General Laws

Limited Liability Partnership Act 2008

Question 1. Meaning of LLP
Answer:

Any two or more persons associated with carrying on a lawful business to earn profit may form a limited liability partnership by subscribing their names to an incorporation document and registration with the registrar of companies.

Question 2.Mutual Rights and duties of partners
Answer: Mutual rights and duties of partners of a Limited Liability Partnership inter- se and those of the Limited Liability Partnership and its partners shall be governed by an agreement between the partners.

Question 3. No. of Partner
Answer: Every Limited Liability Partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident of India.

Question 4. LLP Agreement
Answer:

The mutual rights and duties of the partners of a limited liability partnership and the mutual rights and duties of a limited liability partnership and its partners shall be governed by the limited liability partnership agreement between the partners or between the limited liability partnership and its partners.

Question 5. Solvency
Answer:

• Every felted Dabinty partnership shall file the Statement of Account and Seventy in Form S with the Registrar, within thirty days from the end c:
• six months of the financial year to which the Statement of Account is Solvency relates.
• A limited liability partnership’s Statement of Account and Solvency shall be signed on behalf of the limited liability partnership by fits designated partners.

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Question 6. Accounts Audited
Answer:

A felted liability partnership whose turnover exceeds forty lakh rupees, in any financial year or whose contribution exceeds twenty-five lakh rupees (should be required to cst its accounts audited.

Question 7. Annual Return
Answer: Every feted BabTetypartnership shall file an annual return with the Registrar in Form 11.

Question 8. Foreign LLP
Answer:

As per rule 34(1) of the LLP Rules, a foreign limited liability partnership srs. l when thirty days of establishing a place of business in India, file with the Registrar in Form 27

1. A copy of the certificate of incorporation;
2. The full address of the registered or principal office of the limited liability. I partner with the country of its incorporation;
3. The full address of the office of the limited liability partnership in India which is to be deemed as its principal place of business in India;
4. Cst of partners and designated partners, if any, and the names and addresses of two or more persons resident in India, authorized to accept on behalf of the limited liability partnership, service of process, and any notices.

Limited Liability Partnership Act 2008 Short Note Question And Answers

Question 1. Write a short note about unlimited Liability Partnership
Answer:

Limited Liability Partnership is formed under the Limited Liability Partnership Act,

Its essential features are:

1. A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners and the liability of partners is limited.
2. A limited liability partnership shall have perpetual succession.
3. Any change in the partners of a limited liability partnership shall not affect the existence, rights, or liabilities of the limited liability partnership.
4. The provisions of the Indian Partnership Act, of 1932 shall not apply to a
   limited liability partnership. ,
5. Any individual or body corporate may be a partner of LLP.
6. Every limited liability partnership shall have at least two partners.
7. Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India.
8. Every limited liability partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received.
9. Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name.

Question 2. Write a short note on the Annual Return (limited liability partnership)
Answer:

• Annual return: (Section 35): As per Section 35 of the LLP Act, every LLP shall file an annual return within sixty days of its financial year in such form and manner as may be prescribed.
• Such return should be accompanied by prescribed fees
• If the LLP fails to comply with the provisions of Section 35 regarding filing of annual return, the LLP will be punishable with a fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every designated partner of such LLP shall be punishable v/ith fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

Limited Liability Partnership Act 2008 Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions Provisions of Indian Partnership Act 1932 apply to LLPs and the Body corporate may be a partner of LLP.
Answer:

The rules and regulations relating to Limited Liability Partnership have been described in the Limited Liability Partnership Act 2008, hence provisions of the Indian Partnership Act 1932 are not at all applicable to LLP’s. As regards the second portion of the question, the body corporate may be a partner in the LLP as per the LLP Act 2008.

Question 2. If the following statements are not correct, give the correct

1. Authorized capital for the formation of a limited liability partnership (LLP) is one crore.
2. Maximum number of partners in a LLP shall not exceed 50.
3. Foreign nationals can also be partners in a LLP.
4. The audit is not required in LLP in any circumstances.

Answer:

1. Since the authorized capital is not specified in the Act.
2. No maximum limit and no specific number are specified in the Act.
3. Yes, foreign Nationals can also be partners.
4. The audit is required if the contribution is above INR 25 Lakhs or if the annual turnover is above INR 40 Lakhs.

Question 3. What are the circumstances in which a Limited Liability Partnership may be wound up by the Tribunal?
Answer:

The circumstances in which a limited liability partnership may be dissolved by the Tribunal are provided in Section 64 of the Limited Liability Partnership Act, 2008 A limited liability partnership may be wound up by the Tribunal in the following ways:

1. The limited liability partnership decides that the limited liability partnership be wound up by the Tribunal;
2. if, for more than six months, the number of partners of the limited liability partnership is reduced below two;
3. if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the state, or public order;
4. if the limited liability partnership has made a default in filling with the Registrar the statement of account and solvency or annual return for any five consecutive financial years; or
5. if the Tribunal thinks that it is just and equitable that the limited liability partnership be wound up.
6. If the limited liability partnership is unable to pay its debts.

