scheme, at Bengaluru (Karnataka), provided taxable service to one of his clients LMN Co. Ltd., registered at Mumbai (Maharashtra). The provision of service was completed on 10.09.2020 and credit for payment received was made in the books of Mr. Muktinath on 11.09.2020. With effect from 16.09.2020, applicable GST rate was raised from 5% to 12%. The payment for the service provided was credited in Mr. Muktinath’s bank account on 18.09.2020, and invoice for the same was raised on 23.09.2020. Mr. Muktinath is of the view that he is liable to pay IGST @ 5% only. However, the Department took the view that he is liable to pay IGST @ 12%. Examine the correctness of the rival contentions. Will your answer be different in the above case if the payment was credited to the bank account on 14.09.2020 instead of 17.08.2020? Note: You may assume that all days are working days.
Answer:
Change in GST rate

As per section 14 of the CGST Act, 2017, in case of change in rate of tax, date of receipt of payment is earlier of:

(i) Date of entering payment in the books of account of the supplier (11.09.2020), or
(ii) Date on which the payment is credited to his bank account (18.09.2020). However, if the payment is credited in the bank account after 4 working days from the date of change in the rate of tax, the date of receipt of payment will be the date of credit in the bank account.

In the given case, since the payment has been credited in the bank within 4 working days from the date of change in the rate of tax, the date of receipt of payment will be 11.09.2020 [i.e., earlier of 11.09.2020 or 18.09.2020].

Section 14 further provides that where goods and/or services have been supplied before the change in rate of tax (10.09.2020) and the payment has been received before the change in rate of tax (11.09.2020), but the invoice for the same is issued after the change in rate of tax (23.09.2020), the time of supply shall be the date of receipt of payment.

Therefore, in the given case, the time of supply will be 11.09.2020 and the applicable rate of tax will be rate prevalent at the time of supply, ie., IGST @ 5%. Therefore, the contention of Muktinath is correct. Department’s view is not tenable in law.

Further, if the date on which the payment is credited to bank account of supplier is 14.09.2020, the date of receipt of payment will continue to be 11.09.2020 [ie., earlier of 11.09.2020 or 14.09.2020] since the payment is credited in the bank account before change in applicable rate of tax. Consequently, with other things remaining the same, the time of supply and the applicable rate of tax will remain the same.

Time Of Supply Notes

Section 12 and section 13 of CGST Act, 2017 deal with “time of supply of Goods” and “time of supply of services” respectively.
Following is the arrangement of both the sections:

SUB-SECTIONS & its content:

(1) Introduction
(2) Time of supply in case of forwarding charge mechanism
For Goods: (Read with Notification No. 66/2017)
Earlier of the following :

Date of issue of invoice; or;
The last date when such invoice should have been issued

For Services:
Case 1: Invoice is issued within time as prescribed (i.e. within 30 days from provision of service/45 days in case of banking services)
Earlier of the following:

Date of issue of invoice; or;
Date of receipt of payment

(i.e. date of entry of the receipt of payment in books of supplier or date of credit in his bank account, whichever is earlier)
Case 2: Invoice is NOT issued within time as prescribed (i.e. with¬in 30 days from provision of service/45 days in case of banking services)

Earlier of the following:

Date of provision of service; or;
Date of receipt of payment
(i.e. date of entry of the receipt of payment in books of supplier or date of credit in his bank account, whichever is earlier)

Proviso to section 13(2):-PETTY ADVANCE

In case advance up to ₹ 1,000 is received against an invoice, then Time of Supply with respect to such advance received may be taken, at the option of supplier, as the future date when invoice against the same is raised.

(3) Time of supply in case of Reverse Charge Mechanism (RCM)
For Goods:
Earlier of the following:

Date of receipt of goods; or;
Date of making payment (i.e. date of entry of payment in books of the recipient of supply or date of debit in his bank account, whichever is earlier); or;
Date immediately following 30 days from the date of invoice or any other document.

For services:
Earlier of the following:

Date of making payment by Recipient of Supply to the supplier (Le. date of entry of payment in books of the recipient of supply or date of debit in his bank account, whichever is earlier); or;
Date immediately following 60 days from date of invoice or any other document.
Proviso to section 13(3):

Where the services are received from an associated entity outside India, Time of Supply shall be earlier of the following :

Date of entry (Le. debit of expenses) in books of Recipient of supply; or;
Date of making payment by Recipient of supply to the supplier (Le. date of entry of payment in books of the recipient of supply or date of debit in his bank account, whichever is earlier)

(4) Time of supply in case of Vouchers

Where supply is identifiable at the time of issue of vouchers, Time of Supply is date of issue of vouchers.
Where supply is not identifiable at the time of issue of vouchers, Time of supply is date of redemption of vouchers.

(5) Time of supply in residuary cases i.e. cases not covered in (2), (3) &(4)

Where a periodical return has to be filed, it shall be the date on which such return is to be filed.
In any other case, it shall be the date on which the tax is paid.

(6) Time of supply in case of additional consideration received by way of interest, penalty, late fees, etc.

It shall be the date on which the supplier receives such addition in value.

Note:
Provisions of sub-sections (4), (5), and (6) of section 12 and section 13 are the same in the case of goods as well as services.

Section 14 deals with “Time of supply when there is a change in the rate of GST”
Clause (a): In case goods or services or both have been supplied BEFORE the change in the rate of tax:

(i) Invoice for the same as well as payment is received after the change in the rate of tax: Earlier of date of receipt of payment, or date of issue of the invoice.
(ii) Invoice has been issued prior to the change in the rate of tax but payment is received after the change in the rate of tax:-Date of issue of the invoice.
(iii) Payment is received before the change in the rate of tax but invoice has been issued after the change in the rate of tax:-Date of receipt of payment.

Clause (b): In case goods or services or both have been supplied AFTER the change in the rate of tax:
(i) Payment is received after the change in the rate of tax but invoice has been issued prior to change in the rate of tax:-Date of receipt of payment.
(ii) Invoice has been issued and payment is received before the change in the rate of tax:- Earlier of date of receipt of payment or date of issue of the invoice.
(iii) Invoice has been issued after the change in the rate of tax but payment is received before changing the change in the rate of tax: – Date of issue of an invoice.

The date of receipt of payment shall be, the date on which the payment is entered in books of account of the supplier; or the date on which payment is credited to his bank account, whichever is earlier. However, the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after 4 working days from

CS Professional Advance Tax Law Notes

CS Professional: Governance, Risk Management, Compliances and Ethics Notes Study Material Important Questions

December 28, 2022

CS Professional: Governance, Risk Management, Compliances and Ethics Notes Study Material Important Questions

CS Professional Governance, Risk Management, Compliances and Ethics Question Paper

CS Professional Governance, Risk Management, Compliances and Ethics Chapter Wise Weightage

Chapter Name	2019		2020
Chapter Name	J	D	D
1. Conceptual Framework of Corporate Governance	13	10	5
2. Legislative Framework of Corporate Governance in India	10	3	8
3. Board Effectiveness	0	5	15
4. Board Processes through Secretarial Standards	0	5	3
5. Board Committees	6	3	5
6. Corporate Policies and Disclosures	25	8	8
7. Accounting and Audit related issues, RPTs, and Vigil Mechanism	15	10	10
8. Corporate Governance and Shareholders Rights	0	5	0
9. Corporate Governance and Other Stakeholders	3	3	5
10. Governance and Compliance Risk	13	15	13
11. Corporate Governance Forums	5	8	3
12. Risk Management	20	20	20
13. Internal Control	10	10	20
14. Reporting	5	10	10
15. Ethics and Business	0	15	5
16. CSR and Sustainability	5	15	5
17. Anti-Corruption and Anti-Bribery Laws in India	5	10	0

CS Professional: Resolution of Corporate Disputes, Non Compliances & Remedies Notes Study Material Important Questions

December 28, 2022

CS Professional: Resolution of Corporate Disputes, Non-Compliances & Remedies Notes Study Material Important Questions

CS Professional Resolution of Corporate Disputes Non-Compliances & Remedies Question Paper

CS Professional CS Professional Resolution of Corporate Disputes Non-Compliances & Remedies Chapter Wise Weightage

Chapter Name	2019		2020
Chapter Name	J	D	D
1. Shareholders’ Democracy	5	5	4
2. Corporate Disputes	12	4	8
3. Class Action Suits	8	8	–
4. Fraud under Companies Act, 2013 and Indian Penal Code, 1860	13	32	12
5. Regulatory Action	8	4	27
6. Adjudication, Prosecutions, Offences, and Penalties	21	12	29
7. Reliefs and Remedies	28	26	20
8. Crisis Management & Risk and Liability Mitigation	24	17	16
9. Misrepresentation & Malpractices – Civil and Criminal Trial Procedure	9	20	16

Voluntary Liquidation – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Voluntary Liquidation – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
The procedure to be followed for voluntary liquidation proceedings is largely similar to the procedure followed for insolvent liquidation. However, there are differences between them. What are such marked differences?
Answer:
The procedure to be followed for voluntary liquidation proceedings of the Insolvency and Bankruptcy Code, 2016 is largely similar to the procedure to be followed for insolvent liquidation. However, following are the key differences between them

1. To initiate voluntary liquidation proceedings, where the corporate person is registered as a company, the directors have to provide a declaration of solvency and a declaration that the company is not being liquidated to defraud any person.

2. The declarations have to be accompanied by
(a) audited financial statements of the company and
(b) record of its business operations for the previous 2 years or the period since its incorporation whichever is later.

3. Further, a report of the valuation of the assets of the company prepared by a registered valuer has to be provided.

4. A resolution in favour of the voluntary winding-up of the company and appointment of an insolvency professional as the liquidator has to be passed within four weeks of the declaration under the Code.

5. Where the company owes any debt to any person, creditors representing two-thirds in value of the debt of the company shall approve the resolution passed, within 7 days of such resolution.

Question 2.
“Appointment of Voluntary Liquidator does not require approval of Tribunal but Company can be dissolved on the orders of National Company Law Tribunal.” Discuss the above in the background of initiation of voluntary liquidation and consequent dissolution of a company.
Answer:

The Insolvency and Bankruptcy Code, 2016 provides for initiation of voluntary liquidation proceedings by a corporate debtor.
Any corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings.
The voluntary liquidation of a corporate person shall meet such conditions and procedural requirements as may be specified by the Insolvency and Bankruptcy Board of India.
A resolution passed by special majority appointing none other than an Insolvency Professional as voluntary liquidator begins the initiation.
Directors need to file a Declaration of Solvency at least 30 days prior to passing the resolution.
In case there remains any creditors, 2/3rds in value of creditors should approve the resolution passed earlier within next 7 days. The resolutions need to be filed within next 7 days with ROC.
The Insolvency Professional needs to be independent of corporate debtor.
After realization and distribution, the voluntary liquidator files report before the Tribunal.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Winding-Up by Tribunal – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Winding-Up by Tribunal – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
What are the contents of the report to be submitted to the Tribunal by the Company Liquidator against the winding-up order issued by the Tribunal under section 281(1) of the Companies Act, 2013?
Answer:
According to section 281(1) of the Companies Act, 2013, Company Liquidator shall submit to the Tribunal, a report containing the following particulars:
(a) nature and details of the assets of the company including their location and value, including cash in hand and bank balance. Valuation of the assets from registered valuers;

(b) amount of capital issued, subscribed and paid-up;

(c) existing and contingent liabilities of the company including names, addresses, occupations of its creditors, separate amounts of secured and unsecured debts, and in case of secured debts, particulars of the securities given;

(d) the debts due to the company and the names, addresses and occupations of the persons from whom they are due and the amount likely to be realized on account thereof;

(e) guarantees, if any, extended by the company;

(f) list of contributories and dues, if any, payable by them and details of any unpaid call;

(g) details of trademarks and intellectual properties, if any, owned by the company;

(h) details of subsisting contracts, joint ventures and collaborations, if any;

(i) details of holding and subsidiary companies, if any;

(j) details of legal cases filed by or against the company; and

(k) any other information which the Tribunal may direct or the Company Liquidator may consider necessary to include.

The report of the Company Liquidator shall include his comments about the working and management of the company, possibility of any fraud etc. The Company Liquidator shall also make a report on the viability of the business of the company or steps which are necessary for maximizing the value of the assets of the company. Any contributory or creditor of the company has the right to inspect the report submitted by the Company Liquidator, as well as take copies

Question 2.
Write a short note on winding-up under the Companies Act, 2013 with special reference to Insolvency and Bankruptcy Code, 2016.

Question 3.
“Inability to pay debts was generally a ground for moving an application for winding-up of a Company under the Companies Act, 1956. But such a ground no longer exists under the Companies Act, 2013”. State the circumstances which compel a company to be wound-up under the Companies Act, 2013. [June 2018 – Old Syllabus – 5 Marks]
Answer:
→ Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required.

→ Earlier, the Companies Act, 2013 contained provisions for winding-up of companies on various grounds including inability of companies to pay their debts as well as voluntary winding-up. However, the introduction of the Insolvency and Bankruptcy Code, 2016 have nullified these provisions from the Companies Act, 2013.

→ As per Insolvency and Bankruptcy Code, 2016 and amendments made in the Companies Act, 2013, provisions relating to voluntary winding-up are revoked from the Companies Act, 2013 and included in the Insolvency and Bankruptcy Code, 2016.

→ As per Section 270 of the Companies Act, 2013 (as amended by IBC, 2016), a company registered under the Companies Act, may be woundup only by the National Company Law Tribunal (NCLT), popularly known as the ‘Tribunal’.

→ As per Sec. 271, a company may be wound up by the Tribunal if
(a) the company has passed a special resolution of its being wound-up by the Tribunal;
(b) the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
(c) application made by ROC or any person authorized by the Central Govt, stating that the affairs of the company have been conducted in a fraudulent manner, unlawful purpose or the promoters and management have been guilty of fraud or misconduct in connection therewith;
(d) the company has defaulted in filing its financial statements or annual returns for immediately preceding 5 consecutive financial years; or
(e) the Tribunal is of the opinion that it is just and equitable that company should be wound up.

→ Now, the provisions regarding liquidation of companies on the ground of inability to pay their debts as well as voluntary winding-up of companies are covered under the IBC, 2016.

Question 4.
“Liquidator appointed by the Tribunal has unquestionable sole authority to deal and disburse the properties during liquidation process.” Elaborate your answer citing circumstances in which a liquidator can be removed.
Answer:

Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required.
As per Section 270 of the Companies Act, 2013, a company registered under the Companies Act, may be wound-up only by the National Company Law Tribunal (NCLT).
As per Section 273 of the Companies Act, 2013, the Tribunal is empowered to pass winding-up order. As per Section 275, where the Tribunal passes an order for winding-up of a company, the Tribunal shall appoint an Official Liquidator or the Company Liquidator.
The Liquidator works under the supervision of the Winding-up Committee and shall submit regularly progress reports to the Tribunal.
As per Section 276, the Tribunal has the power to remove Liquidator on the following grounds:
- misconduct;
- fraud or misfeasance;
- professional incompetence or failure to exercise due care and diligence;
- inability to act as provisional liquidator or as the case may be, Company Liquidator;
- conflict of interest or lack of independence during the term of his appointment.
In the event of death, resignation or removal of provisional liquidator or Company Liquidator, the Tribunal may transfer the work to another Company Liquidator for reasons to be recorded.
If Tribunal is of the opinion that any liquidator is responsible for causing any loss or damage to the company due to fraud or misfeasance or failure to exercise due care and diligence in the performance of his or its powers and functions, the Tribunal may recover such loss or damage from the liquidator and pass such other orders as it may think fit.
However, prior to such removal, the Tribunal shall provide reasonable cause and reasons to be recorded in writing. Also, the Tribunal shall provide a reasonable opportunity of being heard to the Liquidator.

Question 5.
A liquidator is not a trustee but since he is in a fiduciary position in relation to any property of the company and is in the position of a trustee, he is sometimes stated as ‘statutory trustee’. Discuss the status of liquidator in compulsory winding-up by the court as well as in voluntary winding-up.
Answer:

As per Section 270 of the Companies Act, 2013, a company registered under the Companies Act, may be wound-up only by the National Company Law Tribunal (NCLT).
As per Section 275, where a Tribunal passes an order for winding-up of a company, the Tribunal shall appoint an Official Liquidator or the Company Liquidator.
The Liquidator works under the supervision of the Winding-up Committee and shall submit regularly progress reports to the Tribunal.
In a winding-up process, a liquidator is an officer of the Tribunal, and as such is required to exercise a high degree of honesty and fairness towards the creditors and members of company.
As per Section 273, where a Tribunal orders winding-up of a company, a liquidator acts as an agent of the company. He must exercise a high degree of care and diligence in discharging his statutory duties.
He may be liable in damage to a creditor or contributory for injury caused to him as a result of his breach of statutory duties.
A liquidator is in a fiduciary position in relation to any property of the company and is in the position of a trustee, or what is sometimes stated, he is a ‘statutory trustee’.

Question 6.
Are ‘winding-up’ and ‘dissolution’ synonymous? Discuss.
Answer:

Winding-up of a company	Dissolution of a company
1. Winding-up is a first stage whereby assets are realized, liabilities are paid- off and surplus, if any is distributed.	Dissolution is the final stage whereby the existence of the company is ended by law.
2. The liquidator carries out the winding-up proceedings.	The order for dissolution can be passed only by the Tribunal.
3. The liquidator can represent the company during winding-up process.	Once the dissolution order is passed by the Tribunal, the liquidator no longer can represent the company.
4. In winding-up process, creditors can prove their debts.	Upon dissolution of the company, the creditors cannot prove their debts.
5. Every winding-up process need not result in dissolution of company. In few cases, the company may be revived.	Dissolution implies putting an end to the legal existence of a company, i.e. there is no revivalof same company.

The entire procedure for bringing about a lawful end to the life of a company is divided into two stages, viz. winding-up and dissolution.
Winding-up of a company is the process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required. But, if surplus is left, it is distributed among its members.
Once, the winding-up process is completed, the Tribunal shall pass on order to terminate the legal existence of the company, while is known a ‘dissolution’.

Question 7.
Write a note on the list of contributories in case of compulsory winding-up.
Answer:

Winding-up of a company is the process of putting an end to the life of a company. It is a process whereby assets and property of a company is realized (sold) and its liabilities are paid-off from such collections or from contributions from its members, if required
Basically, a contributory is a person liable to contribute towards the assets of a company, in the event of winding-up. As per Section 272, a contributory may be a fully paid-up shareholder, including legal representatives of a deceased person
On winding-up, a list is prepared of the contributories, is prepared by the liquidator and settled by the Court in a compulsory winding-up.
The list consists of two parts, namely:
(a) the list of present members, i.e. those whose names appear on the register of members at the commencement of winding up, called the “A” List, and
(b) the list of past members, i.e. those who ceased to be members of the company within one year before the commencement of winding-up, called the “B” List. Past members, therefore, include persons whose shares have been forfeited, surrendered or transferred within twelve months before the commencement of winding-up, but not a person who has died.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Board Processes through Secretarial Standards – Governance, Risk Management, Compliances and Ethics Important Questions

December 28, 2022

Board Processes through Secretarial Standards – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
“For the first time in the history of Company Law in India, the Compa¬nies Act, 2013 has given statutory recognition to the Secretarial Standards issued by the Institute of Company Secretaries of India.” Discuss.
Answer:
Yes, for the first time in the history of Company Law in India, the Companies Act, 2013 has given statutory recognition to the Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI).

Section 118(10) of the Companies Act, 2013, provides that:
“Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980, and approved as such by the Central Government.”

Secretarial Standards-1 : applies to Meetings of the Board of Directors and its Committees. It prescribes a set of principles for convening and conducting Meetings of the Board of Directors and matters related thereto.

Secretarial Standards-2 : applies to General Meetings of the Shareholders. It prescribes a set of principles for convening and conducting General Meetings of the Shareholders and matters related thereto.

Therefore, Secretarial Standards issued by the ICSI assumes special relevance and companies have to ensure that there is compliance with these standards on their part.

Question 2.
A meeting of Board of Directors is to be held to review the financial performance of the company as well as declaration of dividend. Draft a notice and agenda of this meeting to be circulated to the Board of Directors in accordance with the relevant provisions of Companies Act, 2013.
Answer:

XYZ Co. Ltd. New Delhi
Notice of – (Serial Number of Meeting) Board Meeting

12th June 2017

The _________ (Serial Number of Meeting) meeting of the Board of Directors will be held on _________ (Day) the 22nd day of June 2017 at Meeting Lounge of the registered office of the Company situated at _________ (Complete Address) at 10:00 am. All directors are hereby requested to kindly make it convenient to attend the same.

