CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
CHAPTER 1
PRELIMINARY
Q1. Examine the below mentioned situation and answer whether the entities are related parties
for the purpose of Sec. 188:
(i) XYZ Pvt. Ltd. has two subsidiary companies, Y Pvt. Ltd. and Z Pvt. Ltd.
(ii) XYZ Ltd. a public company, has two subsidiary companies, Y Pvt. Ltd and Z Pvt. Ltd.
(4 marks)
Ans.:
Related Parties:
As per the section 2(76)(viii), related party with reference to a company, means any body
corporate which is:
(a) a holding, subsidiary or an associate company of such company;
(b) a subsidiary of a holding company to which it is also a subsidiary; or
(c) an investing company or the venturer of the company.
However, clause (viii) shall not apply with respect to Sec. 188 to a private company.
As per Sec. 2(71), a private company which is a subsidiary of a public company will be
deemed to be a public company.
Conclusion: Applying the provisions as stated above, following conclusions may be drawn:
(i) Y Pvt. Ltd and Z Pvt. Ltd are not related parties for the purpose of Sec. 188. However, if Y
Pvt. Ltd and Z Pvt. Ltd. have common directors, then they will be deemed to be related
parties because of section 2(76)(iv).
(ii) As a private company which is a subsidiary of a public company will be deemed to be a
public company, so the exemption that provisions of Sec. 188 not applicable to private
companies, will not be available to Y Pvt. Ltd and Z Pvt. Ltd. Hence, Y Pvt. Ltd and Z Pvt.
Ltd are related parties. In addition, XYZ Ltd. will also be related Party to Y Pvt. Ltd and Z
Pvt. Ltd.
Q2. MNP Private Ltd. is a company registered under the Companies Act, 2013 with a, Paid Up
Share Capital of ₹ 3.80 crores and turnover of ₹ 42 crores. Explain the meaning of theSmall “
Company” and examine the following in accordance with the provisions of the Companies
Act, 2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ₹ 38 crore?
(6 Marks)
Ans.:
Determination of Status of Small Company:
As per Sec. 2(85) of the Companies Act, 2013, Small Company means a company, other
than a public company,
(i) paid-up share capital of which does not exceed ₹ 50 lakh or such higher amount as may
be prescribed which shall not be more than ₹ 10 crore; and
(ii) turnover of which as per its last profit and loss account does not exceed ₹ 2 crore or
such higher amount as may be prescribed which shall not be more than ₹ 100 crore.
As per Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014, the
paid up capital and turnover of the small company shall not exceed ₹ 4 crores and ₹ 40
crores respectively.
Nothing in this clause shall apply to:
(a) a holding company or a subsidiary company;
(b) a company registered under section 8; or
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
(c) a company or body corporate governed by any special Act.
Conclusion: Based on the provisions as stated above, following conclusions may be drawn:
(i) MNP Ltd. cannot avail the status of small company as turnover of the company is more
than ₹ 40 Crores.
(ii) MNP Ltd. can avail the status of small company as it fulfils both criteria of paid-up capital
(being less than ₹ 4 crores) and turnover (being less than₹40 crores).
Q3. The information extracted from the audited Financial Statement of Smart Solutions Private
Limited as at 31st March, 2022 is as below:
(1) Paid-up equity share capital ₹ 3,00,00,000 divided into 30,00,000 equity shares (carrying
voting rights) of ₹ 10 each. There is no change in the paid-up share capital thereafter.
(2) The turnover is ₹ 35,00,00,000.
It is further understood that Nice Software Limited, which is a public limited company, is
holding 12,00,000 equity shares, fully paid-up, of Smart Solutions Private Limited. Smart
Solutions Private Limited has filed its Financial Statement for the said year with the Registrar
of Companies (ROC) excluding the Cash Flow Statement within the prescribed time line
during the financial year 2022- 23. The ROC has issued a notice to Smart Solutions Private
Limited as it has failed to file the cash flow statement along with the Balance Sheet and
Profit and Loss Account. You are to advise on the following points explaining the provisions
of the Companies Act, 2013:
(i) Whether Smart Solutions Private Limited shall be deemed to be a small company whose
significant equity shares are held by a public company?
(ii) Whether Smart Solutions Private Limited has defaulted in filing its financial statement?