Question 4. Explain the concept of ‘whistle-blowing’ concerning the Limited Liability Partnership Act, 2008.
Answer:

A whistleblowing policy is a policy in which a mechanism is established to listen and take action against any wrong practice anywhere in the company. The concept has been discussed in Section 31 of the Limited Liability Partnership Act, 2008. As per the Section:

1. The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a limited liability partnership if it is satisfied that:
   • such partner or employee of a limited liability partnership has provided useful information during an investigation of such limited liability partnership; or
   • when any information given by any partner or employee (whether or, not during the investigation) leads to a limited liability partnership or any partner or employee of such a limited liability partnership being convicted under this Act or any other Act.
2. No partner or employee of any limited liability partnership may be discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against the terms and conditions of his limited liability partnership or employment merely because of his providing information or causing information to be provided under sub-Section(l).

Question 5. A Limited Liability Partnership is not bound by any act of its member. Justify.
Answer:

• If the member has no authority to act on behalf of the LLP, the LLP is not bound by his act.
• A limited liability partnership is not bound by any act of a member in dealing with persons if:
• The member has no authority to act for the limited liability partnership by doing that thing.
• The person knows that the member has no authority or does not know or believe him to be a member of the limited partnership.

Question 6. A limited liability partnership wants to shift its registered lice from Udaipur in the State of Rajasthan to Gurgaon in the State of Haryana. What procedure the corporation has to follow
Answer:

• Sec . 13 of the LLP Act states that a limited liability partnership may change the place of its registered office and file the notice of such change with the register from 15 within 30 days
• The registered office can be changed from one place to another place in the manner provided in the partnership Agreement if the agreement is silent then the consent of all partners shall be required to change the place of the registered office of the limited liability partnership to another place.
• where the Change in place of register the limited liability partnership consent of such secured on Where the change in place another state, a general notice with Registrar, is ret published in English and in the registered office of the circulating in that district.
• However, there is just the jurisdiction of another Reg the notice in Form 15 with partnership proposes to send the information to the Reg office is proposed to be sf Failure to comply with the partnership and its every p shall not be less than two twenty-five thousand rupees.

Question 7. Explain the extent c Section 26 of LLP Ac
Answer:

• The extent of liability of a limited partnership is contained in Section 27 which is as under:
• A limited liability partnership is not bound by anything done by a partner in dealing with a person if:
• The partner in fat has no authority to act for the limited liability partnership in doing a particular act: and
• The person knows that he has no authority or does not know or believe him to be a partner of the limited liability partnership.
• An obligation of the limited liability partnership whether arising in contract or otherwise, shall be solely the obligation of the limited liability partnership.
• The liabilities of the limited liability partnership shall be met out of the property of the limited liability partnership.

Question 8. For any contravention of provisions of the LLP Act or LLP agreement, all the partners of the LLP are liable for all penalties. Offer your views based on the Limited Liability Partnership Act, of 2008.
Answer:

• False, it is the designated partner who is responsible for doing all acts matters, and things as are required to be done by LLP as per the Act or as specified in the LLP agreement.
• Unless expressly provided otherwise in this Act, a designated partner shall be responsible for doing all acts, matters, and things as are required to be done
• The limited liability partnership in respect of compliance with the provisions of this Act including the filing of any document, return, statement, and the like report under the provisions of this Act and as may be specified in the limited liability partnership agreement and liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Question 9. Limited Liability Partnerships are body corporate. Do you agree? Justify.
Answer:

• Limited liability partnership to be body corporate:
• A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.
• A limited liability partnership shall have perpetual succession.
• Any change in the partners of a limited liability partnership shall not affect the existence, rights, or liabilities of the limited liability partnership.

Question 10. List the circumstances under which a LLP formed under the LimitedLiability Partnership Act, 2008 may be wound up by a tribunal.
Answer:

1. A limited liability partnership may be wound up by the Tribunal, if:
2. The limited liability partnership decides that the limited liability partnership be wound up by the Tribunal;
3. If, for more than six months, the number of partners of the. limited liability partnership is reduced below two;
4. If the limited liability partnership is unable to pay its debts;
5. If the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
6. If the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
7. If the Tribunal thinks that it is just and equitable that the limited liability partnership be wound up.

Question 11. A limited liability partnership wants to shift its registered office from Mumbai in the State of Maharashtra to Kolkata in the State of West Bengal. What procedure does the corporation have to follow under the Limited Liability Partnership Act, of 2008?
Answer:

According to Sec. 13 of the LLP Act Provides that a limited liability partnership may change the place of its registered office and file the notice of such change with the Registrar in form 15 within 30 days.