The agenda for the meeting are as follows:

To elect a Chairman of the Meeting.
To grant leave of absence to Directors not present at the Meeting.
To take note of the minutes of the previous meeting.
To note the action taken in respect to earlier decisions of the Board.
To note the minutes of meetings of Board’s Committee(s).
To discuss the financial performance and decide on dividend declaration.
Any other matter, with the permission of the Chairman and majority of directors.

Annexure:

Audited financial statements of last three quarters
Copy of minutes of last meeting
Action Taken Report (ATR) as received from the Administrative Division
Resolution on dividend policy and report on dividend payment and declaration of the company of last three financial years
Copy of minutes of the meeting of Audit Committee, Investment Committee, Remuneration Committee and Research Committee

Sd/- Sd/-

Company Secretary Chairman, Board of Directors

Question 3.
Answer the following in brief; For a successful Board meeting it is important to have a proper Board agenda. What are the key factors for setting the Board agenda?
Answer:
The board agenda determines the issues to be discussed in the Board meeting of an organisation.

Key success factors for setting the agenda include:

Agendas should strike a balance between reviews of past performance and forward-looking issues.
Strategic issues require more time for debate so it is a good practice that the allocated discussion time is indicated in the agenda.
Normally the agenda in the Board Meeting should include the minutes of the last meeting.
Any specific proposals which require the Board’s approval/confirmation should be included in the agenda.

Question 4.
Being the company secretary of a large scale company, how will you ^ prepare a board agenda and what are the steps you will follow for circulation of notice and agenda?
Answer:
Preparation of Agenda: The board agenda determines the issues to be discussed. The items for agenda should be collected from heads of all the departments.

Agenda at the request of a director:
Any director can request that the chairman include a matter on the board agenda. It is the chairman’s obligation to offer directors the opportunity to suggest items, which cannot be reasonably denied. In the end, it is each director’s responsibility to ensure that the right matters are tabled. It should be taken care of that agendas should strike a balance between reviews of past performance and forward-looking issues.

An agenda should show the amount of time allocated for each item, without unduly restricting discussion. Routine or administrative matters should not consume too much of board’s time.

Steps for Circulation of Notice & Agenda

Notice :
1. Even if meetings have been scheduled in advance, the members of the Board should be adequately and timely sent notice to enable them to plan accordingly.

2. Each item of business requiring approval at the Meeting shall be supported by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal and the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed.

Agenda:
1. The agenda should be made available to the Board along with sup-porting papers at least seven days before the date of the meeting.

2. Mode of circulation of agenda: The mode of circulation of agenda should ensure that all directors receive the agenda notes on time.

3. Material information: All the material information should be sent to all Directors simultaneously and in a timely manner to enable them to prepare for the Board Meeting.

4. Clarifications on the agenda: A system should exist for seeking and obtaining further information and clarifications on the agenda items before the meeting. Directors, including nominee directors, requiring any clarification before the meeting may be asked to contact the Secretary for additional inputs.

5. Board Briefing Papers: Board materials should be summarized and formatted so that board members can readily grasp and focus on the most significant issues in preparation for the board meeting. Board papers associated with a particular agenda item should be set out as an executive summary with further detail provided in annexes. , Information should be distributed at least seven business days before the meeting.

6. Any item not included in the Agenda may be taken up for consideration with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting.

Question 5.
Write a note on Secretarial Standard related to minutes of meeting.
Answer:
Section 118(10) of the Companies Act, 2013 introduces Secretarial Standards and provides statutory recognition to Secretarial Standards issued by ICSI as under:

SS-1: Applies to Meetings of the Board of Directors and its Committees,
SS-2: Applies to General Meetings.

SS-1. Applies to Meetings of the Board of Directors and its Committees, Highlights of Secretarial Standards are as under:

Every company shall keep Minutes of all Meetings (Board, Committee and General Meetings) in Minutes Books.
Minutes shall be preserved permanently in physical or electronic form.
Minutes in electronic form shall be maintained with Time stamp. Minutes Books shall be kept in the custody of the Company Secretary.
Minutes shall contain a fair and correct summary of the proceedings of the Meeting. Minutes shall be written in clear, concise and plain language.
The pages of the Minutes Books shall be consecutively numbered. Minutes shall not be pasted or attached to the Minutes Books, or tampered with in any manner. Minutes, if maintained in loose-leaf form, shall be bound periodically.
Minutes of the Board & Committee Meeting shall be kept at the Registered Office of the company or at such other place as may be approved by the Board. However, Minutes of General Meetings shall be kept at the Registered Office.

Question 6.
Ayesha Ltd. is engaged in managing events. A Board meeting is recently held at the head office of the company to expand its business operations to new areas. As a Company Secretary of the company, you are required to prepare minutes of this Board meeting.
Answer:
Specimen Minutes of a Board Meeting:
Minutes of the 2nd Meeting of the Board of Directors of Ayesha Ltd. held on 3rd June, 2016 at A/16, CP, New Delhi from 9 AM till 1 PM

Present:

Mr. A.B. – Chairman
Mr. C.D. – Directors
Mr. E.F. I. J. K.L. – Managing Director

In Attendance:

Mr. X. Secretary

Invitees:

Mr. Y….. Chief Financial Officer
Mr. Z….. Designation and Organisation

Question A.
Chairman for the Meeting
Answer:
Mr/Ms was elected as the Chairman for the Meeting.

Question B.
Leave of absence
Answer:
Leave of absence from attending the Meeting was granted to Mr. M.N. and Mr. O.P. who expressed their inability to attend the Meeting owing to their preoccupation.

Question C.
Quorum
Answer:
The business before the Meeting was taken up after having established that the requisite quorum was present.

Question D.
Minutes of the previous Board Meeting
Answer:
The Minutes of the ….. Meeting of the Board of Directors of the company held on ……., as circulated, were noted by the Board and signed by the Chairman.

Question E.
Minutes of the Committee Meetings
Answer:
The Minutes of the …… Meeting of the …… Committee held on ………., as circulated, were noted by the Board.

Question F.
Resolution passed by circulation since the last Meeting
Answer:
The following Resolution was passed by circulation on …… (date of passing of the Resolution) in terms of the provisions of Section 175 – of the Companies Act, 2013. .
“RESOLVED THAT …………….”
Mr ……………, Director dissented on the Resolution.

Question G.
Action Taken Report
Answer:
The following action taken was noted by the Board: Item No. Item Action Taken ……………..

Question H.
Register of Contracts
Answer:
The Register of Contracts in which Directors are interested under Section 189 of the Companies Act, 2013 and the Rules thereunder was signed by all the Directors present.

Question I.
Notices of Disclosure of Interest of Directors –
Answer:
a. The following Notices received from the Directors of the company, notifying their interest in other bodies corporate pursuant to the provisions of Section 184 of the Companies Act, 2013, were read and recorded: Name of the Director Nature of Interest Date of Notice

b. A Notice dated received from Mr. IJ. pursuant to the provisions of Section 170 of the Companies Act, 2013, disclosing his shareholding and the shareholding of Mrs. IJ. in the company was read and recorded.

Question J.
Expansion of business operations in new areas
Answer:
The Chairman informed the Board that it was proposed to expand business operations in other states like . The matter was discussed in this connection and it was decided to expand operations in

Question K.
Conclusion of the Meeting
Answer:
There being no other business, the Meeting concluded with a vote of thanks to the Chair.
Date …………………. …………………. Chairman
Place ………………….
Entered on

(To be initialled by the Company Secretary)

Question 7.
A meeting of Board of Directors of Ashoka Business Corporation Ltd. is held on 30th June, 2017 at its registered office, 1, Ashoka Marg New Delhi, in which board considered and approved company’s financial statement for the F/Y ending 31st March, 2017 and made declaration of 20% dividends on its equity shares. You being the Company Secretary, draft the minutes of Board meeting.
Answer:
Minutes of the 3rd Meeting of the Board of Directors of Ashoka Business Corporation Ltd., held on Friday, the 30th June, 2017 at 9 AM at Registered Office of the Company i.e., 1, Ashoka Marg, New Delhi.

Present:

Mr. A, Chairman
Mr. B, Director
Mr. C, Director
Mr. D, Managing Director

In Attendance:

Mr. X Company Secretary

Invitees:

Mr. Y Chief Financial Officer

Question 1.
Chairman for the Meeting
Answer:
Mr. A being the Chairman of the Board chaired the Meeting.

Question 2.
Leave of absence
Answer:
Leave of absence from attending the Meeting was granted to …………… and …………… who expressed their inability to attend the Meeting to the Company Secretary owing to their pre-occupation.

Question 3.
Quorum
Answer:
The business before the Meeting was taken up after having established that the requisite quorum was present.

Question 4.
Minutes of the previous Board Meeting
Answer:
The Minutes of the ……….. Meeting of the Board of Directors of the company held on at …………, as circulated along with the agenda, were noted by the Board.

Question 5.
Minutes of the Committee Meetings
Answer:
The Minutes of the ……….. Meeting of the ……………. Committee(s) held on …………….., as circulated along with the agenda, were noted by the Board.

Question 6.
Financial Statements
Answer:
The draft balance sheet as at 31st March 2017, the statement of profit and loss for the year ended 31st March 2017 and the cash flow statement for the year ended 31st March 2017 of the Company were placed before the Board for its approval.

Mr. Y made a detailed presentation to the Board on the financial statements. The Chairman of the Audit Committee confirms that there were no adverse remarks/observations of auditor on financial statements.

The Board, after discussion, passed the following Resolution:
“Resolved That pursuant to the provisions of Section 134 of the Companies Act, 2013, the Financial Statements for the year ended 31st March 2017 comprising the Balance Sheet as at 31st March 2017, Statement of Profit and Loss for the year ended 31 st March 2017 along- with the Notes to the Financial Statements and Cash Flow Statement derived from the Financial Statement for the year ended 31st March 2017, as recommended by the Audit Committee at its meeting held on May 2017 be and are hereby approved.

Resolved Further That the Balance Sheet as at 31st March 2017, the Statement of Profit & Loss for the year ended 31st March 2017 and the Cash Flow Statement derived from the Accounts for the year ended 31st March 2017 be and are hereby signed on behalf of the Board by Mr. ________ (DIN:), Director, Mr. ________ Managing Director (DIN:), Mr. ________, Chief Financial Officer and Mr. ________ , Company Secretary.

The meeting was adjourned for receipt of Auditors’ Report. Thereafter, the Statutory Auditor submitted his report on the Financial Statement for the year ended 31st March 2017 and the meeting resumed. The Board noted that there were no qualification/adverse remarks in the said Report and after deliberation passed the following Resolution:

Resolved That the Annual Financial Statements of the Company for the year ended 31st March 2017, as approved by the Board and the Auditors’ Reports thereon, be presented to the shareholders for adoption.”

Question 7.
Dividend
Answer:
The payment of Dividend for the year ending 31st March 2017 was considered on the basis of the audited Financial Statements of the company for the period from 1st April 2016 to 31st March 2017. The Directors opined that there were adequate profits/free reserves to permit payment of Dividend.

The Board, after discussion, recommended payment of final dividend @20% per equity share and passed the following Resolution: “resolved That pursuant to the provisions of Section 123 of the Companies Act, 2013 and the rules made thereunder, final Dividend 20% amounting to ₹ per equity share is and hereby recommended
to be paid on all equity shares, out of the profits of the company for the year ending 31st March 2017, after providing for depreciation in accordance with the provisions of the Companies Act, 2013, whose names appear in the Register of Members of the company on the …………… of ……………. (date).

Resolved Further That the transfer books and the Register of Members be closed from the ……………. of …………… to the ………………. of …………. (dates), both days inclusive, for the purpose of payment of such dividend.

Resolved Further that the Dividend Distribution Tax shall be borne by the Company.”

Question 8.
Opening of a Bank Account for payment of Dividend
Answer:
The Board passed the following resolution for opening a bank account for the purpose of payment of Dividend:

“RESOLVED THAT a Bank Account be opened in the name and style of ‘Ashoka Business Corporation Ltd. – Dividend ………………’ (Bank Account) with the …………… for payment of Dividend for the financial year ending 31st March 2017.

RESOLVED FURTHER THAT the said Bank be and is hereby authorised to honour cheques/bank advices etc. drawn, accepted or made on behalf of the company and to act on any instruction(s) so given concerning the said Account by any two of the following signatories: …………..

RESOLVED FURTHER THAT the said Bank be and is hereby autho¬rised to change the name and style of the Bank Account to ‘Ashoka Business Corporation Ltd. Unpaid Dividend ……………’ on and from ……………….

RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to give instructions to the said Bank to close the Bank Account on disbursement of the Dividend.

RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to sign and execute such documents, letters etc., as may be required by the said Bank.”

Question 9.
Conclusion of the Meeting
Answer:
There being no other business, the Meeting concluded at ….(Time) with a vote of thanks to the Chair.
Date ……………. ……………… Chairman
Place ……………..
Entered on
(To be initialled by the Company Secretary)

Question 8.
You have been appointed as a Company Secretary of a Company. What would you ensure to comply with the provisions of Companies Act, 2013 regarding Quorum for Board Meeting? Narrate the Decision Making Process at Board as enunciated in the Act.
Answer:
As per section 174 of the Companies Act, 2013 and as per Secretarial Standard on Meetings of the Board of Directors (SS-1) provides that:
One third of total strength
or
Two directors,
whichever is higher, shall be the quorum for a meeting.
If due to resignations or removal of director(s), the number of directors of the company is reduced below the quorum as fixed by the Articles of Association of the company, then, the continuing Directors may act for the purpose of increasing the number of Directors to that required for the quorum or for summoning a general meeting of the Company. It shall not act for any other purpose,

Participation by a director through Video Conferencing:
For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall also be counted. If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of directors, the number of directors who are not interested and present at the meeting, being not less ^ than two shall be the quorum during such time.

The meeting shall be adjourned due to want of quorum, unless the articles provide shall be held to the same day at the same time and place in the next week or if the day is National Holiday, the next working day at the same time and place.

Decision making process at the Board Meeting –
1. The Chairman and/or Managing Director should explain the proposal put up before the Board, the background and the expectation of the proposal in the short as well as the long-term to contribute to the growth of the company. If needed, a presentation may be made by the executive concerned for easing the considerations and discussions of the Board as they tend to highlight the key elements within the written data.

2. The criticality and viability of the proposal should be explained and their views should be elicited from all angles.

3. The Board could then deliberate all these issues and come to a decision.

Question 9.
KLM Ltd. in its 64th Board meeting held on 30th June, 2019 has constituted Risk Management Committee with objective of mitigation of risk and recommendation of preventive measures comprising of two Independent Directors and one Whole Time Director. In the first Meeting? of the Committee held on 6th July, 2019, Whole Time Director could not he present and sought the leave of absence. The Board proposal about: the constitution was silent with respect to Chairman of the Committee and quorum of the Meeting of Committee. The remaining two members held the Meeting and the Senior most Director present in the Meeting was selected as Chairman of the Committee. The Committee also approved the policy for Systematic Risk Management. Whether, the decision of the Committee is valid in light of the approved Secretarial Standards as issued by the ICSI?
Answer:
The Secretarial Standard 1 (SS-1) deals with the Meetings of the Board of Directors.

Clause 3.5 of Secretarial Standard 1 (SS-1) which relates to the Meetings of Committees provides as under:
“Unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum for Meetings of any Committee constituted by the Board shall be as specified by the Board. If no such Quorum is specified, the presence of all the members of any such Committee is necessary to form the Quorum”.

In the given case of the company KLM Ltd., it is mentioned in the question itself that.

“The Board proposal about the constitution was silent with respect to Chairman of the Committee and quorum of the Meeting of Committee”.

Since the quorum was not specified, hence as per the clause 3.5 of SS-1, where no such quorum is specified, the presence of all the members of such committee is necessary to form the quorum. Therefore, the meeting was held by the Risk Management Committee (RMC) without the presence of adequate quorum and in view of this the decision taken by the RMC is also invalid.

Question 10.
Board of directors of IT Solutions Ltd. conducted its adjourned meeting on a public holiday in the month of October, 2015. The Board meeting was adjourned due to lack of quorum. Can the articles of association of a company fix such a quorum?
Answer:
Following are the key points on quorum of a Board meeting:
1. According to Section 174 of the Companies Act, 2013, one third of total strength or two directors, whichever is higher, shall be the quorum for a meeting.

2. Directors who participate by way of Video Conferencing or other visual means shall also be counted for the purposes of quorum.

3. Any fraction of a number is to be rounded off to one.

4. Total strength does not include directors whose places are vacant.

5. If the number of continuing directors is reduced below required quorum, continuing Directors may act for the purpose of increasing directors to such number which is required as quorum or for summoning a General Meeting and for no other purpose.

6. Where at any time the number of interested directors exceeds or is equal to two thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.

Thus where a board meeting could not be held due to absence of quo-rum then the meeting shall be adjourned to the same day at same time and place in the next week, if that day is a National Holiday then at the next day which is not a National Holiday at same time and place. This provision is not applied if the Articles of Company provide otherwise. Further, the Articles of Association of Company can stipulate a higher quorum.

Question 11.
Answer the following in brief; What are Companies (Meeting of Board and its Powers) Second Amendment Rules, 2017? Briefly explain.
Answer:
The details of Companies (Meeting of Board and its Powers) Second Amendment Rules, 2017 are as under:
1. Meeting through electronic mode:
Any director who intends to participate in the meeting through electronic mode may intimate about such participation at the beginning of the calendar year and such declaration shall be valid for one year. Such declaration shall not debar him from participation in the meeting in person in which case he shall intimate the company efficiently in advance of his intention to participate in person.

2. Preservation of draft minutes of video conferencing:
When a Board meeting is held through video conferencing or other audio visual means, the draft minutes recorded shall be preserved by the company till the confirmation of the draft minutes in accordance with rule 3(12).

3. Committees of the Board:
The Board of directors of every listed company and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’ and a ‘Nomination and Remuneration Committee of the Board’.

Question 12.
CSB Ltd. a Listed Company is holding a Meeting of Board of Directors. The Agenda Items inter alia include the item for approval with respect to declaration of Interim Dividend for current fiscal. However, information of the Meeting as well as for closing of the trading window has already been intimated to the Stock Exchange. There are 7 members on (he Board of Directors. On the date of Meeting, 2 Directors were out of Country, whereas the remaining Directors were present in the Meeting.

The Directors in abroad were willing to participate through video conferencing. One of the Independent Directors objected that the item for declaration 2 of Interim Dividend can’t be discussed through video conferencing and should be deferred for ensuing physical meeting of Board of Directors. Examine in the light of the provisions of the Companies Act, 2013 and list out the matters which shall not be dealt with in any meeting held through video conferencing or other audio visual means.
Answer:
Sec. 173(2) of the Companies Act, 2013 read with Rule 4 of the ‘ Companies (Meetings of Board and its Powers) Rules, 2014 prescribes restriction on following matters which shall not be dealt with in any meeting held through video conferencing or other audio visual means:

The approval of the annual financial statements.
The approval of the Board’s report.
The approval of the prospectus.
The Audit Committee Meetings for consideration of financial statements including consolidated financial statements to be approved by the Board;
The approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

Provided that where there is quorum in a meeting through physical presence of directors, any other director may participate through video conferencing or other audio visual means but he shall not be counted in quorum.

As per the rule discussed above, there is no restriction on discussing declaration of interim dividend through video conferencing. Also, if the majority of directors are present in the meeting physically, other directors can participate through video conferencing even though they shall not be counted in quorum.

Question 13.
Write a note on the following; Day, time, place, mode and serial number of a board meeting.
Answer:
Following are the key points on day, time, place, mode and serial number of a board meeting:

Every Meeting shall have a serial number.
A Meeting may be convened at any time and place, on any day.
Notice of the Meeting shall clearly mention a venue, whether registered office or otherwise, to be the venue of the Meeting and all the recordings of the proceedings of the Meeting, if conducted through Electronic Mode, shall be deemed to be made at such place.
Any Director may participate through Electronic Mode in a Meeting unless the Act or any other law specifically prohibits such participation through Electronic Mode in respect of any item of business.