(6 Marks)
Ans.:
Determination of Status of Small Company:
As per Sec. 2(85) of the Companies Act, 2013, Small Company means a company, other
than a public company,
(i) paid-up share capital of which does not exceed ₹ 50 lakh or such higher amount as may
be prescribed which shall not be more than ₹ 10 crores; and
(ii) turnover of which as per its last profit and loss account does not exceed ₹ 2 crores or
such higher amount as may be prescribed which shall not be more than ₹ 100 crore.
Nothing in this clause shall apply to:
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
As per Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014, the
paidup capital and turnover of the small company shall not exceed ₹ 4 crores and ₹ 40
crores respectively.
As per Sec. 2(87), subsidiary company, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls
more than 1/2 of the total voting power either at its own or together with one or more of
its subsidiary companies.
In the given question, Nice Software Limited (a public company) holds 12,00,000 equity
shares of Smart Solutions Private Limited (having paid up share capital of 30,00,000 equity
shares @ ₹ 10 totaling ₹ 300 lakhs). Hence, Smart Solutions Private Limited is not a
subsidiary of Nice Software Limited and hence it is a private company and not a deemed
public company.
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
Conclusion: As the paid-up share capital (₹ 3 crores) and turnover (₹ 35 crores) of the Smart
Solutions Private Limited is within the limit as prescribed u/s 2(85), hence, this company will be
categorised as a small company.
Default in filing the financial statements:
As per Sec. 2(40) of the Companies Act, 2013, Financial statement in relation to a company,
includes:
(a) a balance sheet as at the end of the financial year;
(b) a profit and loss account, or in the case of a company carrying on any activity not for profit,
an income and expenditure account for the financial year;
(c) cash flow statement for the financial year;
(d) a statement of changes in equity, if applicable; and
(e) any explanatory note annexed to, or forming part of, any document referred to in points
(a) to (d):
Provided that the financial statement, with respect to OPC, small company and dormant
company, may not include the cash flow statement.
Conclusion: Smart Solutions Private Limited being a small company is exempted from filing a
cash flow statement as a part of its financial statements. Thus, Smart Solutions Private Limited
has not defaulted in filing its financial statements with ROC.
Q4. Kapila Limited issued equity shares of ₹ 1,00,000 (10,000 shares of ₹ 10 each) on 01.04.2022
which have been fully subscribed, whereby Kusha Limited holds 4000 shares and Prem
Limited holds 2000 shares in Kapila Limited. Kapila Limited is also holding 20% equity shares
of Red Limited before the date of issue of equity shares stated above. Red Limited controls
the composition of Board of Directors of Kusha Limited and Prem Limited from 01.08.2022.
Examine with relevant provisions of the Companies Act, 2013:
(i) Whether Kapila Limited is a subsidiary of Red Limited?
(ii) Whether Kapila Limited can hold shares of Red Limited?
(4 Marks)
Ans.:
Status of Subsidiary company:
As per Sec. 2(87) of the Companies Act, 2013 "subsidiary company" or "subsidiary", in
relation to any other company (i.e., the holding company), means a company in which the
holding company-
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than 50% of the total voting power either at its own or
together with one or more of its subsidiary companies.
For the purposes of this clause:
(i) a company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
(ii) the composition of a company's Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at
its discretion can appoint or remove all or a majority of the directors.
As per Sec. 19 of the Companies Act, 2013, no company shall, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void: Provided that nothing in this sub-section shall apply to a case where
the subsidiary company is a shareholder even before it became a subsidiary company of
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
the holding company.
In the instant case, Kapila Limited issued 10,000 equity shares on 1.4.2022 whereby Kusha
Limited & Prem Limited holds 4000 & 2000 shares respectively in Kapila Ltd., Considering 1
share = 1 vote, Kusha Limited and Prem Limited together holds more than one-half (50%)
of the total voting power. Therefore, Kapila Limited will be subsidiary to Kusha Limited &
Prem Limited from 1.4.2022.
Kapila Limited is already holding 20% equity shares of Red Limited before the date of issue
of equity shares i.e. 1.4.2022. Further, Red Limited controls the composition of Board of
Directors of Kusha Limited and Prem Limited from 01.08.2022. In the light of sub-clause
(87) of Clause 2, Red Limited is a holding company of Kusha Limited and Prem Limited
(Subsidiary companies).