• The registered office can be changed from one place to another place in the manner provided in the Partnership Agreement, if the agreement is silent then the consent of all partners shall be needed to change the place of the registered office of the limited liability partnership to another place, where the change in place of the registered office is from one State to another State, the limited liability partnership having secured creditors shall also obtain the consent of such secured creditors.
• Where the change in place of the registered office is from one State to another State, a general notice, not less than 21 days before filing any notice with the Registrar, is needed- to be published in a daily newspaper published in English and in the principal language of the district in which the registered office of the limited liability partnership is situated and circulating in that district giving notice of change of registered office.
• Although, there is just a change in the jurisdiction of one Registrar to the jurisdiction of another Registrar; the limited liability Partnership shall file the notice in Form 15 with the Registrar from where the Limited liability partnership proposes to shift its registered office with a copy thereof for the information to the Registrar under whose Jurisdiction the registered office is proposed to be shifted.
• Failure to comply with the provision of this section the limited liability partnership and its every partner is liable to be punishable with a fine which shall not be less than two thousand rupees but which may extend to twenty-five thousand rupees.

Alternate Answer:

Change of LLP Office from one State to another (in the given problem, it is from Mumbai, Maharashtra to Kolkata, West Bengal)

1. Resolution for Change of Address: It should be done as per LLP Agreement. If where the Limited LLP doesn’t provide for any such procedure, consent of all partners shall be required for changing the place of the Registered Office of Limited LLP to another place.
2. Secured Creditors: Consent of Secured Creditors is required for such a change of address.
3. Form to be filed: Form-15 is to be filed with the Registrar from where (here it is Mumbai) the LLP proposes to shift its registered office with a copy thereof for the information to the Registrar under whose jurisdiction (Kolkata) the registered office is proposed to be shifted within 30 days of such change.
4. Public Notice: Publish a general notice, not less than 21 days before filing any notice with the Registrar, in a daily newspaper published in English and another regional language where the registered office of the LLP is situated (Mumbai, Maharashtra) and circulated in that district giving notice of change of registered office.
5. From when to be filed: Within 30 days of publishing of notice.
6. Penalty: Failure to comply with these provisions, the LLP and its every partner is liable to be punishable with a fine which shall not be less than two thousand rupees but which may extend to twenty-five thousand rupees

Question 12. Discuss the procedure of conversion from a private limited company into a limited liability partnership.
Answer:

The procedure of conversion from a private limited company into a Limited Liability Partnership is examined below:

Para 1 (b) of the third schedule defines the term ’convert’ about a private company converting into an LLP, as a transfer of the property, assets, interests rights privileges, liabilities, obligations, and the undertaking of the private company to the LLP by the third schedule.

A company may apply to convert itself into a LLP if and only if

• There is no security interest in its assets subsisting or in force at the time of application; and
• The partners of the LLP to which it converts comprise all the shareholders of the company and no one else.

Upon the conversion of a private company into an LLP, the company and its shareholders, the LLP, and the partners of the LLP shall be bound by the provisions of this schedule that apply to them.

The company has to apply with the Registrar by filing the different documents:

1. A statement by all its shareholders in Form No. 18 and fees containing the following particulars
   • The name and registration number of the company;
   • The date on which the company was incorporated; and
2. Incorporation document and statement; On the receipt of the above said documents, the Registrar shall register the documents subject to the provisions of the Act and the rules made there under. The Registrar may require the documents to be verified as he considers fit. The Registrar shall issue a certificate of registration in Form No. 19 as the Registrar may determine stating that the LLP is, on and from the date specified in the certificate.

• The LLP shall inform the concerned Registrar of Companies (ROC) within 15 days of the date of registration about the conversion and of the particulars of the LLP in the Form along with the fees.
• If the Registrar is not satisfied with the particulars or other information furnished the Registrar may refuse to register. Against this order, an appeal may be made before the Tribunal.

Factories Act 1948

Question 1. Objective and Scope of Factories Act, 1948
Answer:

• An Act to consolidate and amend the laws regulating labor and factories.
• Applies to the whole of India including Jammu and Kashmir.
• The objective of the Act is to ensure safety measures and promote the health and welfare of factory workers.

Question 2. What is Factory as per the Act [Factory includes any premises including the precincts thereof, whereon 10 or more workers are working for any of the days in the preceding 12 months to carry any manufacturing process with the aid of power OR 20 or more in case the manufacturing process is carried without power.
Answer:

• The factory includes all the length of the railway line, company is engaged in the construction of the railway line.
• Open land engaged in the conversion of seawater into crystals of salt will be regarded as a Factory.
• Seasonal factories like sugarcane etc. will continue to remain as factories during the off-season.
• Factory includes any premises including the precincts thereof, whereon 10 or more workers are working for any of the day in the preceding 12 months to carry any manufacturing process with the aid of power OR 20 or more in case the manufacturing process is carried without power.
• Excludes mines, units of armed forces, railway running sheds, hotels, restaurants, or eating places.
• Premises including precincts enlarge the scope.
• The factory includes all the length of the railway line, company is engaged in the construction of the railway line.
• Open land engaged in the conversion of seawater into crystals of salt will be regarded as a Factory.
• Seasonal factories like sugarcane etc. will continue to remain as factories during the off-season.