Question 14.
Briefly explain the contents of minutes of a meeting.
Answer:
According to Secretarial Standards 1, following are the contents of a minutes of a meeting:

The names of Directors present and their mode of attendance, if through Electronic Mode.
In case of a Director participating through Electronic Mode, his particulars, the location from where he participated and wherever required, his consent to sign the statutory registers placed at the Meeting.
The name of Company Secretary who is in attendance and Invitees, if any, for specific items and mode of their attendance if through Electronic Mode.
Record of election, if any, of the Chairman of the Meeting.
Record of presence of Quorum.
The names of Directors who sought and were granted leave of absence.
Noting of the Minutes of the preceding Meeting.
Noting the Minutes of the Meetings of the Committees.
The text of the Resolution(s) passed by circulation since the last Meet-ing, including dissent or abstention, if any.

(Note: This list is inclusive and not exhaustive)

Question 15.
Write a note on the following; List of items of business for the Agenda of the First Meeting of the Board of the company.
Answer:
Following are the list of items of business for the Agenda for the First Meeting of the Board of the company:

To appoint the Chairman of the Meeting.
To note the Certificate of Incorporation of the company, issued by the Registrar of Companies.
To take note of the Memorandum and Articles of Association of the company, as registered.
To note the situation of the Registered Office of the company and ratify the registered document of the title of the premises of the registered office in the name of the company or a Notarised copy of lease/rent agreement in the name of the company.
To note the first Directors of the company
To read and record the Notices of disclosure of interest given by the Directors.
To consider appointment of Additional Directors.
To consider appointment of the Chairman of the Board.
To consider appointment of the first Auditors.
To adopt the Common Seal of the company, if any.

(Note: This list is inclusive and not exhaustive)

Question 16.
Write a note on the following; list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting.
Answer:
Following is the list of items of business which shall not be passed by circulation and shall be placed before the Board at its Meeting

General Business Items:

Noting Minutes of Meetings of Audit Committee and other Committees.
Approving financial statements and the Board’s Report.
Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to the company.
Specifying list of laws applicable specifically to the company.
Appointment of Secretarial Auditors and Internal Auditors.

Specific Items:

Borrowing money otherwise than by issue of debentures.
Investing the funds of the company.
Granting loans or giving guarantee or providing security in respect of loans.
Making political contributions.

Corporate Actions:

Authorise Buy-Back of securities.
Issue of securities, including debentures, whether in or outside India.
Approving amalgamation, merger or reconstruction.
Diversify the business.
Takeover another company or acquiring controlling or substantial stake in another company.

Additional list of items in case of listed companies:

Approving Annual operating plans and budgets.
Capital budgets and any updates.
Information on remuneration of Key Managerial Personnel.
Show cause, demand, prosecution notices and penalty notices which are materially important.
Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.

(Note: This list is inclusive and not exhaustive)

Governance Risk Management Compliances and Ethics Notes

Drafting and Conveyancing Relating to Various Deeds and Documents-III – Drafting, Pleadings and Appearances Important Questions

December 28, 2022

Drafting and Conveyancing Relating to Various Deeds and Documents-III – Drafting, Pleadings and Appearances Important Questions

Question 1.
In the light of judicial pronouncements, discuss the following; Transfer of immovable property by way of sale can be effected only by a deed of conveyance.
Answer:
According to Section 54 of Transfer of Property Act, 1882, sale is a transfer of ownership in exchange for a price paid or promised or part- paid and part promised. A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.

Transfer of Immovable property:

Transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of intangible thing, can be made only by a registered instrument.
In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

Delivery:

Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Documentation:

Agreement to sell and the Conveyance Deed i.e. sale deed.
Only a Sale Deed.

The Supreme Court of India observed in the case of Suraj Lamp & Industries Pvt Ltd. v. State of Haryana

“It has become common practice to effect transfers of immovable property by way of either general power of attorney (GPA), sale agreement or will transfers in order to evade the payment of duties, taxes and other fees payable on transfer and registration (e.g., stamp duty or registration fees). The Apex Court held that such transactions are illegal and cannot be recognized as valid under law”

Question 2.
Drafting of a sale deed of immovable property requires comprehensive coverage of technicalities like offer, transfer, etc. Mention eight important covenants of sale deed of ABC Company’s factory premises.
OR
Mention important aspects which should be kept in mind while drafting a sale deed of an immovable property by a limited company.
Answer:
Following are the important aspects which should be kept in mind while drafting a sale deed:
(a) Lawful Consideration and Object: The property must be purchased as a part of legal transaction having paid the consideration as required under the provisions of the Indian Contract Act, 1872 for a valid contract.

The objectives for which the property is being purchased by the buyer should be lawful i.e., not forbidden by law, not to impart injury to the person or property.

(b) Competence of Person to Transfer: Parties: As per Indian Contract Act parties should be of the age of majority, should be of sound mind and not be disqualified from contracting by any law.

For a company: Board of Directors should authorise a person by passing appropriate resolution in conformity with the Articles of Association and Memorandum of Association.

(c) Transfer of all interest in the property: All interests which a transferor is capable of passing in the property should be explained in the document, for example, if it is transfer of land, the easements annexed thereto, the rents of profits thereof, things attached thereto etc.

(d) Absolute transfer: The transfer should be free of any conditions or limitations which may restrict the other party to make full use of the property in exercise of legal rights.

(e) Absolute interest in the property: The interest being transferred in the property should not be conditional which may restrict full enjoyment of the property by the transferee.

(f) Justification for transfer: Cogent reasons for the transfer be given so { as to establish bona fide base for the transaction and to avoid eventualities of fraud and multiple litigation therefrom.

(g) Protection of creditors’ interest: Law protects creditors’ interest in the transferred property.

(h) Property to be free from conditions: The property being transferred should be free from any rights or obligations which a third person can enforce legally against transferee for enjoying any benefits.

(i) Transfer in good faith and with full authority: Where the property is transferred by a person not to be the real owner, it is necessary to make such transfer valid for the transferor should have the authority to transfer and he must exercise this authority in good faith.

(j) Protection for defective title: Law protects the transferee who acquires j the immovable property under good faith and for bona fide consideration under Section 51 of the Transfer of Property Act.

(k) Precautions: The draftsman should know beforehand that the property under transfer is free from encumbrances and no litigation questioning I such property or rights or interest is pending in any court.

Question 3.
Hurry Burry Ltd. went into liquidation and its assets were put to sale by p the Court. The terms and conditions of the sale stated that the sale would f be of the assets on ‘basis where is and whatever” there is’ basis and the f bidders had to satisfy themselves as to any encumbrance on the property.

On 15th September 2006, the company judge confirmed the sale of an immovable property in an auction in favour of Ravi. Later on, Ravi f received a notice from the municipal corporation authorities claiming the payment of arrears of property tax for the period prior to 15th September 2006 with interest. The municipal corporation had not filed its claim before the official liquidator. It was argued by the municipal corporation authorities that the sale was made on ‘basis where is and whatever is’ ; basis and the buyer was deemed to have full knowledge as to the defects in the description, quality and quantity of the assets sold.

Decide whether Ravi is liable to pay the arrears of property tax with j interest. Support your answer with decided case law.
Answer:
In the case of Ai Champday Industries Ltd v Official Liquidator &, SLP (C) No. 15285 of 2008 Supreme Court held that the purchaser was not liable to pay the taxes prior to the date 15th September, 2006. The Supreme Court held:

a. Under Section 55(1)(g)oftheTransferofPropertyAct, 1882, the seller is bound to pay all Public Charges due in respect of the property up to the date of sale, when the property is sold in an auction.

b. The fact that the company went into liquidation was given due publicity, the advertisement did not specify that all public charges have to be paid. The municipal authorities did not file their claims before the official liquidator.

c. Neither the company nor any other law imposed any additional obligation upon the purchaser to make any enquiry with regard to the liabilities of the company other than those which would impede its value.

d. An encumbrance must be capable of being found out either on inspection of property or at the Registrar’s office or a statutory authority.

In the light of the above decision, Mr. Ravi is not liable to pay the taxes prior to 15th September; 2006 as the sale was on as is where is basis and the municipal corporation failed to file its claim for arrears in time.

Question 4.
Drafting of a sale deed of immovable property requires comprehensive coverage of technicalities like offer, transfer, etc. Mention eight important covenants of sale deed of ABC Company’s factory premises.
Answer:
THIS DEED OF SALE is made at Delhi on this 3rd day of July 2020, by and between ABC Ltd. having its registered office at _________ acting through its Director Mr. X, authorised vide board resolution dated ________ (hereinafter called “the seller”) of the ONE PART.

AND

CD, S/o…….. R/o …………., (hereinafter called “the buyer”) of the OTHER PART.
(The expressions “seller” and “buyer” wherever they occur in these presents, shall unless the context otherwise admits, also mean and include their respective heirs, executors, administrators, legal representatives and assigns).

WHEREAS the seller wishes to dispose off its property more fully defined in the schedule below.

AND WHEREAS the buyer wishes to purchase the said property for residential purpose.

AND WHEREAS the parties hereunto have agreed for a consideration to the tune of ₹…….

NOW THIS DEED WITNESSETH AS UNDER:
1. In consideration of the sum of ₹…….. seller on the ……………………………. day of ………………… the seller hereby acknowledges) the seller as owner hereby transfers to the buyer by way of sale ALL that pucca house standing on the land measuring 27 metres by 10 metres fully described in the schedule hereto annexed and thereon shown with its boundaries coloured red (hereinafter referred to as “Premises”) TO HOLD the same to the buyer as absolute owner.

2. The seller hereby covenants with the buyer as follows:
a. The said premises shall be quietly entered, held and enjoyed and the rents and profits received therefrom by the buyer without any interruption or disturbance by the seller or any person.
b. The interest hereby transferred subsists and the seller has power to sell the same.
c. The property hereby sold is free from all encumbrances, charges, mortgages, liens, prior agreement to sell, court proceedings, gifts, of any nature whatsoever.
d. That the construction existing on the said premises is in accordance with the sanctioned plan.

3. If any of the aforesaid representations and warranties are found to be false in any manner and if the buyer is deprived of the said premises at any time after execution of this Sale Deed in full or in part thereof, the Seller hereby undertakes that he will entirely remain liable and responsible to indemnify the buyer for any loss whatsoever.

4. That the Seller has delivered the peaceful physical vacant possession of the said Premises under sale along with all its rights of ownership and original documents of the premises to the buyer at the time of execution and registration of this Sale Deed.

5. That the buyer can get the said Premises under sale mutated in its own name.

6. That from the date of execution of this Sale Deed the buyer becomes the sole and absolute owner of the said premises under sale and shall be at full liberty to use, enjoy and utilize the said premises as he may like.

7. That after the execution of this Sale Deed neither the buyer nor his legal heirs, may raise any objection or create any charge or demand any share in the said Premises under sale here-after.

SCHEDULE

Property bearing No registered at page no….. of the government records
kept at…. Having
North:…………
South………….
East……………
West…………..
IN WITNESS WHEREOF the parties aforementioned have signed this Deed of Sale on the date, month and the year aforementioned.
Witness: 1.

ABC Ltd.
Through its Director

Witness: 2. CD

Question 5.
Draft a specimen of deed of sale by liquidator of a company in voluntary liquidation.
Answer:
THIS SALE DEED is made on this 3rd day of July 2020 by voluntary liquidator of Co. Ltd., in voluntary liquidation (hereinafter called as “the vendor”) of the ONE PART.

AND

Shri……., son of Shri…….., Occupation………., resident of…………. (hereinafter called as “the purchaser”) of the OTHER PART.

WHEREAS by a special resolution passed by the shareholders of…………… Co. Ltd., at an Extraordinary General Meeting held on the …………………. day of……………, of which notice as prescribed by law had been duly given, and it was resolved that the company be wound up voluntarily.

WHEREAS the said vendor was appointed its voluntary liquidator on …………. the notice whereof was duly submitted to the Registrar of Companies ………………. as prescribed by law, on ………………

AND WHEREAS in a meeting of the shareholders of the said company held in accordance with the provisions of the Companies Act, 2013, it was resolved that the properties mentioned in the Schedule annexed hereto be sold by the vendor after publishing a notice for sale in daily newspapers twice within a period of a fortnight, and pursuant to such resolution, the vendor had duly advertised the sale of the said properties in the issues of ………………………. dated …………………… respectively and issues of ……………………… dated …………… respectively and pursuant thereto have received offers, the highest whereof was that of the said purchaser.

AND WHEREAS the said vendor agreed to sell and the said purchaser agreed to purchase the said properties on the terms and conditions mentioned herein and incorporated in an agreement to sell dated ……………………. between the said vendor and the said purchaser.

NOW THIS DEED OF SALE WITNESSES AS FOLLOWS:
That pursuant to the agreement dated ………………………………… aforementioned and in consideration of the sum of ₹ …………. (Rupees ………………….. ) paid by the purchaser before the Sub-Registrar, …………………………. on presentation of this Deed of sale for registration thereof (the receipt whereof the vendor hereby acknowledges) the vendor hereby transfers by way of sale and conveys on behalf of the said company all those items of the property mentioned more particularly in the Schedule attached hereto, unto the said purchaser, his heirs and assigns to have and to hold the same absolutely and forever.

SCHEDULE

List of properties:
1.
2.
3.

IN WITNESS WHEREOF the parties aforementioned have signed this Deed of Sale on the date, month and the year aforementioned.
Witness: 1. Vendor
Witness: 2. Purchaser

Question 6.
Draft a deed of sale of joint family property for legal necessity by Manager (Karta) of a Hindu Mitakshara Undivided family.
Answer:
THIS DEED OF SALE made this ………………………….. day of …………………. between AB for self and as Karta of and representing all other coparceners, viz., his sons named …………………… all constituting a Hindu Mitkshara undivided family of, etc., (hereinafter called “the vendor”) which expression shall, where the subject or context allows, be deemed to include at all times hereafter all persons being from time to time the coparceners of the said family of the ONE PART.

AND

CD, S/o…. R/o……. (hereinafter called “the purchaser”) of the OTHER PART.
WHEREAS the said joint family for several years past owned and still owns and possess inter alia the lands, hereditaments and premises described in Schedule A hereto as part of its estate.

AND WHEREAS the said joint family also carried on and still carries on business as dealers and suppliers of ………………… at No …………………… under the name and style of ………………………………… which suffered a heavy loss of its capital and reserves estimated at ₹ ………………….. in the year ……………………… owing to out-break of fire ……………………….. at its godown at No ………………………….. on the day of ………………………..

AND WHEREAS the joint family could not also pay its income-tax and other capital and revenue liabilities of the said business aggregating to ₹ ……………………….. for the years ………………….. and also its business debts estimated at ₹ ………………………

AND WHEREAS the said joint family has at present no funds nor any other means or resources to pay the liability of the family as regards the said income-tax except by sale of one of its properties.

AND WHEREAS in the circumstances aforesaid the said AB for self and as Karta of the said joint family has by an agreement in writing dated ………………….. agreed with the said CD for sale of the property fully mentioned and described in the Schedule hereto at and for the sum of ₹ ………………………..

AND WHEREAS such sale is to the interest and for the benefit of the said joint family and its estate.

AND WHEREAS the said CD after bonafide and independent enquiry is %, satisfied about the present financial condition of the family and in particular § the debts and liabilities as aforesaid and the reasons for, circumstances behind, and the necessity for the sale.

NOW THIS, INDENTURE WITNESSETH that in pursuance of the said agreement and in consideration of the sum of ₹ ……………………………… paid by the said CD to the said AB simultaneously with the execution of these presents he, the said AB doth hereby and hereunder for self and as Karta for and representing all other coparceners of the said joint family do hereby grant, sell, convey, transfer, assign and assure the said property together with all houses, buildings, fixtures etc. (as usual in a conveyance) unto and to the use of the said CD absolutely and forever. Usual covenants on the part of a vendor as in a conveyance.

Schedule above referred to

IN WITNESS WHEREOF the parties aforementioned have signed this Deed of Sale on the date, month and the year aforementioned.
Witness: 1. Vendor
Witness: 2. Purchaser

Question 7.
The employees registered union of ABC Ltd., proposes to construct a temple on half-acre vacant plot adjoining factory dispensary in the factory campus. The local authorities and labour welfare officer also recommended the proposal and grant NOC for the same. The managing director of the company, ‘XYZ’, asked the Company Secretary to examine it, report and if worth approving put up a draft deed for consideration of the Board. The Company Secretary recommends it on the following main terms:
(1) Draft deed will be prepared by the Company and executed by the Temple Management Committee (TMC).
(2) Temple will be constructed within six months.
(3) Annual rental of ₹ 100/- shall be payable by TMC to ABC Ltd. by the first week of January every year.
(4) Employees will not be charged with any fees, donations etc, however may be accepted in case of volunteer.
(5) Proper cleanliness at all times, will be the responsibility of TMC.
(6) Company’s authorized officers shall be allowed to inspect temple premises on a one-week time notice, and TMC will be bound to follow their instructions.
(7) Jurisdiction clause will be the local jurisdiction of the ABC Ltd., in ] case of any dispute. Though Arbitration Clause will also be mentioned. On the basis of the terms by the Company Secretary of ABC Ltd., you are required to draft a Deed of Grant of Land for temple in the factory premises. Assume other facts, if required.
Answer:
THIS GRANT is made on the 1st September 2019 between ABC Ltd. having its registered office at ________ acting through its Director Mr. X, authorised vide board resolution dated …………(hereinafter called the “grantor”) of the ONE PART.

AND

Temple Management Committee, (TMC) acting through its member M, X (hereinafter called the “grantee”) of the OTHER PART.

WHEREAS the grantee on 1st July 2019 applied to the Grantor for the grant of Grantee’s land admeasuring half an acre, which is lying vacant adjoining the Company’s Dispensary in factory complex, for the purpose of building a temple thereon.

AND WHEREAS the grantor has agreed with the grantee to grant him for the said purpose the land hereby transferred belonging to the grantor on the terms and conditions hereinafter contained.

AND WHEREAS the grantee has accepted the said grant for the said purpose and on the terms and conditions hereinafter contained.

NOW THIS DEED WITNESSES’ AS FOLLOWS:
1. In pursuance of the aforesaid agreement and in consideration of the Grantee’s covenants hereinafter contained, and for the purpose of promoting, religious worship, the grantor hereby grants and transfers to the Grantee ALL THAT PLOT of land etc., TO HOLD THE SAME to the grantee and his Successors according to custom of Succession in the management of religious endorsements recognized by the religion professed by the Grantee for the purpose of a Temple and for no other purpose (excluding ancillary purposes) in accordance with the covenants and the provision hereinafter contained.

2. The Grantee hereby covenants with the grantor as follows:
a. He will within six months from the date hereof erect a temple of the value of ₹ ……………………. on the said premises and will not use the said premises for any other purpose whatsoever.

b. If the grantee fails to erect a temple within the said period of six months, the said premises shall revert to the grantor.
c. Such temple, when erected shall be open to all human beings without any distinction of caste or creed to enter the said temple for worship and prayer and for no other purpose.
d. The grantee has undertaken to pay a sum of ? 100/- as annual rental to the grantor to be paid before first week of January every year in advance.
e. The grantee shall not charge any fee, donations etc. from the employees of the grantor except by way of voluntary contributions for the benefit of the temple.
f. The grantee shall be bound to maintain proper cleanliness in the temple premises at all the times.
g. The grantee and his successors shall at all time hereafter keep such temple in good and substantial repair and will at his or their own cost perform all ceremonies of worship therein according to the religion professed by the grantee.
h. The grantee and his agents shall, on a prior notice of one week, permit at all reasonable times, the authorized officers of the company to examine the condition of the temple premises.
i. If the said premises shall cease to be used for the purpose of a temple then the said premises and all buildings thereon shall revert to the grantor.

3. In case of any dispute arising out or concerning the terms of this deed, the same shall be referred to …………….. for arbitration whose decision thereon shall be final and binding on the parties.

4. In case of any other disputes arising out of or in any way connected with this deed the same shall be deemed to have arisen in ……………….. and only courts in ……………….. shall have jurisdiction to determine the same.

IN WITNESS WHEREOF the parties aforementioned have signed this Deed of Sale on the date, month and the year aforementioned.
Witness: 1. Grantor
Witness: 2. Grantee

Question 8.
Comment on the following; A mortgage is a transfer of interest in any property.
Answer:
According to section 58 of the Transfer of Property Act, 1882, a“mortgage” is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

Mortgage of property gives the lender a right to acquire and sell the property in case of default by the borrower in repayment of either the loan amount or other dues in accordance with the agreed terms and conditions. It creates a legally binding contract between the parties.

Immovable property includes lands, benefits arising out of the land and things attached to it and does not include standing timber, growing crops or grass.

Parties to mortgage:

The transferor in the case of a mortgage is called a ‘mortgagor’.
The transferee in the case of a mortgage is called a ‘mortgagee’.

Mortgage money:

The principal money and interest of which payment is secured for the time being are called the ‘mortgage money.