Conclusion: Based on the above discussion, following conclusions may be drawn:
(i) Kapila Limited shall be deemed to be a subsidiary company of the holding company (Red
Limited) as Red Limited controls the composition of subsidiary companies Kusha Limited
& Prem Limited as per explanation to clause (87) of Sec. 2.
(ii) Kapila Limited can hold shares of Red Limited as Kapila Limited was holding shares even
before it became a subsidiary company of the Red Limited.
Q5. Geeta Private Limited is a start-up company. Mr. Prabodh has been appointed as Accounts
Manager of Geeta Private Limited. The Board meeting for approval of accounts is to be held
on 01.08.2022 and he has to prepare the financial statements for approval by the Board.
Referring to section 2(40) of the Companies Act, 2013, advise Mr. Prabodh about the
statements that are required to be prepared.
(4 Marks)
Ans.:
Financial Statements:
As per Sec. 2(40) of the Companies Act, 2013, Financial Statement in relation to a company,
includes— (i) a balance sheet as at the end of the financial year;
(i) a profit and loss account, or in the case of a company carrying on any activity not for profit,
an income and expenditure account for the financial year;
(ii) cash flow statement for the financial year;
(iii) a statement of changes in equity, if applicable; and
(iv) any explanatory note annexed to, or forming part of, any document referred to in
subclause (i) to sub-clause (iv):
Exemption: As per the proviso to section 2(40), the financial statement, with respect to one
person company, small company, dormant company and private company (if such private
company is a startup) may not include the cash flow statement.
In the instant case, Mr. Prabodh has to prepare the above financial statements except Cash
Flow Statement; since Geeta Private Limited is a start-up private company
CHAPTER 2
INCORPORATION OF COMPANY AND INCIDENTAL MATTERS
Q6. Alfa School started imparting education on 01.04.2015, with the sole objective of providing
education to children of weaker society either free of cost or at a very nominal fee
depending upon the financial condition of their parents. However, on 30th March 2022, it
came to the knowledge of the Central Government that the said school was operating by
violating the objects of its objective clause due to which it was granted the status of a
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Inter Law Mob. No. 99283 38566
CHAPTER 1
PRELIMINARY
Q1. Examine the below mentioned situation and answer whether the entities are related parties
for the purpose of Sec. 188:
(i) XYZ Pvt. Ltd. has two subsidiary companies, Y Pvt. Ltd. and Z Pvt. Ltd.
(ii) XYZ Ltd. a public company, has two subsidiary companies, Y Pvt. Ltd and Z Pvt. Ltd.
(4 marks)
Ans.:
Related Parties:
As per the section 2(76)(viii), related party with reference to a company, means any body
corporate which is:
(a) a holding, subsidiary or an associate company of such company;
(b) a subsidiary of a holding company to which it is also a subsidiary; or
(c) an investing company or the venturer of the company.
However, clause (viii) shall not apply with respect to Sec. 188 to a private company.
As per Sec. 2(71), a private company which is a subsidiary of a public company will be
deemed to be a public company.
Conclusion: Applying the provisions as stated above, following conclusions may be drawn:
(i) Y Pvt. Ltd and Z Pvt. Ltd are not related parties for the purpose of Sec. 188. However, if Y
Pvt. Ltd and Z Pvt. Ltd. have common directors, then they will be deemed to be related
parties because of section 2(76)(iv).
(ii) As a private company which is a subsidiary of a public company will be deemed to be a
public company, so the exemption that provisions of Sec. 188 not applicable to private
companies, will not be available to Y Pvt. Ltd and Z Pvt. Ltd. Hence, Y Pvt. Ltd and Z Pvt.
Ltd are related parties. In addition, XYZ Ltd. will also be related Party to Y Pvt. Ltd and Z
Pvt. Ltd.
Q2. MNP Private Ltd. is a company registered under the Companies Act, 2013 with a, Paid Up
Share Capital of ₹ 3.80 crores and turnover of ₹ 42 crores. Explain the meaning of theSmall “
Company” and examine the following in accordance with the provisions of the Companies
Act, 2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?
(ii) What will be your answer if the turnover of the company is ₹ 38 crore?