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Question 3. What is the manufacturing process as per Factories Act, 1948
Answer:

• The term manufacturing process means any process for
  • Making, altering, repairing, oiling, ornamenting, fishing, packing, washing, clearing, breaking, demolishing, or otherwise treating any article to use, for sale, disposal, or delivery;
  • Generating, transforming, and transmitting power
  • Pumping oil, water, or sewage
  • Printing, composing types for printing or bookbinding
  • Repairing, constructing, fishing, etc of vessels or ships
  • Preserving or storing in cold storage.
• of Factories Act, 1948 Factories Act, 1948 Includes the following:
  • Laundry
  • Carpet beating
  • The process involved in pumping water
  • Stitching bags
  • Conversion of latex into rubber
  • Conversion of seawater into salt
  • Tracing and adapting on raw film Packing and packaging into smaller units
  • Processes like moistening, stripping, breaking up, adaption, and packing of tobacco for use in the manufacture of cigarettes
• Factories Act, 1948 Excludes the following :
  • Transforming and transmitting electricity
  • Training Institute
  • Exhibition of film

Question 4. What is a worker as per the Factories Act, 1948
Answer:

As per Sec. 2(1) of the Factories Act, of 1948, the definition of a worker has the following ingredients:

• A person should be employed of the Factories Act, of 1948:
  • There should exist an employer-employee relationship Employer not just to control what work is to be done but also how the same shall be done.
  • The relationship between master and servant is not necessary.
  • Piece-rated workers who work regularly shall be treated as ‘workers’.
  • Partners or independent contractors cannot be regarded as workers.
• Employment to be direct or through some agency of the Factories Act, of 1948:
  • Employment should be directly by the management or the employment agency.
  • There should exist a privity of contract.

1. Employment should be in some manufacturing process of the Factories Act, of 1948:

• Includes in its purview people directly involved in the manufacturing process but also incidental to the manufacturing process.
• Includes:
  • People working in the canteen
  • Munim in a factory.

2. ployment may be for remuneration or not

• Includes
  • Apprentice
  • Honorary worker
  • A person employed an on-price work base persons employed for no wages.

Question 5.Enforcement of Factories Act, 1948
Answer:

• The State Government is responsible for the enforcement of the Act.
• State Government carries administration of the Act through:
  • Inspecting Staff
  • Certifying Surgeons
  • Welfare Officers
• Safety OfficeA welfare office er to be appointed wherein 500 or more workers are employed
• Safety officer to be appointed wherein 1000 or more workers are employed

Question 6. Occupier And his Role under the Factories Act, 1948
Answer:

• Occupier as per section 2(n) means a person who the ultimate control over the affairs of the factor occupiers of the factory needs to give a notice the to Chief Inspector:
  • 30 days before the date of resumption of seasonal factories
  • 15 days before the date of use of premises by the occupier
• When re new manager is appointed, the occupies er to intimate within:
  • 7 days of appointment
• Contents of Notice:
  • Name and address of factory
  • Name and address of occupier
  • Naandamd address of the owner
  • Name of manager
  • Address of communication
  • Number of Workers
  • Nature of manufacturing work
  • Total power installed
• Occupiers should ensure worker’s:
  • Health
  • Safety and
  • Welfare
  • He should make a written statement of the policy adopted concerning the aforesaid points (health, etc.) and even make the workers walk out the same.
• He shall provide:
  • Proper maintenance of the plant to ensure that they are| safe.
  • Safety arrangement of wire gardens to use, handling, and transportation of substances.
  • Training and supervision.
  • Safe access to all places of work in the factory.
  • Adequate facilities and arrangements for the welfare of the workers in the factory.

Question 7. Working hours as per Factories Act, 1948
Answer:

• Aduworkersker to work for 48 hours a week.
• Cannot be made to work for more than 9 hours a day.
• In case of work exceeding 9 hours, overtime at twice the normal rate needs to be given.
• Needs to be given at least half an hour’s break after continuous 5 hours of work.
• There shall be one holiday every week.
• No adult worker shall work for consecutively 10 days child who has not completed 14 years of age shall not be employed in the factory.
• Where a worker has worked for 240 days, adult workers shall be entitled to leave for 20 days.