Mortgage deed:

The instrument, if any, by which a transfer is effected is called a “mortgage deed”.

Question 9.
Explain the following; Special advantages of mortgage by deposit of title deeds.
OR
Write note on the following; Types of Mortgage.
Answer:
The following are different kinds of mortgages in effect in India:
(a) Simple Mortgage:
In a simple mortgage, the mortgagor without delivering possession of the mortgaged property binds himself personally to pay the mortgage money and agrees expressly or impliedly that if he fails to pay the debt and interest in terms of the mortgage deed, the property will be sold and the proceeds applied in payment of the mortgaged money.

(b) Mortgage by Conditional Sale:
In a mortgage by conditional sale, the property is sold subject to the condition that on default in payment of the mortgaged money on a certain date the sale shall become absolute or that on such payment the sale shall become void or on such payment the buyer shall transfer the property to the seller. Possession of the property shall be with the mortgagee.

(c) Usufructuary Mortgage:
In this mortgage, the mortgagor delivers possession of the mortgaged property to the mortgagee who retains the possession until the satisfaction of the debt. The mortgagee will take the usufruct in lieu of the interest or part payment of the principal or partly in payment of interest or partly in part payment of the principal. The mortgagor is not personally liable to pay the debt and the mortgagee is not entitled during the term of the mortgage to demand his mortgage money.

(d) English Mortgage:
In an English mortgage, a mortgagor binds himself to repay the mortgaged money on certain date and transfers the mortgaged property absolutely to the mortgagee subject to the proviso that he will re-transfer it to the mortgagor upon payment of the mortgaged money as agreed.

(e) Mortgage by Deposit of Title Deeds:
Mortgage by deposit of title deeds is called in English law as equitable mortgage. It is an oral transaction and no documents like Deed of Mortgage is required to be executed. No written acknowledgement is required for creating this mortgage. It is, however, prudent to have a record of transactions to avoid difficulties to establish the creation of the mortgage. In this case, a Memorandum of Mortgage by deposit of title deeds is prepared by the mortgagee to secure the specific mortgage money.

Equitable mortgage is preferred by the lenders/banks/creditors as well as the commercial enterprises because of the following advantages:

To save time and avoid inconvenience of documentation, and registration.
To minimize cost of creating mortgages and cost of borrowed funds by saving stamp duty.
To maintain secrecy of the debit transaction.

(f) Anomalous Mortgage:
Anomalous Mortgage is a combination of any of the above forms of mortgage or any mortgage other than those set out above.

Question 10.
Usufructuary mortgage is similar to English Mortgage. Whether this statement is correct? Justify your answer.
OR
Distinguish between the following; English mortgage and Usufructuary mortgage.
Answer:
In an English mortgage, a mortgagor binds himself to repay the mortgaged money on certain date and transfers the mortgaged property absolutely to the mortgagee subject to the proviso that he will re-transfer it to the mortgagor upon payment of the mortgaged money as agreed.

In a Usufructuary mortgage, the mortgagor delivers possession of the mortgaged property to the mortgagee who retains the possession until the satisfaction of the debt. The mortgagee will take the usufruct in lieu of the interest or part payment of the principal or partly in payment of interest or partly in part payment of the principal.

In an English mortgage the mortgagor is personally liable to pay the mortgagor however in usufructuary mortgage, the mortgagor is not personally liable to pay the debt and the mortgagee is not entitled during the term of the mortgage to demand his mortgage money.

Hence, usufructuary mortgage and English mortgage are not similar.

Question 11.
Distinguish between the following; Release and re-conveyance of mortgaged assets.
Answer:
Release of any of the mortgaged assets or reconveyance of the mortgaged property could be done by a registered document in case the mortgage has been created in the form other than equitable mortgage by deposit of title deeds by a registered deed of mortgage.

In those cases where release or reconveyance of mortgaged property covered under equitable mortgage is sought by the mortgagor, the same could be done by releasing the relevant title documents and re-depositing the remaining title deeds by rewriting the memorandum for creation of equitable mortgage. On redemption of equitable mortgage all the title deeds could be released by the mortgagee to the mortgagor by personal hand delivery and against accountable receipts from the mortgagor.

Question 12.
Explain the following; Appointment, power and functions of receiver under mortgage.
Answer:
Under Section 69A of the Transfer of Property Act, a mortgagee having the right to exercise the power to sell is entitled to appoint by writing signed by him or on his behalf a receiver of the income of the mortgaged property or any part thereof.

Appointment of Receiver:

Any person who has been named in the mortgage deed and is willing and able to act as a receiver may be appointed by a mortgagee.
If any person so named is not capable and unwilling to act or is dead, the mortgagee may appoint any person to whose appointment the mortgagor agrees.
Failing such an agreement the mortgagee shall be entitled to apply to the Court for appointment of a Receiver and any person appointed by the Court shall be deemed to have been duly appointed by the mortgagee.

Powers and functions of the receiver:
The receiver is required to apply all money received by him as follows:

In discharge of all rents, taxes, land revenue, rates and outgoings whatever affecting the mortgaged property.
In keeping down all annual sums or other payments, and the interest on all principals sums, having priority to the mortgage in right whereof he is Receiver.
In payment of his commission, and of the premiums on fire, life or other insurances, if any, properly payable under the mortgage deed or under this Act, and the cost of executing necessary or proper repairs directed in writing by the mortgagee.
In payment of the interest falling due under the mortgage.
In discharge of the principal money, if so directed in writing by the mortgagee.

Question 13.
Draft a specimen of memorandum of mortgage by deposit of title deeds.
Answer:
THIS DEED OF MORTGAGE is made on the 3rd day of July 2020, between ‘AB’, S/o…….. R/o……… (hereinafter called “the Mortgagor”), of the ONE PART.

AND

‘CD’, S/o……. R/o…….. (hereinafter called the “Mortgagee”), of the OTHER PART WHEREAS the Mortgagor is absolutely seized and possessed of or otherwise is well and sufficiently entitled the property intended to be hereby mortgaged which is free from all encumbrances and attachments.

AND WHEREAS the Mortgagee has agreed to lend and advance a sum of ₹ ……………… to the Mortgagor at his request upon having the repayment thereof, with interest at the rate hereunder stated and secured in the manner hereinafter expressed.

NOW THIS DEED WITNESSETH AS UNDER
1. Mortgagor has deposited with Mortgagee the original title deeds comprised in the Schedule A hereto, relating to the premises belonging to the said mortgagor and situate at …………………….. described in Schedule B with intent to create a charge thereon for securing repayment to the said mortgagee of the sum lent along with interest for the same from this date at the rate of ₹ …………………. per cent per annum.

2. The said mortgagor do hereby undertake as and when required by the said mortgagee to execute and register at the costs of the said mortgagor a legal mortgage in such form and containing such covenants and provisions as he may reasonably require.
Dated this ……………………….. day of ……………………… 2019.

SCHEDULE A
Description of the Title Deeds deposited
SCHEDULE B
Description of the Property

IN WITNESS WHEREOF the parties herein under have set their hands on the day and year hereinabove mentioned.
Witnesses:
1. ………….. MORTGAGOR
2. ………….. MORTGAGEE

Question 14.
Draft a specimen deed of usufructuary mortgage.
Answer:
THIS MORTGAGE, made on 3rd day of July 2013, between ‘AB’ S/o……….. R/o……….. (hereinafter called “the Mortgagor”) of the ONE PART.

AND

‘CD’ S/o…. R/o…. (hereinafter called “the Mortgagee”) of the OTHER PART WHEREAS the Mortgagor is absolutely seized and possessed or is otherwise well and sufficiently entitled to an absolute estate of inheritance or an estate equivalent thereto free from encumbrances to the lands, hereditaments ………………………….. fully mentioned and described in the Schedule hereto.

AND WHEREAS that on consideration of the sum of ₹ ………………………….. now paid to the Mortgagor by the Mortgagee the said ‘AB’ hereby conveys to the said mortgagee the property described in schedule 1, from this day.

NOW THIS DEED WITNESSETH AS UNDER
1. That the Mortgagee shall be in possession of the mortgaged property under the terms of the deed for securing payment on the ……………………….. day of …………………. 2013, of the principal sum secured, with the interest thereon at ₹ ……………… per cent per annum, which mortgage money will be set off against the usufruct of the mortgaged property, and the Mortgagee does hereby promise to keep clear accounts thereof.

2. The mortgagor hereby agrees that the Mortgagee shall retain possession of the mortgaged property until the principal sum together with the interest due be paid off out of the proceeds of the property and on payment of the aforesaid sum.

3. Upon pay off, the Mortgagee shall execute and register a release of the mortgaged property in favour of the Mortgagor.

4. That the Mortgagee also shall not to, execute, perform nor suffer to the contrary any act deed or thing whereby or by reason or means whereof the value of the said property in his possession may be diminished or the same may otherwise be prejudiced in title or estate.

5. The mortgagor does also agree to pay the Government revenue and the municipal tax of the said property regularly and in case he fails to make such payment, the Mortgagee shall be at liberty to pay such revenue and taxes, and such sum paid shall be considered an additional principal sum advanced to the Mortgagor, and shall carry interest at the rate stipulated above.

6. That the receipt whereof the Mortgagor does hereby acknowledge the acceptance of the mortgage money is annexed.

7. That the Mortgagor also agrees that if he, the Mortgagor, does not pay the principal sum with the interest then due on the stipulated date, this conveyance will become absolute and the Mortgagee will be entitled to foreclose the mortgaged property, and thereafter the Mortgagor, his heirs, executors, administrators or assigns shall be absolutely debarred of all the rights to redeem the same.

SCHEDULE

IN WITNESS WHEREOF the parties herein under have set their hands on the date and year hereinabove mentioned in the presence of:
Witnesses:
1 ‘AB’
2 ‘CD’

Question 15.
Draft the following Documents; Deed of Redemption or Re-Conveyance of Mortgaged property by the Mortgagor in favour of the Mortgage.
Answer:
THIS DEED OF REDEMPTION is made on 3rd day of 2019 between Mr. A, S/o……….. R/o……….. (hereinafter called as the “mortgagee”) of the ONE PART.

AND

Mr. B, S/o……. R/o……. (hereinafter called as the “mortgagor”) of the OTHER PART.

WHEREBY by a mortgage deed dated ………………. the property mentioned in that deed was mortgaged by the said mortgagor in favour of the said mortgagee to secure payment of the amount of ₹ ………………….. with interest @…………………. per cent per annum.

NOW THIS DEED OF RECONVEYANCE WITNESSETH:
1. That in consideration of all principal moneys and interest secured by the said mortgage deed dated …………………. having been paid, the receipt whereof the said mortgagee hereby acknowledges.

2. The said mortgagee hereby redeems or reconveys unto the said mortgagor all the property comprised in the said mortgage deed to hold use of the said property upon mortgagor.

3. The mortgagor becoming the absolute owner discharged from all principal money and interest secured by and from all claims and demands under the aforesaid mortgage deed.

IN WITNESS WHEREOF the parties herein under have set their hands on the day and year hereinabove mentioned.

Witnesses:
1. ………MORTGAGOR
2. ………MORTGAGEE

Question 16.
Pravin Arora mortgaged his property in favour of Juhi Chawla in consideration of loan taken by Pravin’Arora. Now the loan together with interest has been paid. Prepare a deed of redemption or re-conveyance of mortgaged property in favour of the mortgagor.

THIS DEED OF REDEMPTION is made at New Delhi on this the 3rd day of July 2017 between Mr. Pravin Arora, Sb Mr. Sakct Arora, aged about 50 years, R/o…., (hereinafter referred as “mortgagor” which expression shall, unless it is repugnant to the context mean and include his legal representatives and executors.)

AND

Ms. Juhi Chawla, W/o Mr. Jay Mehta, aged about 43 years, R/o…. (referred to as “mortgagee” which expression shall, unless it is repugnant to the context mean and include his legal representatives and executors).

WHEREAS the property, more fully described in the schedule I hereto; was mortgaged by the mortgagor to the mortgagee as security for the repayment of a debt amounting to ₹ …………….. under a deed of mortgage dated ……………., registered as document number: in the office of the Sub-Registrar ……………..

AND WHEREAS the mortgagee has received full and final repayment of the loan amount of ₹ ……………. borrowed by the mortgagor……………. under the aforementioned Deed of Mortgage dated vide cheque number……………. dated ……………. drawn on the ……………. in favour of the mortgagee.

NOW THIS DEED WITNESSETH AS UNDER:
1. That in consideration of the payment of ₹………………………. to the Mortgagee by the Mortgagor paid in full of the principal sum and interest due and owing to the mortgagee on the security of the said Indenture of the Mortgage (the receipt whereof the Mortgagee doth hereby admit and acknowledge.

2. That the mortgagee do hereby acquit, release and forever discharge the Mortgagor.

3. That the mortgagee hereby retransfers and reconvey to the mortgagor all that the said mortgage property, more particularly described in the Schedule I hereto, to have and hold the same unto the mortgagor absolutely and free from encumbrances of any kind whatsoever.

4. That the mortgagor is discharged from all claims, demands and rights of the mortgagee under the said mortgage.

5. The mortgagee hereby covenants with the mortgagor that he has not done or knowing or willingly suffered or been party or privy to any act, deed or thing whereby or by reason of means whereof the said mortgaged property hereby reconveyed or retransferred or intended so to be or any of them or any part thereof mayor shall be impeached, affected or encumbered in title, estate or otherwise howsoever.

6. And the mortgagee hereby declares and confirms that title deeds he has delivered the title deeds in respect of the mortgaged property and the Deed of Mortgage to the Mortgagor.

SCHEDULE I
Property Details

IN WITNESS WHEREOF the MORTGAGOR and the MORTGAGEE has hereto set their hands to this deed of redemption on the day, month and year hereinabove written.
WITNESSES:
1. Signature of the Mortgagee
2. Signature of the Mortgagor

Question 17.
Comment on the following; A lease of immovable property is a transfer of right.
Answer:
Lease is a contract between lessor and lessee for the fixed term for the use on hire of a specific asset selected by lessee. Lessor retains ownership of the assets and lessee gets the possession for use of the asset on payment of specified rental over a period.

In every State there is a legislation providing for the rights of lessors and lessees, of residential and commercial buildings. Thus the local rent control acts govern the leasing agreements. They override the provisions of the Transfer of Property Act.

As per Section 105 of the Transfer of Property Act Lease is defined as “A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perperuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined. The transferor is called the lessor.

The transferee is called the lessee. The price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.”

Essentials
The essential legal elements of lease are:
a. Parties i.e. lessor or lessee;
b. Subject matter of lease i.e. the property to be leased
c. Demise or partial transfer of such property d Term and period of lease
e. Consideration or rent

Question 18.
Distinguish between habendum and reddendum.
Answer:
The following are the differences between habendum and reddendum

Habendum	Reddendum
Habendum is a part of deed which states the interest, the purchaser is to take in the property. Habendum clause starts with the words “THE HAVE AND TO HOLD”	Reddendum is a clause by which rent is reserved in a lease deed.
Origin: Formerly in England if there was a gratuitous transfer, the transferee was not deemed to be the owner of the beneficial estate in the property. It was therefore, necessary to indicate in the deed that it was being transferred for the use of the transferee.	It mentions the mode and time fixed for payment.
Now it is not necessary to express it as the expression “TO HAVE AND” are omitted. The habendum limits the estate mentioned in the parcels.	It begins with the word “yielding and paying” with reference to the reserved rent is payable during the terms of the lease.
The transferee is mentioned again in the habendum for whose use the estate is conveyed.	It includes the place where payable and instalment where mentioned. If there is apportionment of rent, should also be mentioned.

Question 19.
Write a note on the following; Necessary clauses in a sub-lease deed.
Answer:

Subject matter of lease i.e. the property to be leased.
Term and period of lease: Law requires that the lease of real estate should be expressed and duration of the lease should be pre-settled under the written contract.
Consideration or rent.
Operative Part: It should be clearly stated that the lessor is divesting himself of possession and the lessee coming into possession, e.g. by the use of such words as “The lessor hereby lets, or demises or grants a lease of, etc., etc. with effect from the day of ”
Reddendum: This clause is found only in a deed of lease. It begins with the word rendering or paying with reference to the reserved rent. It mentions:
a. The mode of payment
b. Time fixed for payment
c. Place where rent is payable
d. Installments if any
e. Apportionment of rent
Covenants: Terms and conditions are mentioned in several paragraphs. The usual covenants are to be found in Section 108 of the Transfer of Property Act; other important covenants generally refer to payment of taxes, repairs, insurance, subletting purpose of the lease, e.g. residential purpose, renewal, forfeiture.
Termination: The circumstances in which the lease shall be determined be also specifically reduced to writing to avoid complications of misconceptions.

Question 20.
Comment on the following; A sub-lease is a device by a lessee for a lesser term than he himself has.
OR
Examine the following statement; A sub-lease Is an absolute assignment.
OR
A sub-lease is an absolute assignment under the Indian law or the English law.
Answer:
A “sub-lease” is a demise by a lessee for lessor term than he himself has. Generally, Sub-lease of property is made by a person who is himself a lessee or tenant of that property. A sub-lease can be made unless the lessee is refrained by the contract of the tenancy from subletting.

Assignment:
An absolute assignment is the act of complete transfer of the ownership (all rights, benefits and liabilities) of the policy completely to other party without any terms and condition.

If the demise is for the whole term or for a period beyond the term, it amounts to assignment.

A covenant against subletting will restrain the assignment, but a mere covenant against subletting does not prohibit underletting a part of the premises.

Following are the case laws on this subject:
1. Hunsraj v Bejoylal Seal (1930) 57 cal 1176)
“In India, a sub-lease is not an absolute assignment.”

2. Akshay Kumar v Akman Molla (1915) 19 CWN1197
“It was held that there is no privity of estate as between the lessor and the sub-lease, who does not step into the shoes of lessee.”

Question 21.
Write a note on the following; Surrender of lease.
OR
In the light of judicial pronouncements, discuss the following; Surrender of lease is not a transfer but a mere yielding up by the lessee of his interest under the lease to the lessor by mutual agreement.(June 2018, 4 marks)
OR
In the light of judicial pronouncements, discuss the following; Surrender of lease is not a transfer.
Answer:
Surrender of lease is a yielding up by the lessee of his interest under the lease to the lessor by mutual agreement. It is not a transfer or an assignment of any right or estate within the meaning of Section 5 of the Transfer of Property Act.

Following are the case laws on this subject:
1. Makhanlal y. Nagendranath, (1933) 60 Cal 379
“The person who surrenders is called the surrenderer and the person to whom surrender is made is called the surrenderee.”

2. Torabaf y. Padan Chand, 62 CWN 176
“A Requisition Order by the Government does not amount to any surrender. Surrender may be expressed or implied. Except in a case of some special kinds of lease as required by special Act, no writing or registration is necessary. Surrender may be oral, if accompanied by delivery of possession.”

Question 22.
Sub-lease is not a surrender of lease.
Answer:
Sub-lease:
A sub-lease is a demise by a lessee for lessor term than he himself has. Every lessee, however short his term may be, make a sub-lease unless he is refrained by the contract of the tenancy from subletting.

If the demise is for the whole term or for a period beyond the term, it amounts to assignment.

It is true that a covenant against subletting will restrain the assignment, but a mere covenant against subletting does not prohibit underletting a part of the premises. As long as the lessee remains in possession he may permit another person to use the demised premises without committing a breach of covenant, namely not to assign, underlet or part with the possession of the demised premises.

Hunsraj v Bejoylal Seal (1930) 57 Cal 1176)
In India, a sub-lease is not an absolute assignment.

Surrender of lease:
Surrender of lease is a yielding up by the lessee of his interest under the lease to the lessor by mutual agreement. It is not a transfer or an assignment of any right or estate within the meaning of Section 5 of the Transfer of Property Act.

Following are the case laws on this subject:
1. Makhanlal v. Nagendranath (1933) 60 Cal 379
“The person who surrenders is called the surrenderer and the person to whom surrender is made is called the surrenderee.”

2. Torabai v. Padan Chand 62 CWN176
“A Requisition Order by the Government does not amount to any surrender Surrender may be expressed or implied. Except in a case of some special kinds of lease as required by special Act, no writing or registration is necessary. Surrender may be oral, if accompanied by delivery of possession.”