(6 Marks)
Ans.:
Determination of Status of Small Company:
As per Sec. 2(85) of the Companies Act, 2013, Small Company means a company, other
than a public company,
(i) paid-up share capital of which does not exceed ₹ 50 lakh or such higher amount as may
be prescribed which shall not be more than ₹ 10 crore; and
(ii) turnover of which as per its last profit and loss account does not exceed ₹ 2 crore or
such higher amount as may be prescribed which shall not be more than ₹ 100 crore.
As per Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014, the
paid up capital and turnover of the small company shall not exceed ₹ 4 crores and ₹ 40
crores respectively.
Nothing in this clause shall apply to:
(a) a holding company or a subsidiary company;
(b) a company registered under section 8; or
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
(c) a company or body corporate governed by any special Act.
Conclusion: Based on the provisions as stated above, following conclusions may be drawn:
(i) MNP Ltd. cannot avail the status of small company as turnover of the company is more
than ₹ 40 Crores.
(ii) MNP Ltd. can avail the status of small company as it fulfils both criteria of paid-up capital
(being less than ₹ 4 crores) and turnover (being less than₹40 crores).
Q3. The information extracted from the audited Financial Statement of Smart Solutions Private
Limited as at 31st March, 2022 is as below:
(1) Paid-up equity share capital ₹ 3,00,00,000 divided into 30,00,000 equity shares (carrying
voting rights) of ₹ 10 each. There is no change in the paid-up share capital thereafter.
(2) The turnover is ₹ 35,00,00,000.
It is further understood that Nice Software Limited, which is a public limited company, is
holding 12,00,000 equity shares, fully paid-up, of Smart Solutions Private Limited. Smart
Solutions Private Limited has filed its Financial Statement for the said year with the Registrar
of Companies (ROC) excluding the Cash Flow Statement within the prescribed time line
during the financial year 2022- 23. The ROC has issued a notice to Smart Solutions Private
Limited as it has failed to file the cash flow statement along with the Balance Sheet and
Profit and Loss Account. You are to advise on the following points explaining the provisions
of the Companies Act, 2013:
(i) Whether Smart Solutions Private Limited shall be deemed to be a small company whose
significant equity shares are held by a public company?
(ii) Whether Smart Solutions Private Limited has defaulted in filing its financial statement?
(6 Marks)
Ans.:
Determination of Status of Small Company:
As per Sec. 2(85) of the Companies Act, 2013, Small Company means a company, other
than a public company,
(i) paid-up share capital of which does not exceed ₹ 50 lakh or such higher amount as may
be prescribed which shall not be more than ₹ 10 crores; and
(ii) turnover of which as per its last profit and loss account does not exceed ₹ 2 crores or
such higher amount as may be prescribed which shall not be more than ₹ 100 crore.
Nothing in this clause shall apply to:
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
As per Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014, the
paidup capital and turnover of the small company shall not exceed ₹ 4 crores and ₹ 40
crores respectively.
As per Sec. 2(87), subsidiary company, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls
more than 1/2 of the total voting power either at its own or together with one or more of
its subsidiary companies.
In the given question, Nice Software Limited (a public company) holds 12,00,000 equity
shares of Smart Solutions Private Limited (having paid up share capital of 30,00,000 equity
shares @ ₹ 10 totaling ₹ 300 lakhs). Hence, Smart Solutions Private Limited is not a
subsidiary of Nice Software Limited and hence it is a private company and not a deemed
public company.
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
Conclusion: As the paid-up share capital (₹ 3 crores) and turnover (₹ 35 crores) of the Smart
Solutions Private Limited is within the limit as prescribed u/s 2(85), hence, this company will be
categorised as a small company.
Default in filing the financial statements:
As per Sec. 2(40) of the Companies Act, 2013, Financial statement in relation to a company,
includes:
(a) a balance sheet as at the end of the financial year;
(b) a profit and loss account, or in the case of a company carrying on any activity not for profit,
an income and expenditure account for the financial year;
(c) cash flow statement for the financial year;
(d) a statement of changes in equity, if applicable; and
(e) any explanatory note annexed to, or forming part of, any document referred to in points
(a) to (d):
Provided that the financial statement, with respect to OPC, small company and dormant
company, may not include the cash flow statement.
Conclusion: Smart Solutions Private Limited being a small company is exempted from filing a
cash flow statement as a part of its financial statements. Thus, Smart Solutions Private Limited
has not defaulted in filing its financial statements with ROC.