Factories Act 1948 Short Note Question And Answers

Question  1. Write a short note on the following term Cleanliness of the factory in Factories Act, 1948
Answer:

• Section 11 of the Act provides every factory shall be kept clean and free from effluvia arising from any drain, pr, ivy, or other nuisance, and in particular
• removal of accumulated dirt and refuse on floors, benches of workroom, stair
  cases and passages and effective disposal of the same;
• cleaning of the floor of every workroom – every week by washing with disinfectant or by some other effective method;
• providing effective drainage for removing water to the extent possible;
• to ensure that interior walls and roofs etc. are kept clean the following is to be complied with-
  • whitewash color wash should be carried out at least once in every period of 14 months;
  • Whether the surface has been painted or varnished repaired or re-varnished should be carried out every five years, if washable then once every period of six months.
  • all doors, windows, and other frameworks that of wooden or metallic shall be kept painted or varnished at least once in every period of five years;
  • The dates on which such processes are carried out shall be entered in the prescribed register.

Question 2. Write a short note on the following term Manufacturing process under the Factories Act, of 1948.
Answer:

Manufacturing process under the Factories Act, 1948 “Manufacturing Process” means Process for:

• Making, altering, repairing, oiling, washing, cleaning, ornamenting, finishing, packing, breaking up, or otherwise treating or adapting any article or substance with a view to its use, sale transport, delivery or disposal, or
• Pumping oil, water, sew, age or any other substance or,
• Generating, transforming, or transmitting, power, or
• Composing types for printing the letterpress, lithography, photographing, or other similar process or book binding, or
• Constructing, reconstructing, repairing, refitting, or breaking up of ships or vessels; or
• Preserving or Storing any articles in cold storage

In this regard it becomes necessary to discuss some special circumstances that came up in some court cases:

1. Preparation of food with the aid of various electrical appliances in the kitchen of a hotel is a manufacturing process: As decided in the case of “Poona Industrial Hotel vs. I.C. Sarin, 1980, Lab I.C. 100.
2. Selliof petrol or diesel by a petrol dealer or repairing of the motor vehicle will not come within the term “manufacturing process”, as noted in the case of: “National Service Centre and Petrol Pump Vs. E.S.I Corporation, 1983 lab I.C. 412 (P. And H.).
3. The work of mere packing cannot be called a manufacturing process (ref. A.I.R. 1955 NUC 2710).
4. The business of sale of diesel oil, motor spirit, lubricant, servicing of cars and lorries, repairing vehicles,les and charging batteries with the aid of power, by employing more than workers/laborer sea the to manufacturing process, as noted in the case of “Baranagar Service Station Vs. E.S.I Corporation (1987) 1 L.L.N 912 (Cal.) (Divisional Bench). and Lab I.C. 302. ,
5. Decorticating groundnuts in electricity is a manufacturing process (A.I.R. 1959 Madras 30).
6. Breaking up of boulders is a manufacturing process – as decided the in case of “Larsen and Toubro V The state of Orissa, 1992 Lab I.C. 1513 (Orissa Divisional Bench).
7. Transportation of goods a on contract basis from one place to another by road with the assistance of transport carriers is not a manufacturing process decided in the case of Regional Director, E.S.I.C Vs. Jaihind Roadways, Bangalore (2001 ),1 L.L.J 1187 (Karnataka).
8. Reading the definition of ‘Manufacturing Process’ in the light of Supreme Court in “Workmen”, Delhi Electricity Supply Undertaking Vs. management”, (1974) 3 S.C.C. 108, the word ‘or’ in Section 2(k) (iii) must be read as ‘and’.

Question 3. Write short notes on the following terms Annual Leave under the Factories Act, 1948
Answer:

Annual leave of the Factories Act, of 1948:

Section 79 of The Factories Act, 1948 Provides that every worker who has worked for 240 days or more in a factory during a calendar year shall be allowed leave with wages for a number calculated at the rate of-

• if an adult, one day for every 20 days of work performed by him during the previous calendar year
• if a child, one day for every 15 days of work performed by him during the previous calendar year
• The following should be deemed to be days on which the worker has worked ‘c’ the purpose of computation of the period of 240 days or more any cases of layoff, by agreement or contract or as permissible under the standing orders in the case of a female worker, maternity leave for any number of days not exceeding 12 weeks and the leave earned before that in which the leave is enjoyed.
• But the above shall not be entitled for a worker to earn leave. The lead missible shall be exclusive of all holidays whether occurring during or at either end of the period of leave.
• In calculating the leave fraction of leave of half a day or more shall be treated as one full day’s leave the and fraction of less than half a day shall be omitted.

Question 4. Write short notes on Hazardous Process
Answer:

Hazardous Process of the Factories Act, of 1948

Section 2(CB) of the Factories Act, 1948 defines the expression ‘hazardous process’ as any process or active about to an industry specified in the First Schedule where, unless special care is taken, raw materials used therefor the intermediate or finished products, bye products, wastes, or effluents thereof would

• Cause material impairment to the health of the persons engaged in or connected therewith, or
• Result in the pollution of the general environment.
• The State Government may, by notification in the Official Gazette, amend the First Schedule by way of addition, omission, ion, or variation of any industry, specified in the said Schedule.