Question 23.
Distinguish between the following; Lease and license.
Answer:
The following are the differences between License and Lease

License	Lease
1. License is a grant by one person to another or to a definite number of persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.	A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.
2. License is defined under Section 52 of the Indian Easement Act, 1882.	A lease of immovable is defined Section 105 of the Transfer of Property Act.
3. The parties are called as licensor and licensee.	The transferor is called the lessor, the transferee is called the lessee.
4. No interest is created in the licensee.	Interest created in the lessee.
5. Non assignable.	Usually assignable.
6. Always permissive and revocable.	Permissive but not normally revocable.
7. Not exclusive user.	Exclusive user.
8. Remedy for breach is damages.	Specifically enforceable.
9. Instrument granting right does not require registration.	Instrument creating right requires registration.
10. User not liable for public nuisance.	Liable.
11. Denial of grantor’s title does not necessarily result in forfeiture.	Denial of lessor’s title results in forfeiture.
12. No notice necessary to terminate relationship.	Notice necessary to terminate relationship.
13. Does not entitle licensee to sue strangers in his own name.	Can sue in his own name.

Question 24.
In the light of case law on the subject distinguish in what respects should a lease deed be different from lease and license agreement.
Answer:
Lease:
A “lease” of immovable property is a transfer of a right to enjoy such j property, made for a certain time, express or implied, or in perpetuity, in I consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

License:
A “License” is a grant by one person to another or to a definite number of persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.

Judicial precedents on distinction between lease and license:
Khalil Ahmed Bashir Ahmed v. Tufelhussein Samasbhai Sarangpurwala 1988 SCC155
“The Supreme Court has held: “In order to determine whether a document created a license or a lease the real test is to ascertain the intention of the parties ie. whether they intended to create a license or a lease. If the document creates an interest in the property entitling the transferee to enjoyment, then it is a lease; but if it only permits another to make use of the property without exclusive possession, then it is a license. ”

Rajbir Kaur & Anr. v. M/s. S. Chokesiri & Co. 1988 (2) SCJ 316
‘“In order to determine whether a document created a license or a lease the real test is to ascertain the intention of the parties i.e. whether they intended to create a license or a lease. If the document creates an interest in the property entitling the transferee to enjoyment, then it is a lease; but if it only permits another to make use of the property without exclusive possession, then it is a license.”

From the judgments of various Courts, it appears that the main factors to decide whether the agreement is a lease or a license are:
a. The intention of the parties
b. Whether the agreement creates an interest in the property.

Question 25.
What is the difference between mortgage and lease from the point of view of drafting of an agreement?
Answer:
Mortgage:
According to section 58 of the Transfer of Property Act, 1882, a “mortgage” is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

Immovable property includes lands, benefits arising out of the land and things attached to it and does not include standing timber, growing crops or grass.

Parties to mortgage:

The transferor in the case of a mortgage is called a ‘mortgagor’
The transferee in the case of a mortgage is called a ‘mortgagee’

Mortgage money:
The principal money and interest of which payment is secured for the time being are called the ‘mortgage money’

Mortgage deed:
The instrument, if any, by which a transfer is effected is called a “mortgage deed”.

Lease:
Lease is a contract between lessor and lessee for the fixed term for the use on hire of a specific asset selected by lessee. Lessor retains ownership of the assets and lessee gets the possession for use of the asset on payment of specified rental over a period.

In every State there is a legislation providing for the rights of lessors and lessees of residential and commercial buildings, thus the local rent control acts govern the leasing agreements. They override the provisions of the Transfer of Property Act.

As per Section 105 of the Transfer of Property Act: Lease is defined as
“A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined. The transferor is called the lessor. The transferee is called the lessee. The price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.”

Essentials
The essential legal elements of lease are:-
a. Parties i.e. lessor or lessee
b. Subject matter of lease i.e. the property to be leased
c. Demise or partial transfer of such property
d. Term and period of lease
e. Consideration or rent

Question 26.
Draft the following as per the instructions; A Deed altering conditions in a lease.
Answer:
THIS DEED made on 3rd July, 2019 at…… between AB, S/o…. R/o…… (hereinafter called “the landlord”) of the ONE PART.

AND

CD, Sb….. R/o…… (herein after called “the tenant”), of the OTHER PART.
WHEREAS by a lease (hereinafter called “the principal deed”), dated the ………………… day of ………………………. and made between the parties hereto and registered at ………………………….. Registration office in Book No …………………….. Volume No ……………………… pages …………………… to ……………………. Being No ……………….. for the year ……………………, the said landlord granted and demised to tenant the house (or, etc.) situate at…. described in schedule.

AND WHEREAS the parties hereto have agreed to alter and modify the terms and conditions of the principal deed in the following manner:-

NOW THIS DEED WITNESSETH AS UNDER
1. That Sub-clause (e) of clause 2 of the principal deed, the following subclause shall be omitted and shall cease to have any effect.

2. For sub-clause (b) of clause 2 of the principal deed, the following sub clause shall be substituted, namely:
“………………………………………………………………”

3. That as altered and modified as aforesaid the principal deed shall remain in full force and effect.

IN WITNESS WHEREOF the parties hereunto have set their signatures on the date above mentioned in the presence of:
Witnesses:
1. Landlord
2. Tenant

Question 27.
Draft a deed of sub-lease with the permission of Vi jay, the original lessor between Amar (sub-lessor) and Binod (the sub-lessee) in respect of Survey No. 786, Part I, being used as agricultural land admeasuring 50 acres situated on the eastern bank of Varuna river in Varanasi District (UP) demised to the original lessor, Vijay, for a period of 30 years w.e.f. 1st January, 2012 and covenanted for renewal for three consecutive periods of 30 years each; though the sub-lease has to be initially valid for 30 years only.
Answer:
THIS DEED OF LEASE is made this 3rd day of July 2013 between AB, S/o…………. R/o………………….. (hereinafter called as “the sublessor”), of the ONE PART,

AND

CD, S/o………… R/o………….. (hereinafter called “the sub-lessee”), of the OTHER PART.
WHEREAS by a lease (hereinafter referred to as “the original lease”) dated …………….. the day of ……………………. and made between XY as owner and AB as lessee and registered in Book I, Vol. …………………. pages ……………………. to being No …………………… for the year ……………….. in the Office of Sub-Registrar of …………………….. etc., the premises (or, etc.) described in the original lease were demised to the said original lessee for a period of ………………… years with effect from the day of ………………….. on a yearly rent and subject to the covenants and conditions to be performed and observed as therein contained.

AND WHEREAS the original lessee has agreed to grant and the sub-lessee has agreed to accept a sub-lease of the premises (or, etc.) hereinafter described upon the conditions hereinafter contained:

NOW THIS DEED WITNESSETH AS UNDER:
That in consideration of the rent hereinafter reserved and the covenants by the sub-lessee hereinafter contained, the original lessee do hereby grant to the sub-lessee a lease of ALL THAT premises (or, etc.) known by the name of, etc., and situate at, etc., together with the appurtenances; TO HOLD the same unto and to use of the sub-lessee for the period of ……………….. years, commencing with effect from the ……………….. day of …………………. at the monthly rent of Rupees ………………………… subject to the following conditions:

1. The sub-lessee hereby agrees with and covenants with its lessor as follows:
a. To pay the said rent, clear of all deductions, on the ………………………. day of ……………………………. every current month in advance during the term of the lease.
b. To pay all taxes and outgoings now payable or hereafter to be come payable in respect of the leased premises.
c. To keep the said premises in good and tenantable repair, and not to make any alteration therein without the written consent of the landlord.
d To perform all the covenants, conditions and stipulations contained in the original lease.
e. To not to do, execute or perform any act, deed or thing or suffer anything to the contrary whereby or by reason or means whereof the original lease may be avoided or forfeited.
f. To allow the original lessee to enter upon the leased premises for the purpose of inspection of the premises.
g. To keep the original lessee indemnified against all actions, claims, demands and expenses on account of performance or non-performance by the sub-lessee.

2. The original lessee does agree and covenant with the sub-lessee as follows:
a. That upon the sub-lessee paying the rent hereby reserved and performing the conditions and covenants herein contained, shall quietly and peacefully possess and enjoy the property.
b. Provided that in case of any breach of any of the by the sub-lessee, the lease shall, at the option of the original lessee, stand determined.
c. The original lessee shall duly and punctually pay the rent reserved, and perform all the covenants and conditions contained in the original lease,
d. The original lessee acknowledges the right of the sub-lessee as to production of the original lease and to delivery of copies thereof and undertakes for the safe custody thereof.

3. It is further agreed that the terms “the original lessee” and “sub-lessee” used herein shall, unless inconsistent with the context, include as well their respective successors and assigns.

IN WITNESS WHERE OF the parties hereunto have set their signatures on the date above mentioned in the presence of:
Witnesses:
1. Lessor
2. Lessee

Drafting, Pleadings and Appearances Notes

Compliances – Secretarial Audit Compliance Management and Due Diligence Important Questions

December 28, 2022

Compliances – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
Write a note on: “Compliance Management”.
Answer:

Compliance management is the method by which corporate manage the entire compliance process. It includes the compliance program, compliance audit, compliance report etc.
It is also known as “compliance solution”.
Corporate compliance management involves a full process of research and analysis as well as investigation and evaluation.
Corporate compliance management is undertaken in order to determine the potential issues and get a realistic view about how the entity is performing and how it is likely to perform in the future.
Company Secretaries with core competence in compliance and cor-porate governance play a crucial role in the corporate compliance management in an organisation.

Question 2.
What are the areas required to be covered in establishing a compliance management framework?
Answer:
Any corporate compliance management framework includes:

Compliance Identification
Compliance Ownership
Compliance Awareness
Compliance Reporting
Periodical Compliance MIS.

Compliance Identification : The process involves the identification of compliances under various legislations applicable to the company in consultation with the functional heads. The legal team has to identify the legislations applicable to the company and identify the compliances that are required under each legislation, rules and regulations made thereunder.

Compliance Ownership : The ownership of the various compliances has to be described function-wise and individual wise. Clear description of primary and secondary ownership is also very important. While the primary owner is mainly responsible for the compliance, the secondary owner (usually the supervisor of the primary owner) has to supervise the compliance. For example: Secretarial Officer/Company Secretary may be primarily responsible.

Compliance Awareness : This includes establishment of the legal com-pliance management and creation of awareness of the various Legal Compliances amongst those responsible. Sometimes, the compliances are handled by persons who are not fully aware of the requirements of the legislations and hence creating appropriate awareness amongst the owners is very important.

Compliance Reporting : The status of Compliances or non-compliances should be communicated to the concerned person/authority. Report¬ing of non-compliances ensures that appropriate corrective action is being taken by the responsible person in case of the failure in doing compliances.

Periodical Compliance MIS : It is a type of reporting that occurs at a pre-decided period (at least quarterly, if not monthly). This report contain the status of the various compliances need to be done by the company as well as any gap in the compliance and other incidents which are need to be reported to Board, Senior Management of the Company.

Question 3.
A subsidiary to a listed company, irrespective of its registered status, to a large extent is treated as a listed company by the authorities. As the Secretarial advisor and auditor of XYZ Ltd., which is a Public Ltd. company and a subsidiary to a listed company ABC Ltd. How would you ensure the compliance of Corporate Governance requirements by XYZ Ltd., with reference to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015?
Answer:
As per the Regulation 24 of the SEBI (LODR) Regulations, 2015, the following compliances are required to be ensured by a subsidiary of a listed company with reference to Corporate Governance:
1. At least one independent director on the board of directors of the listed entity shall be a director on the board of directors of an unlisted material subsidiary incorporated in India.

2. The audit committee of the listed entity shall also review the financial statements, in particular the investments made by the unlisted subsidiary.

3. The minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the meeting of the board of directors of the listed entity.

4. The management of the unlisted subsidiary shall periodically bring to the notice of the board of directors of the listed entity, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary.

5. A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than fifty per cent or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31 of the In solvency Code and such an event is disclosed to the recognised stock exchanges within one day of the resolution plan being approved.

6. Selling, disposing and leasing of assets amounting to more than twenty per cent of the assets of the material subsidiary on an aggregate basis – during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal or under a resolution plan duly approved under section 31 of the In-solvency Code and such an event is disclosed to the recognised stock exchanges within one day of the resolution plan being approved.

7. Where a listed entity has a listed subsidiary which is itself a holding company, the provisions of this regulation shall apply to the listed subsidiary in so far as its subsidiaries are concerned.

As a Secretarial advisor and auditor of XYZ Ltd., which is a Public Ltd. company and a subsidiary to a Listed company ABC Ltd., I would focus on checking the compliance of XYZ Ltd. of the above cited points and thereby ensure the compliance of Corporate Governance requirements by XYZ Ltd. with reference to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Question 4.
XYZ Ltd., a listed company, seeks your advice, as the Secretarial Auditor of the company, on the inclusion of Extract Annual Return in the Board’s Report for the financial year 2017-18.
Answer:
1. As per the provisions under Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014 an extract of the annual return in Form MGT-9 is to be attached with the Board’s Report of the company.

2. However, the amendment in Section 92(3) through Companies (Amendment) Act, 2017 provides that every company shall place a copy of the Annual Return on the website of the Company, if any and the web-link of such Annual Return shall be disclosed in the Board’s Report. But the same is not applicable for Financial Year 2017-2018 as it is not notified during Financial Year 2017-2018.

Therefore as a Secretarial Auditor, it is advised to the Company that for the Financial Year 2017-18, the company should prepare the Extract of the Annual Return in Form MGT-9 and attach the same with the Board’s Report.

Question 5.
You are appointed as Compliance Officer in a listed company. An Independent Director asks you to describe the scope of Corporate Compliance. Prepare a brief note. Answer:
To
Mr. X
Independent Director
Subject: Scope of Corporate Compliance
Dear Sir,
As desired, the note on the Corporate Compliance is as under:
Corporate compliances broadly include compliance of Corporate & Eco¬nomic Laws, Securities Laws, Commercial Laws including Intellectual Property Rights Laws, Labour Laws, Tax Laws, Cyber Laws which is also known as the Information Technology Law, Pollution Control Laws, Industry Specified laws and all other laws affecting the company concerned depending upon the type of industry/activity. The broad coverage of laws includes the compliances of the following laws:

Companies Act, 2013 and the Rules and Regulations framed there under, MCA-21 requirements and procedures.
Secretarial Standards/Accounting Standards/Cost Accounting Stan¬dards issued by ICSI/ICAI/ICMAI, respectively.
Foreign Exchange Management Act, 1999 and the various Notifications, Rules and Regulations framed thereunder.
Competition Act, 2002.
SEBI Act, 1992.
Securities (Contracts) Regulation Act, 1956 and rules made thereunder.
SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015.
Depositories Act, 1996.
Intellectual Property Rights Laws.
Income Tax Act, 1961.
Customs Act, 1962.
GST Laws.
Labour Laws.
Environment Laws.
Industry Specific Laws.
Local Laws include Municipal and Civic Administration Laws, Shops and Establishments etc.

Regards,
__________
Compliance Officer
__________ Ltd.

Question 6.
Explain the compliances under Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) [SEBI (LODR)] Regulations, 2015 relevant to the common obligations to any listed entity indicating the time period and event of each.
Answer:
Following are common obligations to Listed Entity:
Regulation 7(3) : Submission of Compliance Certificate to Exchange:
Submission of Compliance Certificate to Stock Exchange certifying that all activities in relation to both physical and electronic share transfer facility are maintained either in house or by Registrar to an issue and share transfer agent registered with the Boar d.

Time Limit : Within one month of end of each half of the financial year.

Regulation 7(5) : Appointment/Alteration of Share Transfer Agent:
The Company can manage in house Share Transfer Facility. But as and when the total number of holders of securities of the listed entity exceeds INR 1,00,000. The listed entity shall appoint Share Transfer Agent.

Time Limit : Intimate to the Stock Exchange such appointment or alteration within 7 days on entering into agreement shall be placed before the Board of Directors in subsequent Meeting.

Regulation 13 : Grievance Redressal Mechanism:
The listed entity shall file with the recognized stock exchange(s) a statement giving:

The number of investor complaints pending at the beginning of the quarter,
Those received during the quarter, ‘
Disposed of during the quarter and
Those remaining unresolved at the end of the quarter.

Time Limit : Within 21 days of the end of the each quarter. Same statement shall be placed before the Board of Director quarterly.

Question 7.
Zen Pvt. Limited had a paid up share capital of INR 35 crore in the previous year. The Company Secretary advises the Company that it is mandatory to appoint the auditor as per the requirements of Sec. 139(2) of the Companies Act, 2013. The company is having public borrowings viz. from banks INR 25 crore, financial institutions INR 20 crore and public deposits of INR 7.5 crore. Examine the requirement of applicability of mandatory term/rotation in the appointment of auditor with reference to the changed scenario since June, 2017.
Answer:
Provisions of section 139 (2) of the Companies Act, 2013 and Rule 5 of the Companies (Audit and Auditors) Rules, 2014, as amended, deals with
applicability of mandatory term/rotation in the appointment of auditor and the said provision is applicable to the following class of companies:

All unlisted public companies having paid up share capital of Rupees 10 crore or more;
All private limited companies having paid up share capital of Rupees 50 crore or more;
All companies having paid up share capital below the threshold limit mentioned in (a) and (b) above but having public borrowings from financial institutions, banks or public deposits of 50 crore or more.

Accordingly, Zen Pvt. Limited will get be covered as per provision (c) above and therefore, it is mandatorily required to rotate the Auditor as per the provisions of section 139(2) of the Companies Act, 2013.

Question 8.
XYZ Ltd. is having paid up share capital of INR 10.00 crore as on 31 st March ,2019. Whether the company is required to appoint a Company Secretary in the Company? What would be your answer if the said XYZ is a Private Limited Company? Explain the relevant provisions regarding the appointment of a Company Secretary in employment by the Company.
Answer:
1. According to section 203 of the Companies Act, 2013 & Rule 8 of the Companies (Appointment and Remuneration) Rules, 2014, Every listed company and every other public company having paid up share capital of rupees ten crores or more is required to appoint a whole time Company Secretary, Managing Director and CFO.

2. Further Rules 8A of the Companies (Appointment and Remuneration) Rules, 2014 provides that a company other than a company covered under rule 8 which has a paid-up share capital of five crore rupees or more shall have a whole-time company secretary.

Hence, XYZ Ltd. as a Public Company is required to appoint Whole Time Company Secretary.

Further on 31st March, 2019 if XYZ is a Private Limited Company then it has to appoint Whole-time Company Secretary if paid up capital of the Company is INR 5 Crore or above as per Rule 8A of the Companies (Ap pointment and Remuneration) Rules, 2014.

Question 9.
List out the records which are required to be maintained by the LLPs under the LLP Act, 2008.
Answer:
The records required to be maintained by the LLPs under LLP Act, 2008 are classified in grouping as discussed below:

Records to be preserved Permanently:

Incorporation document [Section 11 (1)(b)]
Notice of situation of registered office [Section 13]
Information with regard to Limited Liability Permanent Partnership Agreement or any changes made therein [Section 23(2)]
Notice of other address of any limited liability Permanent partnership at which documents to be served [Section 13(2)]

Records to be preserved for 21 Years: All papers, registers, refund orders and correspondence relating to the limited liability partnership liquidation accounts to be preserved for 21 years.

Records to be preserved for 5 Years:

Copies of Government orders relating to limited liability partner-ship; registered documents of limited liability partnership which have been fully wound up and finally dissolved together with.
correspondence relating to such limited liability partnership;
papers relating to legal proceedings from the date of disposal of the case and appeal, if any;
copies of statistical returns furnished to Government;
All correspondences including correspondences relating to scrutiny of accounts, annual returns, prosecutions, reports to the Central Government and the Tribunal and the correspondences relating to complaints.

Records to be preserved for 3 Years:

All books, records and papers, other than those specified in other categories.
Routine correspondence regarding payment of fees, additional filing fees and correspondence about the return of documents.

Records of foreign limited liability partnerships: Registered documents of foreign limited liability partnerships which cease to have any place of business in India shall be destroyed after expiry of three years from such date if limited liability partnerships cease to have any place of business in India.

Question 10.
Discuss the various exemption availed by Section 8 companies under the Companies Act, 2013.
Answer:
Various exemptions availed by Section 8 Companies under the Companies Act, 2013 are discussed as below:
1. The provisions of clause (24) of Section 2 shall not apply. Thus, Company Secretary of Section 8 Company need not be a member of the Institute of Company Secretaries of India.

2. The requirement of minimum paid up share capital under Section 2(68) of Companies Act, 2013 shall not apply. Also, the requirement of minimum paid up share capital under Section 2(71) of Companies Act, 2013 shall not apply.