Q4. Kapila Limited issued equity shares of ₹ 1,00,000 (10,000 shares of ₹ 10 each) on 01.04.2022
which have been fully subscribed, whereby Kusha Limited holds 4000 shares and Prem
Limited holds 2000 shares in Kapila Limited. Kapila Limited is also holding 20% equity shares
of Red Limited before the date of issue of equity shares stated above. Red Limited controls
the composition of Board of Directors of Kusha Limited and Prem Limited from 01.08.2022.
Examine with relevant provisions of the Companies Act, 2013:
(i) Whether Kapila Limited is a subsidiary of Red Limited?
(ii) Whether Kapila Limited can hold shares of Red Limited?
(4 Marks)
Ans.:
Status of Subsidiary company:
As per Sec. 2(87) of the Companies Act, 2013 "subsidiary company" or "subsidiary", in
relation to any other company (i.e., the holding company), means a company in which the
holding company-
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than 50% of the total voting power either at its own or
together with one or more of its subsidiary companies.
For the purposes of this clause:
(i) a company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
(ii) the composition of a company's Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at
its discretion can appoint or remove all or a majority of the directors.
As per Sec. 19 of the Companies Act, 2013, no company shall, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void: Provided that nothing in this sub-section shall apply to a case where
the subsidiary company is a shareholder even before it became a subsidiary company of
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, CA, CS Abhishek Lohia
Inter Law Mob. No. 99283 38566
the holding company.
In the instant case, Kapila Limited issued 10,000 equity shares on 1.4.2022 whereby Kusha
Limited & Prem Limited holds 4000 & 2000 shares respectively in Kapila Ltd., Considering 1
share = 1 vote, Kusha Limited and Prem Limited together holds more than one-half (50%)
of the total voting power. Therefore, Kapila Limited will be subsidiary to Kusha Limited &
Prem Limited from 1.4.2022.
Kapila Limited is already holding 20% equity shares of Red Limited before the date of issue
of equity shares i.e. 1.4.2022. Further, Red Limited controls the composition of Board of
Directors of Kusha Limited and Prem Limited from 01.08.2022. In the light of sub-clause
(87) of Clause 2, Red Limited is a holding company of Kusha Limited and Prem Limited
(Subsidiary companies).
Conclusion: Based on the above discussion, following conclusions may be drawn:
(i) Kapila Limited shall be deemed to be a subsidiary company of the holding company (Red
Limited) as Red Limited controls the composition of subsidiary companies Kusha Limited
& Prem Limited as per explanation to clause (87) of Sec. 2.
(ii) Kapila Limited can hold shares of Red Limited as Kapila Limited was holding shares even
before it became a subsidiary company of the Red Limited.
Q5. Geeta Private Limited is a start-up company. Mr. Prabodh has been appointed as Accounts
Manager of Geeta Private Limited. The Board meeting for approval of accounts is to be held
on 01.08.2022 and he has to prepare the financial statements for approval by the Board.
Referring to section 2(40) of the Companies Act, 2013, advise Mr. Prabodh about the
statements that are required to be prepared.
(4 Marks)
Ans.:
Financial Statements:
As per Sec. 2(40) of the Companies Act, 2013, Financial Statement in relation to a company,
includes— (i) a balance sheet as at the end of the financial year;
(i) a profit and loss account, or in the case of a company carrying on any activity not for profit,
an income and expenditure account for the financial year;
(ii) cash flow statement for the financial year;
(iii) a statement of changes in equity, if applicable; and
(iv) any explanatory note annexed to, or forming part of, any document referred to in
subclause (i) to sub-clause (iv):
Exemption: As per the proviso to section 2(40), the financial statement, with respect to one
person company, small company, dormant company and private company (if such private
company is a startup) may not include the cash flow statement.
In the instant case, Mr. Prabodh has to prepare the above financial statements except Cash
Flow Statement; since Geeta Private Limited is a start-up private company
CHAPTER 2
INCORPORATION OF COMPANY AND INCIDENTAL MATTERS
Q6. Alfa School started imparting education on 01.04.2015, with the sole objective of providing
education to children of weaker society either free of cost or at a very nominal fee
depending upon the financial condition of their parents. However, on 30th March 2022, it
came to the knowledge of the Central Government that the said school was operating by
violating the objects of its objective clause due to which it was granted the status of a
page 4