Factories Act 1948 Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions Any child can be employed in a factory.
Answer:

As per The Factories Acof t, 1948, Children below 14 years are not allowed to work in the factory. Child means a child who has not completed the age of 15 years. After attaining the age of 14, he or she can work in the factory provided he or she has a certificate of fitness given by a competent authority.

Question 2. “Young person” means a person who has completed 18 years of age (Factories Act, 1948). Do you agree? (2 marks)
Answer:

• The statement is not correct. A young person is a person who is either a child or an adolescent. [Sec 2(d), The Factories Act, 1948]
• A child means a person who has not completed his 15th year of age. [Sec 2(c), The Factories Act, 1948]
• An adolescent is a person who has completed his 15th year of age but has not completed his 18th year. [Sec 2(b), The Factories Act, 1948]

Question 3. Are there any provisions in the Factories Act for the protection of the eyes of Workmen?

1. Who is ‘Occupier’ (Factories Act)
2. State the Duty of the Occupier when a new manager is appointed in the factory.

Answer:

Yes, the State Govt, by rules requires that effective screens or suitable goggles shall be provided for the protection of the eyes of persons employed in or near the manufacturing process which involves:

1. Risk of injury to the eyes from particles, or fragments thrown off in the course of the process or
2. Risk to the eyes because of exposure to excessive light.

• Occupier has been defined in the Factories Act in Section 2(n) as the person who has ultimate control over the affairs of the factory. It is also stated further that in the case of a firm or other association of individuals, any one of the partners or members thereof shall be deemed to be the ‘occupier’.
  • Section 2 of the Factories Act, of 1948 further states that in the case of a company, any of the directors shall be deemed to be the ‘occupier’. The Supreme Court resolved in Industries vs Chief Inspector of Factories in 1997 that only a member othe f the Board of Directors of the company can ban an ‘occupier’ of the factory of the company.
  • The ultimate control of the factory vests with the BOD of the company and not on anyone else.
  • Any company which owns a factory cannot nominate its employee or its officer except the director of the company as the occupier of its factory.
• When the new manager is appointed, the occupier must inform the inspector and chief inspector in writing regarding the appointment within seven days of the appointment.

Question 4. Comment on the following based on legal provisions: (e) Factories Act, 19 applies to all the factories wherein 50 or more workers are working.
Answer:

Factories Act, 19 appliesble to the factory which is defined as Factry: means any premises including its precincts (means zone, sector, ground, division, area. Precinct means any area enclosed by a wall.) where

• Ten or more workers are working or were working on any day of the preceding twelve months, in a manufacturing process which is carried on with the help of power Or
• Twenty or more workers are working or were working on any day of the preceding twelve months, in a manufacturing process that is carried on without the help of power.

Question 5. As per the r Factories Act, adequate shelters, restrooms, MS, and lunch rooms are mandatory in all the factories. Do you agree? Give the e correct answer. 
Answer:

The occupier is required to provide suitable shelters or rest rooms and suitable lunch rooms with the provision of drinking water, in his factory if more than one hundred and fifty workers are ordinarily employed in it.

Question 6. Is a laundry attached to the hospital (main Institution) used for washing linen used in the hospital is factory within the meaning of the Factories Act, of 1948? 
Answer:

• When the hospital is not a factory, any department in another hospital cannot be treated as s factory.
• In Dr. PSS Sundar Rao, GS v Inspector of Factories Vellore 1984 LLJ 237 Mad, the question was whether a laundry attached to the Christian Medical College and Hospital, Vellore is a Factory within the meaning of this Act.
• The Madras High Court held that the laundry run by the hospital cannot be separated from the main institution to ensure e high degree of hygiene standards for the Hospitahasng in the laundry for washing the linen in the hospital.
• Therefore, laundry is only a subsidiary, min, or incidental establishment of the hospital which is not a factory.
• One department of the Hospital established for the efficient functioning of the Hospital cannot be therefore disjoined from the main Institution and termee a factory.
• The paramount or the primary character of the main Institution alone has to be taken into consideration and when the main Institution is not a factory; a department thereof cannot become so, even though a manufacturing process is carried on there.

Question 7. Explain the right of workers to warn about imminent danger under the Factories Act, of 1948.
Answer:

As per Section 41H of the Factories Act, of 1948, it is the right of workers to warn about imminent danger

• Where the workers employed in any factory engaged in a hazardous process have e reasonable apprehension that there is a likelihood of imminent danger to their lives or health due to any accident, they may bring the same to the notice of the occupier, agent, manager or any other person who is in charge of the factory or the process concerned directly or through their representatives in the safety committee and simultaneously bring the same to the notice of the Inspector.
• It shall be the duty of such occupier, agent, manager, er, or the person in charge of the factory or process to take immediate remedial action if he is satisfied with the existence of such imminent danger and send a report forthwith the action taken to the nearest Inspector.
• If the occupier, agent manager, or the person in charge referred to in the sub-section is not satisfied without the existence of any imminent danger as apprehended by the workers, he shall, nevertheless, refer the matter forthwith to the nearest Inspector whose decision on the question of the existence of such imminent danger shall be final.