3. Section 96(2) of Companies Act, 2013 inter alia covers time, date, venue of Annual General Meeting. In case of Section 8 companies, the time, date and place of each Annual General Meeting are decided upon before hand by the board of directors having regard to the directions, if any, given in this regard by the company in its general meeting.

4. Section 101 (1) of Companies Act, 2013 deals with notice of the General meeting with clear 21 days notice. In case of Section 8 Companies 14 clear days notice is sufficient for a general meeting. ‘

5. Section 118 of Companies Act, 2013 deals with minutes of proceedings of general/board and other meetings. Provision of Section 118 does j not apply to Section 8 companies except that minutes may be recorded within thirty days of the conclusion of every meeting in case of companies where the articles of association provide for confirmation | of minutes by circulation.

6. Section 136(1) of the Companies Act, 2013 deals with the rights of members to copies of audited financial statement before twenty one days of the date of annual general meeting. Section 8 companies may send the audited financial statements, 14 days before the date of Annual General Meeting.

7. In clause (b) and first proviso to Section 149(1) of the Companies Act, 2013 exemption is provided with respect to provisions related maxi¬mum number of directors and permission of shareholders for having director beyond 15.

8. The cluster of sub-sections of section 149 of the Companies Act, 2013 given herein pertains to Independent Directors. These provisions will not apply to a Section 8 Company.

9. Section 150 of the Companies Act, 2013 deals with manner of selection of Independent Directors and maintenance of databank of independent directors, which is not applicable to Section 8 companies.

10. Proviso to sub-section (5) of Section 152 of the Companies Act, 2013 relates to appointment of independent directors. It is not applicable to Section 8 companies.

11. Section 160 of the Companies Act, 2013 deals with right of persons other than retiring directors to stand for directorship. Section 160 shall not apply to Section 8 companies whose articles provide for election of directors by ballot.

12. Section 165(1) of the Companies Act, 2013 deals with restrictions on number of directorships. Directorship of Section 8 Companies are not reckoned for this purpose.

13. Section 173(1) of the Companies Act, 2013 mandates convening of first board meeting within 30 days of incorporation and minimum of four board meeting every year with a gap not exceeding 120 days be¬tween two consecutive meetings. With regard to Section 8 companies this section shall apply only to the extent that the Board of Directors of such Companies shall hold at least one meeting within every six calendar months.

14. Section 174(1) of the Companies Act, 2013 states that the quorum for a meeting of the Board of Directors of a company shall be one third of its total strength or two directors, whichever is higher and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section. In case of Section 8 companies, the quorum for the Board Meetings shall be either eight members or twenty five per cent of its total strength whichever is less. However, the quorum shall not be less than two members.

Question 11.
Describe the procedure for identification of the activity-wise compliances, Sector-wise compliances and Industry specific compliance in a company.
Answer:
The procedure for identification of the activity wise compliances, Sector wise compliances and Industry specific compliance in a company discussed below:

Identification of Activity wise compliances:
The activity-wise compliances include the compliances relating to the business activities of the company such as Banking Company, Insurance Company, Housing Development Company, IFSC Company, NBFC, Section 8 Company, Producer Company, Chit Fund Company, Plantation Company etc. These companies are governed under the Companies Act, 2013 as well as the Laws, Rules, Regulations under which they have been registered.

Identification of Sector wise compliances:
For the sector wise compliances, the companies can be broadly divided in to the Agriculture & Allied Activities, Manufacturing, Construction, Power, Electricity; Gas & Water, Mining & Quarrying, Business Services, Real Estate, Trading, Community; Personal & Social Services, Transport, Storage & Communications, Finance, Insurance etc. These companies are governed under the Companies Act, 2013 along with the sector specific laws, rules, regulations, policies, procedures and state and local laws applicable to the company.

Identification of Industry specific compliances:
For identification of the industries specific compliance, it is necessary to correlate the business activity of the company with the various laws applicable to such business activity. For example if the company is dealing cement industry which is related to the Construction sector & Real Estate, Mining, Supply, Distribution and Trading of raw material, Bye product etc., the company may horizontally or vertically associated with such business activity or in multiple business activity relating to any industry and the sector. In such situation, professional should be careful and use the expertise in identification of the business activity and sector and industry specific law. Some of the business activities along with the allied sub-activity are provided as under:

Agriculture, Forestry, Fishing	Construction
Mining and Quarrying	Trade
Manufacturing	Transport and storage
Electricity, gas, steam and air condition supply	Accommodation and Food Service
Water supply, sewerage and waste management	Information and communication
Professional, Scientific and Technical	Financial and insurance Service
Support service to Organizations	Real Estate
Hospital and Medical Care	Education
Personal and Household service	Arts, entertainment and recreation

Question 12.
Discuss five circumstances in which Newspaper Advertisements to be given under Companies Act, 2013.
Answer:
Application for Grant of License under section 8 by existing company [Rule 20(3) of the Companies (Incorporation) Rules, 2014] : The company shall within one week from the date of application, publish a notice in Form No. INC-26 at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated or is situated and circulating in that district and at least once in English language in an English newspaper circulating in that district.

Change in registered office from the Jurisdiction of one Registrar to another within the same state [Section 12(5) read with Rule 28(2)(a) of the Companies (Incorporation) Rules, 2014] : Publish a notice, at least once in a daily newspaper published in English and in the principal language of that district in which the registered office of the company is situated and circulating in that district.

Change in registered office from One State or Union Territory to another [Section 13(4) read with Rule 30(6) of the Companies (Incorporation) Rules, 2014] : Advertise the application in the Form No. INC.26 in a vernacular newspaper in the principal vernacular language in the district in which the registered office of the company is situated and at least once in English language in an English newspaper circulating in that district at least 14 days before the date of hearing.

Closure of Foreign Register [Section 88(4) read with Rule 7(5) of the Companies (Management and Administration) Rules, 2014] : A foreign register shall be open to inspection and may be closed and extracts may be taken there from and copies thereof may be required in the same manner, mutatis mutandis, as is applicable to the principal register except that the advertisement before closing the register shall be inserted in at least two newspapers circulating in the place where in the foreign register is kept.

Postal Ballot [Section 110 read with Rule 22(3) of the Companies (Management and Administration) Rules, 2014] : An advertisement shall be published at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated and having a wide circulation in that district and at least once in English language in an English newspaper having a wide circulation in that district about having dispatched the ballot papers and specifying the matters prescribed in the said sub-rule.

Question 13.
Discuss four circumstances where disclosures to be made at Website of the Company.
Answer:
It is not mandatory for a private company to maintain a Website. In case, the company has maintained a website, then the following disclosures are required to be made at its website:

Particulars:
1. Companies registered under Section 8 seeking conversion into any other kind [Section 8 and Rule 22 of the Companies (Incorporation) Rules, 2014] : Notice in Form INC-19 shall be published on the website of the Company, if any and as may be notified or directed by the Central Government.

2. Publication of name by Company [Section 12 and Rule 26 of the Companies (Incorporation) Rules, 2014] : Every Company which has a website for conducting Online business or otherwise, shall disclose/ publish its name, address of its registered office, the Corporate Identity Number, Telephone Number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.

3. Notice of the General Meeting [Section 101 & Rule 18(3)(iA) of the Com¬panies (Management and Administration) Rules, 2014] : The notice of the general meeting of the Company shall be simultaneously placed on the website of the Company and on the website as may be notified by the Central Government.

In case of Private Company – Section 101 shall apply, unless otherwise specified in this section or the articles of the Company provide otherwise. – (Notification No. G.S.R. 464(E) dated 5th June, 2015). Section 122 provides that the provisions of section 101 shall not apply to a One Person Company.

4. Resolutions Requiring Special Notice [Section 115 & Rule 23(4) of the Companies (Management and Administration) Rules, 2014] : Where it is not practicable to give the notice in the same manner as it gives notice of any general meetings, such notice shall be posted on the website, if any, of the company.

Question 14.
Discuss compliance obligations of Listed Entity which has Listed its Securitised Debt Instruments under SEBI (LODR) Regulations, 2015 specifically mentioning time period and events?
Answer:
Following are compliance obligations of listed entity which has listed its Securitised Debt Instruments:
Particulars:
1. Issue new securities [Regulation 82(1)]:
Time Period : Prior to issue new Securitised Debt Instrument.
Event : To issue new securitized debt instruments either through a public issue or on private placement basis.

2. Intimation [Regulation 82(2)]:
Time Period : At least 2 working days before the Board Meeting excluding date of intimation & date of meeting.
Event : The meeting of its board of trustees, at which the recommendation or declaration of issue of securitized debt instruments or any other matter affecting the rights or interests of holders of securitized debt instruments is proposed to be considered.

3. Financial Information [Regulation 82(3)]:
Time period: Within 7 days from the end of month/actual payment date on monthly basis.
Event: Submission of such statements, reports or information including financial information pertaining to Schemes to stock exchange.

4. Record Date [Regulation 87(2)]:
Time period : At least 7 working days before the record date excluding the date of intimation & record date.
Event : Notice to stock exchange/s regarding record date.

Question 15.
Discuss obligations of Listed Entity which has listed its Indian Depository Receipts under SEBI (LODR) Regulations, 2015 by way of clearly mentioning the nature of event and time period for each obligation?
Answer:
Following are the obligations of Listed Entity which has listed its Indian Depository Receipts under SEBI (LODR) Regulations, 2015 :
1. Indian Depository Receipt holding pattern & Shareholding details [Regulation 69(1)]:
Event : The listed entity shall file with the stock exchange the Indian Depository Receipt holding pattern on a quarterly basis.
Time Period : Within 15 days at the end of each quarter.

2. Financial Result [Regulation 70(1)]:
Event: The listed entity shall file periodical financial results with the stock exchange.
Time Period: Within such time as per the listing requirements of the home country.

3. Annual Report [Regulation 71(1)]:
Event : The listed entity shall submit to stock exchange an annual report.
Time Period : At the same time as it is disclosed to the security holder in its home country.

4. Corporate Governance [Regulation 72(2)]:
Event : The listed entity shall submit to stock exchange a comparative analysis of the corporate governance provisions that are applicable in its home country.
Time Period : Within such time as per the listing requirements of the home country.

5. Record Date [Regulation 78(2)]:
Event : Notice to stock exchange regarding record date.
Time Period : At least 4 working days before the record date.

Question 16.
Write detailed note on: “Prior Intimation to Stock Exchange about Board Meeting under SEBI (LODR) Regulations, 2015”.
Answer:
As per Regulation 29(2) of SEBI (LODR) Regulations, 2015, at least 2 working days in advance (excluding the date of intimation & date of Board Meeting) the intimation about the meeting in which following matters are due to consideration:

Proposal for Buy-back of Securities.
Proposal for voluntary delisting of listing entity from the Stock Exchange(s).
Declaration/Recommendation of Dividend.
Proposal for declaration of Bonus Securities.
Issue of convertible securities including convertible debentures or of debentures carrying a right to subscribe to equity shares or the passing over of dividend.
Proposal for declaration of Bonus Securities.
Fund raising by following ways of Further Public Offer, Rights Issue, American Depository Receipts/Global Depository Receipts/ Foreign Currency Convertible Bonds, Qualified Institutions Placement, Debt Issue, Preferential Issue or any other method and for determination of issue price.

As per Regulation 29(3) of SEBI (LODR) Regulations, 2015, at least 11 working days in advance intimation is required for:

Any alteration in the form or nature of any of its securities that are listed on the stock exchange or in the rights or privileges of the holders thereof.
Any alteration in the date on which the interest on debentures or bonds or the redemption amount of redeemable shares or of debentures or bonds shall be payable.

Question 17.
Write Short Note on: “Quarterly Compliance Report on Corporate Governance under SEBI (LODR) Regulations, 2015”
Answer:
As per Regulation 27(2) of SEBI (LODR) Regulations, 2015 within 15 days from the closure of quarter, the listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board. The Details of all material transactions with related parties shall be disclosed. The Report shall be sign either by compliance officer or by chief executive officer.

Question 18.
Write Short Note on: “Common obligations to Listed Entity under SEBI (LODR) Regulations, 2015”.
Answer:
Following are common obligations to Listed Entity:
Regulation 7(3) : Submission of Compliance Certificate to Exchange Submission of Compliance Certificate to Stock Exchange certifying that all activities in relation to both physical and electronic share transfer facility are maintained either in house or by Registrar to an issue and share transfer agent registered with the Board.

Time Limit : Within one month of end of each half of the financial year.

Regulation 7(5) : Appointment/Alteration of Share Transfer Agent The Company can manage in house Share Transfer Facility. But as i and when the total number of holders of securities of the listed entity exceeds 1,00,000. The listed entity shall appoint Share Transfer Agent.

Time Limit : Intimate to the Stock Exchange such appointment or alteration within 7 days on entering into agreement shall be placed before the Board of Directors in subsequent Meeting.

Regulation 13: Grievance Redressal Mechanism
The listed entity shall file with the recognized stock exchange(s) a statement giving:

The number of investor complaints pending at the beginning of the quarter,
Those received during the quarter,
Disposed of during the quarter, and
Those remaining unresolved at the end of the quarter.

Time Limit: Within 21 days of the end of the each quarter. Same statement shall be placed before the Board of Director quarterly.

Question 19.
Write Short Note on: “Benefits of Corporate Compliance Management”.
Answer:
Following are the benefits of Corporate Compliance Management:

Better compliance of the law.
Real time status of legal/statutory compliances.
Safety valve against unintended non-compliances/prosecutions etc.
Real time status on the progress of pending litigation before the judicial/ quasi-judicial authority.
Cost saving by avoiding penalties/fines and minimizing litigation.
Better brand image and positioning of the company in the market.
Enhanced credibility/creditworthiness that only a law abiding company can command.
Goodwill among the shareholders, investors, and stakeholders.
Recognition as Good corporate citizen.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material

Patents – Intellectual Property Rights Laws and Practices Important Questions

December 28, 2022

Patents – Intellectual Property Rights Laws and Practices Important Questions

Question 1.
Write a note on ‘patent co-operation treaty’.
Answer:
The Patent Co-operation Treaty (PCT) is a multilateral treaty that became effective in 1978. The PCT is administered by the International Bureau of the World Intellectual Property Organization (WIPO) whose headquarters is in Geneva, Switzerland. The member countries of the PCT are called the PCT Contracting States. As of August 1, 2006, there were 133 PCT Contracting States.

The PCT enables a patent application to file one “international” patent application to seek protection in any or all of the PCT Contracting States. Patents are granted or rejected by each PCT Contracting State or regional officer individually under their respective patent laws. Thus, an applicant must still prosecute a patent application in each country or regional officer in which he seeks protection and pays the national or regional fees.

The main advantage of filing a PCT application is the additional time gained before having to prosecute applications in other countries after the initial filing. Without the PCT the applicant generally has 12 months to file patent applications in other Paris Convention countries after filing the initial application, in contrast, by using the PCT the application has at least 30 months (and more in. many countries) from the date of initial filing to begin prosecuting his application in other countries effectively gaining 18 months. This delay provides time to obtain knowledge as to the patentability and commercial prospects of an invention. It also postpones the major costs of internationalizing a patent application such as paying national/regional fees, translating the patent application, and paying fees to local patent agents in various countries.

The PCT procedure consists of two main phases; the “international phase” and the “national phase”.

The international phase consists of:

Filing of the international application ether with a national/regional “Receiving Office” or the International Bureau of WIPO
Novelty search on the patentability of the invention (including an international search report and a written opinion on potential patentability)
Publication of both the PCT application and the international search report by WIPO, and
(Optional step) request for an international preliminary examination of the international application.

National Phase:
After the international phase, the application enters the “national” phase, which consists of processing the international application before each Contracting State that has been designated in the international application and in which the applicant wishes to pursue patent protection. Certain requirements must be fulfilled in order to enter the national phase. These requirements include paying national fees and if necessary, furnishing a translation of the application (as filed and/or amended). Note that the filing of the PCT request together with the application constitutes the designation of all Contracting States that are bound by the Treaty on the international filing date. In the national phase, the applicant selects the particular States in which he wishes to obtain protection for his invention.

A PCT application must contain the following elements: request* description, one or more claims, one or more drawings (where drawings are necessary for the understanding of the invention), and an abstract. A request is simply a form that is filed with the international application. Any national or resident of one of the PCT Contracting States may file an international patent application.

Question 2.
Does a patent obtained in India give protection worldwide? Is it possible to file an international application in India under the Patent Cooperation Treaty (PCT)?
Answer:

A patent obtained in India does not provide protection worldwide.
Patent protection is effective only within the territory of India.
Separate patents should be obtained in each country where the applicant requires protection of his invention in those countries.
It is possible to file an international application in India under the Patent Co-operation Treaty (PCT) in the patent offices located at Kolkata, Chennai, Mumbai & Delhi.

Question 3.
Read the Novartis case on patenting law of Gleevec and answer the questions that follow:
Novartis vs. Union of India & Others is a landmark decision by a two-judge bench of the Supreme Court of India on the issue of whether Novartis could Patent Gleevec in India, and was the culmination of seven-year-long litigation fought by Novartis. The Supreme Court upheld the Indian Patent Office’s rejection of the patent application.

The patent application claimed the final form of Gleevec (the beta crystalline form of imatinib mesylate). In 1993, during the time India did not allow patents on products, Novartis had patented imatinib, with salts vaguely specified, in many countries but could not patent it in India. The key differences between the two patent applications were that the 1998 patent application specified the counterion (Gleevec is a specific salt imatinib mesylate) while the 1993 patent application did not claim any specific salts nor did it mention mesylate, and the 1998 patent application specified the solid form of Gleevec the way the individual molecules are packed together into a solid when the drug itself is manufactured (this is. separate from processes by which the drug itself is formulated into pills or capsules) while the 1993 patent application did not. The solid form of imatinib mesylate in Gleevec is beta crystalline.

In 2000, the United States Food and Drug Administration (FDA) approved imatinib mesylate in its beta crystalline form, sold by Novartis as Gleevec (U.S.) or Glivec (Europe/Australia/Latin America). TIME magazine hailed Gleevec in 2001 as the ‘magic bullet’ to cure cancer. Both Novartis patents on the freebase form of imatinib, and on the beta crystalline form of imatinib mesylate are listed by Novartis in the FDA’s Orange Book entry for Gleevec. As provided under the TRIPS agreement, Novartis applied for exclusive marketing rights (EMR) for Gleevec from the Indian Patent Office and the EMR was granted in November 2003. Novartis made use of the EMR to obtain orders against some generic manufacturers who had already launched Gleevec in India. Novartis set the price of Gleevec at USD 2,666 per patient per month; while the generic companies were selling their versions at USD 177 to 266 per patient per month. Novartis also initiated a program to assist patients who could not afford its version of the drug, concurrent with its product launch.

The Intellectual Property Appellate Board (IPAB) was formed and in 2007 the case was transferred before the IPAB in line with section 117G of the Patents Act, 1970. The IPAB on 26th June 2009 modified the decision of the Assistant Controller of Patents and Designs stating that ingredients for grant of patent novelty and nonobviousness to person skilled in the art were present in the application but rejected the application on the ground that the drug is not a new substance but an amended version of a known compound and that Novartis was unable to show any significant increase in the efficacy of the drug and it, therefore, failed the test laid down by section 3(d) of the Patents Act, 1970.

When examination of Novartis’ patent application began in 2005, it came under immediate attack from oppositions initiated by generic companies that were already selling Gleevec in India and by advocacy groups. The application was rejected by the Patent Office and by an Appeal Board. The key basis for the rejection was the part of Indian patent law that was created by an amendment in 2005, describing the patentability of new uses for known drugs and modifications of known drugs. That section, Paragraph 3d, specified that such inventions are patentable only if “they differ significantly in properties with regard to efficacy.” At one point, Novartis went to court to try to invalidate Paragraph 3d; it argued that the provision was unconstitutionally vague and that it violated TRIPS. Novartis lost that case and did not appeal. However, Novartis did appeal the rejection by the Patent Office to India’s Supreme Court, which took the case.

The Supreme Court case hinged on the interpretation of Paragraph 3d. The Supreme Court decided that the substance that Novartis sought to patent was indeed a modification of a known drug (the raw form of imatinib, which was publicly disclosed in the 1993 patent application and in scientific articles), that Novartis did not present evidence of a difference in therapeutic efficacy between the final form of Gleevec and the raw form of imatinib, and that therefore the patent application was properly rejected by the patent office and lower courts.

Although the court ruled narrowly and took care to note that the subject application was filed during a time of transition in Indian patent law, the decision generated widespread global news coverage and reignited debates on balancing public good with monopolistic pricing and innovation with affordability. Had Novartis won and gotten its patent issued, it could not have prevented generics companies in India from continuing to sell generic Gleevec, but it could have obligated them to pay a reasonable royalty under a ‘grandfather clause’ included in India’s patent law.
Question:
(a) Why did Novartis file the case in Supreme Court only after India signed TRIPS?
(b) Gleevec patent is already granted in 45 other countries including China. What will the Indian industry gain/lose in the rejection of the patent in India?
(c) What is your opinion on Novartis’ claim that the beta crystalline packing in solid form is a novelty and is thus patentable?
(d) What do you understand by the ‘grandfather clause’ of the Novartis patent developed when India did not have product patents?
Answer:
(a) India accepted products patents as part of the World Trade Organisation (WTO) deal hence Gleevec patent could be registered and enforced by the Indian Courts.

The patent application at the center of the case was filed by Novartis { in India in 1998 after India had agreed to enter the World Trade Organization and to abide by worldwide intellectual property standards under the TRIPS agreement.
As part of this agreement, India made changes to its patent law; the biggest of which was that prior to these changes, patents on products were not allowed, while afterward, they were, albeit with restrictions.
These changes came into effect in 2005, so Novartis patent application waited in a “mailbox” with others until then, under procedures that India Instituted to manage the transition.
India also passed certain amendments to its Patent Law in 2005, just before the laws came into effect, which played a key role in the rejection of the patent application.

(b) (A) Indian industry gains in the rejection of the patents:

Savings in, outward remittance of foreign exchange
Dumping shall be restricted
Generic Medicines shall be available at cheaper rates
Growth of Indian Pharma Companies
Enhancement of innovation by Indian Pharma Companies

(B) Indian industry losses in the rejection of the patents:

Multinational Companies will invest less money in research in India
Hinders Medical progress
Indian Industry will lose credibility
Multinational Companies will not do R&D in India
Better Technology transfer from outside is not possible

(c) A novel invention is one, which has not been disclosed, in the prior art t where prior art means everything that has been published, presented, or otherwise disclosed to the public includes documents in foreign languages disclosed in any format in any country of the world on the date of the patent. For an invention to be judged as the novel, the disclosed information should not be available in the ‘prior art.

The “beta crystalline form” of the molecule is a specific polymorph of imatinib mesylate; a specific way that the individual molecules pack together to form a solid.
This is the actual form of the drug sold as Gleevec; a salt (imatinib mesylate) as opposed to a free base, and the beta crystalline form as opposed to the alpha or other form.
So, by going through the concept of novelty, the process of “beta crystalline packing in solid form” passes the test of novelty, since, this process is not disclosed anywhere in the prior art.
But, if anything to be patentable, then the sole test of novelty is not sufficient. By the virtue of Section 3 (d) (as amended), we also have to test that whether the same is differ significantly in properties with regard to efficacy.

Note:
Section 3 (d) of Indian Patent Act, 1970 (as amended) reads as follows: ‘The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

As the beta crystalline form of Imatinib Mesylate being a pharmaceutical substance and moreover a polymorph of Imatinib Mesylate, it directly runs into explanation to Section 3 (d) of the Act. As Novartis was unable to show any significant increase in the efficacy of the drugs, hence it failed in the test laid down by explanation to Section 3 (d) of the Act. So, the same is not patentable under Indian Patent Act, 1970.

(d) Section 11A (7) of The Patents Act, 1970 provides that on or from the date of publication of the application for patent and until the date of grant of a patent in respect of such application, the applicant shall have the like privileges and rights as if a patent for invention had been granted on the date of publication of the application.

However, the applicant shall have no right to institute any proceeding for infringement until the patent has been granted. Additionally, the rights of a patentee in respect of applications made under section 5 (2) of the Patents Act before January 1,200.5 shall accrue from the date of grant of patent.

Moreover, after the patent is granted in respect of applications made under section 5 (2), the patent holder shall only be entitled to receive reasonable royalty from such enterprises which have made significant investments and were producing and marketing concerning product prior to January 1, 2005, and which continue to manufacture the product covered by the patent on the date of grant of the patent and no infringement proceedings shall be instituted against such enterprises. The above provision is termed as the “grandfather clause” in common parlance.

The above grandfather clause created “a special regime for generic versions of medicines if the initial patent application was made between the 1st of January, 1995 and the 31st of December, 2004 and if these medicines were already on the Indian market before the 1st of January, 2005. Generics that enter into this category can stay on the Indian market even if their pharmaceutical substance is patented. However, Indian Law requires that the producers of those generics then pay a “reasonable royalty” to the patent holder.

If Novartis won the case and got the patent, then also the Indian Companies could have continued to sell generic Gleevec, but they have to enter a grandfather clause with Novartis and shall be obligated to pay a reasonable royalty to the patent holder.

Question 4.
Briefly discusses the Paris Convention for the Protection of Industrial Property.
Answer:
Paris Convention for the Protection of Industrial Property: The Paris Union, established by the Convention, has an Assembly and an Executive Committee. Every State member of the Union who has adhered to at least the administrative and final provisions of the Stockholm Act (1967) is a member of the Assembly. The members of the Executive Committee are elected from among the members of the Union, except for Switzerland, which is a member ex officio. The Paris Convention, concluded in 1883, was revised at Brussels in 1900, at Washington in 1911, at The Hague in 1925, at London in 1934, at Lisbon in 1958, and at Stockholm in 1967, and it was amended in 1979.

The Convention applies to industrial property in the widest sense, including patents, marks, industrial designs, utility models, trade names, geographical indications, and the repression of unfair competition. The substantive provisions of the Convention may be divided into three main categories namely national treatment, right of priority, common rules.

Question 5.
What are the advantages of PCT filing?
Answer:
Advantages of PCT Filing:
The advantages of PCT filing for the applicant, the patent offices, and the general public are given below:

The applicant has up to 18 months more than in a procedure outside the PCT to reflect on the desirability of seeking protection in foreign countries
To appoint local patent agents in each foreign country
To prepare the necessary translations and to pay the national fees. The PCT filing assures the applicant that if his international application is in the form prescribed by the PCT, it cannot be rejected on formal grounds by any designated Office during the national phase of the processing of the application. On the basis of the international search report, the applicant can evaluate with reasonable probability the chances of his invention being patented. On the basis of the international preliminary examination report, that probability is even stronger; the applicant has the possibility to amend the international application to put it in order before processing by the designated Offices.

Question 6.
Briefly discuss the Berne Convention for the protection of literary and artistic work.
Answer:
Berne Convention for the Protection of Literary and Artistic Works:
The Berne Union has an Assembly and an Executive Committee. Every country member of the Union which has adhered to at least the administrative and final provisions of the Stockholm Act is a member of the Assembly. The members of the Executive Committee are elected from among the members of the Union, except for Switzerland, which is a member ex officio.

The Berne Convention, concluded in 1886, was revised at Paris in 1896 and at Berlin in 1908, completed at Berne in 1914, revised at Rome in 1928, at Brussels in 1948, at Stockholm in 1967, and at Paris in 1971, and was amended in 1979. The Convention rests on three basic principles and contains a series of provisions determining the minimum protection to be granted, as well as special provisions available to developing countries.
Basic Principles
The three basic principles are the following:
1. Works originating in one of the contracting States must be given the same protection in each of the other contracting States as the latter grants to the works of its own nationals.

2. Such protection must not be conditional upon compliance with any formality.

3. Such protection is independent of the existence of protection in the country of origin of the work. If, however, a contracting State provides for a longer-term than the minimum prescribed by the Convention and the work ceases to be protected in the country of origin, protection may be denied once protection in the country of origin ceases.

The minimum standards of protection relate to the works and rights to be protected, and the duration of the protection:
1. As to works, the protection must include every production in the literary, scientific, and artistic domain, whatever may be the mode or form of its expression.

2. Subject to certain permitted reservations, limitations, or exceptions, the following are among the rights which must be recognized as exclusive rights of authorization:

the right to translate
the right to make adaptations and arrangements of the work,
the right to perform in public dramatic, dramaticomusical and musical works
the right to recite in public literary works
the right to communicate to the public the performance of such works
the right to broadcast (with the possibility of a contracting State to provide for a mere right to equitable remuneration instead of a right of authorization)
the right to make reproductions in any manner or form
the right to use the work as a basis for an audiovisual work, and the right to reproduce, distribute, perform in public or communicate to the public that audiovisual work.

Question 7.
Explain salient features of the Patents (Amendment) Act, 2002.
Answer:
The second phase of the amendment was brought in by the Patents (Amendment) Act, 2002 which came into force on 20th May 2003. The main features of the amendments included:

The term of the patent was extended from 14 to 20 years, wherein the date of patent was the date of filing of the complete specification.1 Also the difference in terms of a drug/food patent and other patent was removed.
The definition of “invention” was made in conformity with the provisions of the TRIPS Agreement by introducing the concept of inventive step, thereby enlarging the scope of the invention.
A deferred examination system was introduced.
Introduction of the provision of publication of application after 18 months from the date of filing thereby bringing India at par with the rest of the world.
Microorganisms became patentable, whereas inventions relating to traditional knowledge were included in the list of “what are not inventions”.
The concept of the unity of invention is in accordance with EPC and PCT.
Section 39 was reintroduced thereby prohibiting the Indian residents to apply abroad without prior permission or first filing in India.
Provisions of Appellate Board were brought in by inserting section 116. All appeals to the decision of the Controller would be appealable before the Appellate Board. The Head Quarter of the Appellate Board is to be in Chennai.
Section 117 provided for Bolar’s provision for the benefit of the agrochemical and pharmaceutical industry.

The third and final amendment to the Patents Act, 1970 came by way of Patents (Amendment) Ordinance, 2004, which was later replaced by The Patent (Amendment) Act, 2005, and Patents (Amendment) Rules, 2006 with retrospective effect from 1st January 2005. With the third amendment, India met with the international obligations under the TRIPS. Significant achievements of this amendment were:

Deletion of section 5, the opening of the mailbox, and grant of product patents. Thus this amendment led to the dawn of the “product patent regime” in India.

Abolition of Exclusive Marketing Rights (EMR).
The definition of “startup” under rule 2(FB) has been substituted with a new definition. A more liberal definition of startup has been incorporated that can allow domestic as well as foreign entities to claim benefits such as fast-track mechanisms and lower fees for filing patents.

According to the Patent (Amendment) Rules, 2017
“Startup” means

an entity in India recognized as a startup by the competent authority under Startup India Initiative.
In the case of a foreign entity, an entity fulfilling the criteria for turnover and period of incorporation/registration as per Startup India Initiative and submitting a declaration to that effect.

Explanation:
In calculating the turnover, reference rates of foreign currency of Reserve Bank of India shall prevail.

Current Position
The present Indian position in respect of patent law is governed by the provisions of the Patents Act, 1970 as amended by the Patents (Amendment) Act, 2005 (hereinafter referred to as the Act) and Patents (Amendment) Rules, 2017 (hereinafter referred to as the Rules) Department of Industrial Policy and Promotion (DIPP) has amended Patent Rules 2003 with effect from 1st December 2017 called as the Patent (Amendment) Rules, 2017. The Head Patent Office is located in Kolkata and its branch offices are located in Delhi, Mumbai, and Chennai. The patent system in India is administered by the Controller General of Patents, Designs, Trademarks, and Geographical Indications. Each office has its own territorial jurisdiction for receiving patent applications and is empowered to deal with all sections of the Patent Act.

Question 8.
Discuss the ways, through which CBD and TRIPs could be harmonized.
Answer:
Harmonization of CBD and TRIPs
The Convention on Biological Diversity (CBD) 1992: Opened for signature at the Earth Summit in Rio de Janeiro in 1992, and entering into force in December 1993, the Convention on Biological Diversity is an international treaty for the conservation of biodiversity, the sustainable use of the components of biodiversity and the equitable sharing of the benefits derived from the use of genetic resources. The interface between biodiversity and intellectual property is shaped at the international level by several treaties and processes, including at the WIPO, and the TRIPS Council of the WTO. With 193 Parties, the Convention has near-universal participation I among countries.

The Convention seeks to address all threats to biodiversity and ecosystem services, including threats from climate change, through scientific assessments, the development of tools, incentives, and processes, j the transfer of technologies and good practices, and the full and active involvement of relevant stakeholders including indigenous and local communities, youth, NGOs, women and the business community. The Cartagena Protocol on Biosafety is a subsidiary agreement to the Convention. It seeks to protect biological diversity from the potential risks posed by living modified organisms resulting from modern biotechnology.

The treaty defines biodiversity as “the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems.” The Convention on Biological Diversity establishes important principles regarding the protection of biodiversity while recognizing the vast commercial value of the planet’s store of germplasm. However, the expansion of international trade agreements establishing a global regime of intellectual property rights creates incentives that may destroy biodiversity, while undercutting social and economic development opportunities as well as cultural diversity. The member countries were pressurized to change their IPR laws to conform to the TRIPS agreement.

While the TRIPS and the CBD both attempt to legislate some form of intellectual property and technology transfer, the Agreement appears to provide contradictory prescriptions for the control over genetic control over genetic resources and biodiversity. The two Agreements embody and promote conflicting objectives, systems of rights, and obligations. The core issues are that, in the area of patentable subject matter, benefit-sharing, protection of local knowledge, requirements of prior informed consent, and role of the state.

Major tension between the CBD and the TRIPS is related to the case of National Sovereignty and the Rights of IPR Holders. Through the CBD, countries have the right to regulate access of foreigners to biological resources and knowledge and to determine benefit-sharing arrangements.

The TRIPS enable persons or institutions to patent a country’s biological resources in countries outside the country of origin of the resources or knowledge. In this manner. TRIPS facilitates the conditions for ‘ misappropriation of ownership or rights over living organisms, knowledge and processes on the use of biodiversity.

In the benefit-sharing arrangements, a key aspect of the CBD is the one, which recognizes the sovereign rights of the states over their biodiversity and knowledge, and thus gives the State the right to regulate the access and this, in turn, enables the state to enforce its rights on arrangements for sharing benefits. Access where granted, shall be on mutually agreed terms (Art 15.4) and shall be subject to prior informed consent (Art 15.6). Most importantly, each country shall take legislative, administrative, or policy measures with the aim of sharing in a fair and equitable way the results of research and development and the benefits arising from the commercial and other utilization of genetic resources with the contracting party providing such resources. Such sharing shall be upon mutually agreed terms.

The TRIPS is a device with an international intellectual property regime that maximizes the potential for both traditional knowledge and modern scientific innovations to contribute to economic progress. To achieve this goal, the TRIPS need to be reviewed incorporated further:

Establish the concept of community property rights with respect to Traditional Knowledge recognition;
Recognize communities’ rights over their resources and TK;
Recognizes safeguards and protect the TK, innovations, practices, and technologies of indigenous and local people and communities;
Mandate legal protection for TK;
Recognize the sovereign rights of states over their biodiversity and genetic resources;
Mandate the principles of prior informed consent and benefit-sharing when other countries access the biogenetic resources and local

CS Professional Intellectual Property Rights Laws and Practices Notes

Audits – Secretarial Audit Compliance Management and Due Diligence Important Questions

December 28, 2022

Audits – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
What are the advantages of Social Audit?
Answer:
The advantages of Social Audit discussed as under:

Encourage community participation among different business entities.
Ensure continuous efforts towards environmental protection and use of environment friendly production processes.
Building Customer Satisfaction and trust through ethical business practices.
Promotes collective decision-making and sharing of responsibilities.

Question 2.
Prepare a note on Illustrative checkpoint on the Cyber Security Audit.
Answer:
1. Cyber security is an attempt to minimising any risk of financial loss, disruption or damage to the reputation of an organisation that may arises from the failure of its information technology systems. The objective of the cyber audit is to provide an assessment of the operating effectiveness of cyber security policies and procedures, identify, protect, detect, respond and recover processes and activities to the board.

2. The following can be the illustrative check point on the Cyber Securities Audit:

Check points relating to the Personnel Security.
Check points relating Physical access to electronic information systems.
Account and Password Management.
Confidentiality of Data.
Compliance and Audit of policies, standards, procedures, and guidelines.

Question 3.
“A Corporate Social Responsibility (CSR) Audit aims at identifying environmental, social or governance risks faced by the organization and evaluating managerial performance in respect of those” Explain the purpose of CSR Audit.
Answer:
Corporate Social Responsibility (“CSR”) is a broad term. However, for the purpose of addressing the scope of a CSR Audit, CSR is about managing and taking into consideration organization’s operational, processes and behavioural impact on society and stakeholders from a broad perspective. CSR is more than basic legal compliance and is highly connected with and affects organization’s bottom line.

The followings are the purpose of CSR Audit:

To evaluate internal control and governance framework.
To assess the project life cycle.
To ensure compliance with the provisions of Companies Act, 2013 with respect to constitution of the Committee, adoption of policy and appropriate spending towards CSR activities.
To facilitate transparent monitoring mechanism and Act as a mentor for the Company’s CSR activities and implementation of CSR policy.
To conduct financial review of projects to confirm the utilization of budgets for achieving desired outcomes.

Question 4.
Describe differences between Social audit and Takeover audit.
Answer:
Social Audit:

Social auditing creates an impact upon governance. It values the voice of stakeholders, including marginalized/poor groups whose voices are rarely heard.
Social auditing is taken up for the purpose of enhancing local governance, particularly for strengthening accountability and transparency in local bodies.
Social Audit makes it sure that in democracy, the powers of decision makers should be used as far as possible with the consent and under-standing of all concerned.

Takeover Audit:

Takeover audit for merger/acquisition/takeover could be done as three parts: pre-acquisition, post-acquisition and sell-side.
To provide the desired results to an investor and to ensure that the acquisition is executed in the most effective manner, the concept of the takeover audit has been evolved; the takeover audit provides a cost benefit analysis to suggest a strategic plan for the long term in-vestment strategy.
A rigorous audit vide due diligence process help companies take ad-vantage of legitimate new business opportunities, while at the same time help minimize the risks.
A strong audit cum due diligence process is critical to ensure that the acquirer is fully aware of all aspects of the proposed transaction and provides access to vital intelligence that is used to negotiate the final price and integrate the new subsidiary more effectively.

Question 5.
What do you understand by a CSR Audit? Explain its coverage.
Answer:

Corporate Social Responsibility (CSR) includes various social and environmentally responsible guidelines, essential for companies that want to maintain a strong connection to the marketplace.
Corporate Social responsibility includes the way a company treats and proactively contributes to its community, promotes fair working conditions and a non-discriminatory environment, conveys transparent and honest accounting reports and generally earns a reputation of trust and integrity in the society where it serves.
CSR has become a mandatory part of many Companies vide introduction in Companies Act, 2013 and has changed the dynamics of CSR.
An increased emphasis on governance, stricter monitoring and reporting obligations require companies to be more accountable, disciplined and strategic in their CSR approach.

Question 6.
What is Forensic Audit Report? Highlight its major contents.
Answer:
1. Forensic Audit Report is statement of observation gathered & considered while proving conclusive evidence. It is a medium through which an auditor expresses his opinion under audit after the forensic audit investigation is completed.

2. Forensic Audit Report include the following points:

Executive Summary.
Origin of the audit.
Audit Objective.
Proposed Audit Outputs.
Audit Implementation approach.
Risk Analysis.
Audit Process.
Preliminary understanding of scope and incident coverage.
Collect evidence.
Conduct Interviews.
Analyse findings.
Validate inferences and conclusions.
Evidence of risk events.

Question 7.
What do you mean by Environment Audit? Prepare a process chart for conducting Environment Audit.
Answer:
1. Environmental Audit refers to verification and assessment of environmental measures in an organisation.

2. Environmental Audit is a term that can reflect various types of evaluations intended to identify environmental compliance and management system implementation gaps along with related corrective actions and it has a wide variety of meanings.

Process of Environment Audit:
Step 1 : Understanding the industrial activity and Pre-audit or planning stage: Collection of background information about the entity, definition of objectives and scope of audit, formation of audit team and development of audit plan and protocols.

Step 2 : On-site or Field Audit: Communicate the objectives of the audit to key faculties and schedule necessary meetings and interviews, identify areas of concern, site/facility inspection, evidence/records/ document review, staff interviews, initial review of findings.

Step 3 : Assessing the impact and post-audit: Final evaluation of findings, submit preliminary report with type and magnitude of impact on the environment, get approval of management, introduce the findings to the auditees submit final environment audit report along with short/ long term acceptability.

Step 4 : Follow up or review: Verify the action taken on audit findings and recommendations.