Question 8. Employees of an electricity generation station claimed that their unit is covered under the definition of ‘factory’ considering the process of transforming and transmission of electricity generated at the power station as a ‘manufacturing process’. Will their claim succeed and the er Factories Acof t, 1948.
Answer:

As per Section 2(k) of the Factories Act of , 1948the , manufacturing process means any process for:

1. Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or
2. Pumping oil, water, sewa, get, or any other substance: or;
3. Generating, transforming, or transmitting power; or
4. Composing types for printing, printing by letter press, lithography, photogravure,ure or other similar processes or book binding;
5. Constructing, reconstructing, repairing, refitting, finishing, or breaking up ships or vessels;
6. Preserving or storing any article in cold storage

The process undertaken at the electricity generating station, Sub-station is transferring and transmitting electricity is not a manufacturing process and is not thus factory- [Delhi Electricity Supply Undertaking vs Management of DESU, AIR(1973)SCC 365].

Question 9. What are the responsibilities of an occupier in a factory?
Answer:

Responsibility of the occupier

The occupier has to follow the procedure:

• to lay down a detailed law concerning the health and safety of the workers;
• disclose all the information regarding dangers including health hazards and the measures to overcome such hazards arising from the exposure to or handling of the materials or substances in the manufacture, transportation, storing, get, and other processes to the workers employed in the factory;
• To draw up an onsite emergency plan and detailed disaster control measures for the factory and make known to the workers and the general public living in the vicinity of the factory, the safety measures required to be taken in the event of an accident taking place.
• To lay down measures for the handling usage, transportation, and storage of hazardous substances inside the factory premises and the disposal of such substances outside the factory premises and publicize them in the manner prescribed among the workers and the general public living in the vicinity.

Section 41C provides that the occupihasing specific responsibility for hazardous processes. He has to maintain the health records of the employees. He is to appoint experienced persons who possess specified qualifications in handling hazardous substances and are competent to supervise such handling within the factory.

Question 10. Critically examine the duties of certified surgeons under the Factories Act, of 1948.
Answer:

Section 10 under the Factories Act, of 1948 provides that the State Government may appoint qualified medical practitioners to be certifying surgeons for this Act within such local limits or for such factory or class or description of factories as it may assign to them respectively.

The duties of certified surgeons are as follows-.

• the examination and certification of young persons;
• the examination of a person engaged in factories in such dangerous occupations or processes as may be prescribed;
• the exercising of such medical supervision as may be prescribed for any factory or class or description of factories, where
• cases of illness have occurred which it is reasonable to believe are due to the nature of the manufacturing process carried on, or other conditions of work prevailing, therein;
• because of any change in the manufacturing process carried on or in the substances used therein or because of the adoption of any new manufacturing process or any new substance for use in a manufacturing process, there is a likelihood of injury to the health of workers employed in that manufacturing process;
• Young persons are, or are about to be, employed in any work which is likely to cause injury to their health.

Question 11. Discuss the welfare measures to be taken in a factory for the workmen employed therein as per the Factories Act, of 1948.
Answer:

The following are the welfare measures prescribed in the Factories Acof t, 1948 to be provided by the factory to their workmen:

Question 12. Discuss the different powers that can be exercised by an inspector under the Factories Act
Answer:

Section 8 of the Factories Act, 1948 provides that the government may appoint a person possessing the prescribed qualifications to be inspector of this Act and may also assign local limits as may be thought fit by the said government.

As per Section 9 of the Factories Act, 1948 the following powers can be exercised by the inspector:

1. He may enter any pathetic is used, or which has reason to believe is used as a factory,
2. He can examine the premises, plant, machinery, article or substance,
3. He may inquire into any accident or dangerous occurrence whether resulting in bodily injury, or disability, or not take on the spot statements of any person which he may consider necessary for such inquiry,
4. He can require the production of any document relating to the factory,
5. He may seize or take copies of any register, record, or other documents of any portion thereof as he may consider necessary,
6. He can take possession of any article or substance or part thereof and detain it for so long as is necessary for such examination
7. He can exercise any such other powers as may be prescribed

Factories Act 1948 Practicalcal Questions and Answers

Question 1. ABC Ltd. carried ng manufacturing activities with the aid of power and with eight workers for the last two years ending on 31.03.2014. Three more workers were appointed on 01.04.2014, two workmen left the company on 30.04.2014. Thereafter no workman was employed nor any workmen left. Mr. Basant, one of the workmen demanded that the Factories Act, of 1948 apply to this company but the management denied it. Give your opinion.
Answer:

According to Sec. 2 (m) of the Factories Act, 1948, ‘factory’ means any premises including the precincts thereof:

Wherein 10 or more workers are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or

Wherein 20 or more workers are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.