Question 8.
What is the scope of Corporate Governance Audit?
Answer:
The Scope of Corporate Governance Audit is wide and generally boundary less and covers:

Financial and Non-Financial Stakeholders.
Boards of Directors (Composition, Mix, Independence).
Committees of the Boards and terms of References.
Control Environment (Accounting, Controls, Internal and External Audit).
Risk Management.
Transparency and Disclosure of financial information and executive compensation.
Strategic plans, programs and guidance on social responsibilities.

In India, the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are the principle governing laws on corporate governance.

Question 9.
What is the purpose of Corporate Social Responsibility Audit?
Answer:
Though the Companies Act, 2013 does not prescribed for the CSR Audit, but the companies’ voluntarily undertake the CSR Audits to measure effectiveness of the CSR Programmes of the company. Following are purpose of CSR Audit:

To ensure compliance with the provisions of Companies Act, 2013 with respect to constitution of the Committee, adoption of policy and appropriate spending
towards CSR activities.
To facilitate transparent monitoring mechanism and a mentor for the Company’s CSR activities and implementation of CSR policy.
To evaluate internal control and governance framework.
To assess the project life cycle.
To conduct financial review of projects to confirm the utilization of budgets for achieving desired outcomes.

Question 10.
What is the need for Environment Audit?
Answer:
Following are need for Environment Audit:

It help business to assess the environmental impact of their operations.
It ensure that the corporate decisions are not spoiling company’s market for its products, destroying the source of essential supply, damaging or polluting the very infrastructure that makes usage and demand of the product grow.
It highlights areas of inefficiencies in process.
It highlights excessive wastes.
It provides opportunity for business to decrease its wastes output and reduce the cost of waste treatment or waste disposal.

Question 11.
Discuss the implications of Social Audit?
Answer:
Implications of Social Audit discussed below:

Social auditing creates an impact upon governance. It values the voice of stakeholders, including marginalized/poor groups whose voices are rarely heard.
Social auditing is taken up for the purpose of enhancing local governance, particularly for strengthening accountability and transparency in local bodies.
Social Audit makes it sure that in democracy, the powers of decision makers should be used as far as possible with the consent and under-standing of all concerned.

Question 12.
Write Short Note on following:
(a) Cyber Audit
(b) Forensic Audit
Answer:
(a) Cyber Audit:
1. Cyber Audit team of professional conducts an organizational review to ensure that the correct and most up to date cyber and IT processes and infrastructure are being applied.

2. Cyber audit also includes a series of tests that guarantee that information security meets all expectations and requirements within an organization.

3. In Cyber Audit the Internal auditors and risk-management professionals have key roles to play in the Information Management function of the company. In the era of global digital economy it is critical to protecting enterprise information from the insider as well as the outsider hackers.

4. Audit helps enterprises with the challenges of managing cyber threats, by providing an objective evaluation of the controls and making recommendations to improve them as well as assisting the senior management and the board of directors understand and respond to cyber risks.

5. A cyber audit also includes a series of tests that guarantee that information security meets all expectations and requirements within an organization.

(b) Forensic Audit:
1. Forensic Audit Report is statement of observation gathered & considered while proving conclusive evidence. It is a medium through which an auditor expresses his opinion under audit after the forensic audit investigation is completed.

2. Forensic is the application of science to crime concerns. Forensic science is science which is applied to legal matters especially criminal matters.

3. A Forensic Audit is a comprehensive and systematic process involving a series of activities and tasks undertaken for establishing the accuracy and authenticity of the transactions under review.

4. The object of forensic auditing is to relate the findings of audit by examining and gathering legally tenable evidence and producing it to the Court. In the process the corporate veil is lifted in case of corporate entities to identify the fraud and the persons responsible for it.

Question 13.
Write Short Note on: “Labour Law Audit”.
Answer:
1. Labour law audit is a process of facts findings and it is a continuous process and ensures a win – win situation for all the stakeholders.

2. Audit under the labour and employment laws is an effective tool for compliance management of labour, employment and industrial laws.

3. Labour law audit is not compulsory, but it is highly recommendatory to conduct this audit. It helps to detect non-compliance of labour and employment laws applicable to a business and take corrective measures to avoid any unwarranted legal actions by the regulators against the business and its management.

4. Labour audit cover all labour legislations applicable to an industry/ business or any other commercial establishment, wherein audit is being conducted by the labour law auditor. Scope of labour law audit will certainly differ from business to business.

Example: Suppose if the business does not have a factory, the provisions of Factories Act, 1948 and any rules/ regulations made thereunder won’t be applicable on such business.

Question 14.
Discuss four Auditing Standards of ICSI?
Answer:
The Council of the Institute of Company Secretaries of India (ICSI) has approved the issuance of four ICSI Auditing Standards. The Standards are required to be observed by the Company Secretaries undertaking Audits.
1. CSAS-1: Auditing Standard on Audit Engagement which lays down the Auditor’s role and responsibilities with respect to an Audit Engagement and the process of entering into an understanding/agreement with the Appointing Authority for the purpose of audit.

2. CSAS-2: Auditing Standard on Audit Process and Documentation which lays down the responsibilities and duties of the Auditor with respect to Audit Process in conducting audit and maintaining proper audit records.

3. CSAS-3: Auditing Standard on Forming of Opinion covers the basis and manner for forming Auditor’s opinion on subject matter of the audit.

4. CSAS-4: Auditing Standard on Secretarial Audit covers the basis and manner for carrying out the Secretarial Audit.

The Standards seek to promote best auditing practices, uniformity and consistency while conducting audits. The four Standards are:

Question 15.
Discuss the provisions of following under CSAS-3:
(a) Unmodified Opinion.
(b) Modified Opinion.
Answer:
As per provisions of CSAS-3:
(a) Unmodified Opinion:
The Auditor shall express an unmodified opinion when based on Audit Evidence, the Auditor concludes that:

There is due compliance with the applicable laws in terms of timelines and process.
The records as relevant for the audit verified by him as a whole are free from misstatement and maintained in accordance with the applicable laws.

(b) Modified Opinion:
The Auditor shall express modified opinion when the Auditor concludes that:

Based on the Audit Evidence obtained, there is non-compliance with the applicable laws in terms of timelines and process; or
Based on the Audit Evidence obtained, the Records as a whole are not free from Misstatement; or are not maintained in accordance with applicable laws; or
He is unable to obtain sufficient and appropriate Audit Evidence to conclude that there is due compliance with the applicable laws in terms of timelines and process; or
He is unable to obtain sufficient and appropriate Audit Evidence to conclude that the Records as a whole are free from Misstatement; or are maintained in accordance with applicable laws.
Whenever the Auditor expresses a modified opinion or disclaims an opinion, the text of the opinion shall be either in italics or bold letters.

Question 16.
Discuss the provisions of following under CSAS-4:
(a) Detection of Fraud.
(b) Reporting of Fraud.
Answer:
As per provisions of CSAS-4:
(a) Detection of Fraud:
1. The Auditor shall exercise professional judgment and maintain professional scepticism throughout the planning and performance of the audit to detect and report the fraud envisaged under the provisions of Section 143(12) of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014.

2. During the course of the audit, if the Auditor suspects commission of any fraud, he shall endeavour to collect further evidence for the same. The suspicion may arise on perusal of internal control systems, complaint under whistle blower mechanism and reports of the other auditors, etc.

3. The Auditor shall ensure to collect sufficient evidence which substantiates his suspicion of the commission of the fraud against the Auditee by its employees and officers.

(b) Reporting of Fraud:
1. The Auditor having sufficient reason to believe that there is commission of fraud and have justifiable grounds for the same, he shall report to Audit Committee/Board/Central Government as per the process laid down under the Companies Act, 2013 and include the same in Secretarial Audit Report

2. The Auditor shall verify if the fraud detected by other Auditor has been reported to the Audit Committee/Central Government and report the same in the Secretarial Audit Report.

3. The Auditor shall verify whether the Audit Committee/Board has given any comments on the fraud reported by the auditors in their report in terms of the provisions of the Companies Act, 2013.

Question 17.
Write Note on: “Takeover Audit”.
Answer:
1. Takeover audit for merger/acquisition/takeover could be done as three parts: pre-acquisition, post-acquisition and sell-side.

2. To provide the desired results to an investor and to ensure that the acquisition is executed in the most effective manner, the concept of the takeover audit has been evolved; the takeover audit provides a cost benefit analysis to suggest a strategic plan for the long term in-vestment strategy.

3. A rigorous audit vide due diligence process help companies take ad-vantage of legitimate new business opportunities, while at the same time help minimize the risks.

4. A strong audit cum due diligence process is critical to ensure that the acquirer is fully aware of all aspects of the proposed transaction and provides access to vital intelligence that is used to negotiate the final price and integrate the new subsidiary more effectively.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material

Accounting Aspects of Corporate Restructuring – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

December 28, 2022

Accounting Aspects of Corporate Restructuring – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
The accounting treatment of Mergers and Acquisitions has undergone drastic change with the introduction of IND-AS 103 – Business Combination. Comment
Answer:

Corporate restructuring implies a process where the legal ownership or operational control or other structures of the company are reorganized.
As per Section 232 of the Companies Act, 2013, the accounting treatment for corporate restructuring shall be in accordance with the accounting standards prescribed under Section 133 of the Companies Act, 2013.
Earlier, accounting for mergers and amalgamation transactions was dealt using the rules laid down by Accounting Standard -14 – ‘Accounting for Amalgamation’ (AS-14)
However, accounting treatment of mergers and acquisitions (M&A) have undergone a drastic change with the introduction of IND AS-103 – Business Combination.
Business Combinations is a transaction or event where an acquirer obtains control of one or more businesses. It is the process under which two or more business organizations or their net assets are brought under common control in a single business entity.
As per IND AS 103, all business combinations are accounted using the purchase method that considers the acquisition date fair values of all assets, liabilities and contingent liabilities of the Transferor Company.

Certain major differences between AS-14 and IND AS-103 are as follows:
(a) Method of Accounting for business combination Under AS-14, companies were recording for business combination between commonly controlled enterprises using purchase method. Due to this, tax benefit for goodwill amortization was available while computing book profit for MAT purpose.

Under IND AS-103, it is mandatory to use pooling of interest method for business combination between commonly controlled enterprises. As a result of this accounting alternatives gets restricted and the consequent tax benefits will also be not available.

(b) Appointed date v. Effective date
In court approved merger, demerger and other restructuring accounting was done from the appointed date once the court order became applicable. However, with the implementation of IND AS-103 Business combinations, accounting for business combination should be done on the date on which the acquirer obtains control, i.e. from effective date.

(c) Accounting for goodwill
AS-14 provided an accounting choice to compute the goodwill at the fair value of assets or at the net asset value. However, this choice is not available in IND AS-103, as the value of goodwill has to be computed using the fair value of the assets taken over. AS-14 provides for amortization of goodwill over a period of five years. IND AS-103 prohibits amortization of goodwill and is required to test goodwill for impairment annually. This will result in a volatile profit and loss account. Goodwill amortization was available as tax deductible item while computing MAT liability. This is not available in the IND AS.

Question 2.
How goodwill and capital reserve are differentiated as per AS-14?
Answer:

The Institute of Chartered Accountants of India (ICAI) has formulated Accounting Standard (AS) – 14 ‘Accounting for Amalgamation’.
AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies, as well as treatment of resultant of goodwill or reserves.
As per AS-14, goodwill or capital reserve are created/accounted where the amalgamation is in the ‘nature of purchase’.
Goodwill arising on amalgamation is a result of excess consideration paid as compared to the net assets of Transferor Company. Goodwill represents future income earning capacity; hence it is treated as an intangible asset.
Capital reserve is the excess of the fair value of the net identifiable assets acquired over the purchase price. In other words, where the value of net assets exceeds the purchase consideration agreed, it results in capital reserve.

Question 3.
Accounting Standard-14 is applicable to demerger.
Answer:

Demerger is a mode of corporate restructuring by which a business unit is separated and then formed into an independent entity. Hence, demerger is a corporate partition/division of an existing company into two or more companies.
Accounting Standard-14 (Accounting for Amalgamations) is applicable only in case of amalgamation and not in case of demerger. AS-14 lays down the accounting and disclosure requirements in respect of amalgamations of companies and treatment of goodwill or reserves.
In the scheme of arrangement between Sony India Private Limited (Sony India) and Sony Software Centre Private Limited (Sony Soft-ware), the Delhi High Court, while approving scheme of arrangement clarified that AS-14 is applicable only to amalgamations and not to demerger. Similar ruling given by Gujarat High court in case of Gallops Realty Pvt. Ltd.

Question 4.
“Accounting treatment under AS 14 is confined to Amalgamations unlike Ind AS 103.” Discuss how far Ind AS 103 can be distinguished with AS 14.
Answer:

Corporate restructuring implies a process where the legal ownership or operational control or other structures of the company are reorganized.
As per Section 232 of the Companies Act, 2013, the accounting treatment for corporate restructuring shall be as per the accounting standards prescribed u/s 133.
Earlier, accounting for mergers and amalgamation was dealt using the rules given by the Accounting Standard -14 – ‘Accounting for Amalgamation’ (AS-14). However, accounting treatment of mergers and acquisitions (M&A) have undergone a drastic change with the introduction of IND AS-103 – Business Combination.
Given below is the distinction between AS-14 and IND AS-103:

Sr.	AS – 14	IND AS 103
1.	Deals with only amalgamations	Deals with various types of business combinations
2.	Business combinations between commonly controlled enterprises could be done using purchase method	Business combinations between commonly controlled enterprises shall be done using pooling of interest method
3.	Assets and liabilities are recorded at book value or fair market value	Assets, liabilities are recorded only at fair market value
4.	Goodwill is amortized over 5 years	Goodwill is not amortized but tested for impairment, annually
5.	Accounting is done as per figures as per Appointed Date.	Accounting is done as per figures when Acquirer obtains control.

Question 5.
Is it possible to retain the same characters of various reserves of transferor Companies post amalgamation, mergers or demergers as per Standards of Accounting concepts or conventions?
Answer:

A scheme of merger or amalgamation implies a process where the legal ownership or operational control or other structures of the company are reorganized.
The Institute of Chartered Accountants of India (ICAI) has formulated Accounting Standard (AS) – 14 ‘Accounting for Amalgamation’.
AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies, as well as treatment of resultant of goodwill or reserves.
As per AS-14, amalgamation may be either in the nature of merger or in the nature of purchase.
In case of amalgamation in the nature of merger, the identity of the reserves is retained and shall be reflected in the financial statements of the Transferee Company in the same form in which they appeared in the balance sheet of the transferor company prior to amalgamation.
General reserve of the Transferor Company remains part of general reserve of the Transferee Company and similarly, Capital Reserve or Revaluation Reserve forms part of the Capital or Revaluation Reserve of the Transferee Company.
Consequently, reserves available for distribution of dividends prior to amalgamation would also be available for distribution of dividends post amalgamation.
Where amalgamation is in the nature of purchase, none of the reserves are retained in the books of the Transferee Company. In other words, none of the reserves are recorded in the books of the Transferee Company. However, only statutory reserves retain the character and recorded in the Balance Sheet of Transferee Company.

Question 6.
Describe the ‘pooling of interests method’ of accounting adopted by amalgamated company.
Answer:

A scheme of merger or amalgamation implies a process where the legal ownership or operational control or other structures of the company are reorganized.
AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies. As per AS-14, amalgamation may be either in the nature of merger or in the nature of purchase.
The pooling of interest method is used in case of amalgamation in the nature of merger. Since merger is a combination of two or more entities, there is no need to restate the carrying amounts (i.e. book values) of assets and liabilities. Thus, only minimal changes are made in aggregating the financial statements of the amalgamating companies.

Following are the accounting rules under this method:

Assets and liabilities of the Transferor Company are incorporated at their book value.
In preparing the Transferee Company’s financial statements, the assets, liabilities and reserves (capital and revenue) of the Transferor Company should be recorded at their existing carrying amounts, as on the date of amalgamation.
The P&L A /c balance of Transferor Company should be combined with P&L A/c balance of the Transferee Company or transferred to the General Reserve, if any.
If there are any conflicting accounting policies between the companies, the same shall be resolved and a uniform set of accounting policies to be adopted after amalgamation. The effects of changes in accounting policies on the financial statements should be reported as per Accounting Standard (AS-5), ‘Prior Period Items and Changes in Accounting Policies’.
The difference between the amount recorded as share capital issued by Transferee Company (plus any additional consideration) and the amount of share capital of the Transferor Company should be adjusted in reserves.
If the consideration paid by Transferee Company is less than the share capital of Transferor Company, such difference is added in Capital Reserves of the Transferee Company. Such addition to capital reserve is not available for the purpose of distribution of dividends to shareholders and/or bonus shares.
If the consideration paid by Transferee Company exceeds the share capital of Transferor Company, following shall are the accounting rules
- The differential amount is capital loss and reduced from Reserves. Such loss is adjusted against capital reserves and then against revenue reserves, if required.
- However, if capital reserves and revenue reserve are insuf-ficient, P&L A/c shall be used.
- But, P&L A/c cannot be used directly for such appropriation, and the difference amount is transferred from P&L A/c to the revenue reserves. Thus, no direct debit to the P&L A/c
- If there is insufficient balance in the P&L A/c, the difference should be reflected on the assets side of the balance sheet in a separate heading.

Question 7.
What is meant by ‘goodwill on amalgamation’? Which factors are to be taken into account in estimating useful life of goodwill?
Answer:

The Institute of Chartered Accountants of India (ICAI) has formulated Accounting Standard (AS) – 14 ‘Accounting for Amalgamation’. AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies.
As per AS-14, goodwill is accounted where the amalgamation is in the ‘nature of purchase’.
Goodwill arising on amalgamation is a result of excess consideration paid as compared to the net assets of Transferor Company.
Goodwill arising on amalgamation represents a payment made in anticipation of future income. Hence, goodwill is amortized against future income on a systematic basis, over its useful life. It is amortized over a maximum period of five years, unless a longer period can be justified.
The following factors are to be taken into account in estimating the useful life of goodwill:
- the future estimated life of the business or industry;
- the effects of product obsolescence, changes in demand and other economic factors;
- the service life expected of key individuals or groups of employees;
- expected actions by competitors or potential competitors;
- legal, regulatory or contractual provisions affecting the useful life

Question 8.
“Certain disclosures are required to be made in the first financial statements prepared after the amalgamation orders.” Mention such disclosures.
Answer:

The Institute of Chartered Accountants of India (ICAI) has formulated Accounting Standard (AS) – 14 ‘Accounting for Amalgamation’. AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies.
Following details of amalgamations (of every type) shall be disclosed in the first financial statements after the amalgamations:
- names and general nature of business of the amalgamating companies;
- effective date of amalgamation for accounting purposes;
- the method accounting used to reflect the amalgamation; and
- particulars of the scheme sanctioned under a statute.
For amalgamation under the pooling of interest method, following additional disclosures are required to be made in the first financial statements following the amalgamation:
- description and number of shares issued, together with the percentage of each company’s equity shares exchanged to carry-out the amalgamation;
- the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.
For amalgamations under the purchase method, following additional disclosures are required to be made in the first financial statements following the amalgamations:
- consideration for the amalgamation and a description of the consideration paid or payable,
- the amount of any difference between the consideration and the value of net identifiable assets required, and the treatment thereof including the period of amortization of any goodwill arising on amalgamation.

Question 9.
Distinguish between Pooling of Interest Method and Purchase Method
Answer:

The Institute of Chartered Accountants of India (ICAI) has formulated Accounting Standard (AS) -14 ‘Accounting for Amalgamation’. AS-14 lays down the accounting and disclosure requirements in respect of amalgamation of companies.
There are two methods of accounting for amalgamations:
(i) the pooling of interest method – used in amalgamation in nature of merger,
(ii) the purchase method – used in amalgamation in nature of purchase.

Sr.	Pooling of Interest Method	Purchase Method
1.	This method is used when all five conditions as per AS-14 are satisfied	This method is used when any or ali five conditions as per AS-14 are not satisfied.
2.	Where purchase consideration is more than value of net assets, the difference is adjusted in the Reserves of the Transferee Company	Where purchase consideration is more than value of net assets, the difference is recorded as Goodwill in the books of the Transferee Company
3.	All assets & liabilities are transferred and recorded at book value	All assets & liabilities may not be transferred, as well as recorded at different values
4.	All Reserves of Transferor Company are transferred to the Transferee Company	Only Statutory Reserves of Transferor Company are transferred to the Transferee Company
5.	Profit & Loss Account of Transferor Company is transferred to the Transferee Company	Profit & Loss Account of Transferor Company is not transferred to the Transferee Company

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