In the given case, during the period 01.04.2014 to 30.04.2014, there were 11 workers carrying ng manufacturing activities with the aid of power. So, the Factories Act, of 1948 applies to ABC Ltd. Mr. Basant is correct.

Payment Of Gratuity 1972

Question 1. Objective and Scope of Gratuity Act, 1972
Answer:

• An act to provide for payment of gratuity to employees engaged in certain establishments.
• Applies to the whole of India including Jammu and Kashmir.
• The objective of the act is to provide an old-age retirement social security ‘ benefit to an employee at the time of termination of services, a lump sum payment/amount.
• Amended by Gratuity (Amendment Act), 2018.
• The ceiling of gratuity has been enhanced from $ 10 lakhs to $ 20 lakhs.

Question 2. Applicability of the Act
Answer:

• National Pension System
• National Pension System Trust
• Pension Fund.
• Point of presence
• Document
• Individual pension Account
• Intermediary

Question 3. Employee for the Act
Answer:

The person employed for wages.

Excludes: Apprentice Teachers are to be considered employees.

Read and Learn More CMA Laws and Ethics Paper

Question 4. Payment of Gratuity.
Answer:

• Gratuity is payable on termination of employment provided he/she has rendered continuous service for a minimum of 5 years
• Gratuity is calculated based on continuous service( for every completed year or part above 6 months), at the rate of 15 days wages last drawn
• Gratuity Payable = Wages x Completed years of service x 15/26

Question 5. Gratuity is payable on
Answer:

• Retirement or resignation
• Death or disability
• Superannuation

Question 6. Forfeiture of Gratuity
Answer:

• Gratuity forfeited on account of such act, omission, or negligence which causes loss, damage, or destruction is termed as partial forfeiture o gratuity since the same can be carried out only to the extent of loss damage, or destruction so caused.
• As against this, in case the services of an employee get terminated due to violence or riotous act or committing an offense involving moral turpitude concerning his employment, the same can lead to forfeiture of the whole or part of the gratuity.
• If the services of an employee are terminated due to willful omission c negligence which causes damage to the property of an employee gratuity can be forfeited to the extent of damage or loss caused. The whole amount cannot be forfeited for the wilful omission by the employee.

Question 7. Rights and Obligations of the Employer
Answer:

• As soon as the Gratuity becomes payable the employer shall determine the amount of gratuity and shall give the notice to the person to whom the gratuity is payable and to the controlling authority.
• The employer shall arrange to pay the amount of gratuity within 30 days of the date of its becoming payable to the person to whom it is payable
• If such amount is not payable within due time, the employer shall pay from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at the rate of 10% per annum.

Payment of Gratuity 1972 Short Note Question And Answers

Question 1. Write a short note on the Protection of Gratuity;
Answer:

No gratuity payable under the Payment of Gratuity Act, 1972, and no gratuity payable to an employee employed in any establishment, factory, mine, oil field, plantation, port, Railway company, or shop exempted u/s 5 shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court. [Sec. 13, The Payment of Gratuity Act, 1972]

Question 2. Write a short note on the Forfeiture of Gratuity.
Answer:

Forfeiture of Gratuity :

Gratuity can be forfeited for any employee whose services have been terminated for any act of violence, wilful omission, or negligence causing damage or destruction to the property belonging to the employer.

• It can also be forfeited for any act which constitutes an offense involving moral turpitude.
• Where services have not been terminated on any of the above grounds, the employer cannot withhold gratuity due to the employee.
• Where the land of the employer is not vacated by the employee, gratuity cannot be withheld.

Payment of Gratuity 1972 Descriptive Question And Answers

Question 1. State the nature of the dispute as to gratuity that may be decided by the Controlling Authority.
Answer:

The Controlling Authority may decide the following disputes:

• Dispute as to the amount of gratuity payable to an employee under the Payment of Gratuity Act.
• Dispute as to the admissibility of any claim of, or about an employer for payment of gratuity.
• Dispute as to the person entitled to receive gratuity [Sec. 7(4)(a)].

Question 2. Under what circumstances the gratuity payable to an employee be forfeited?
Answer:

Forfeiture of Gratuity:

The legal provisions relating to the forfeiture of gratuity are contained In Section 4 (6) of the Payment of Gratuity Act, 1972, and may be summed up as under:

1. The gratuity payable to an employee shall be forfeited where the services of an employee have been terminated due to any act, willful omission or negligence on the part of the employee and the employee’s such act, etc. has caused:

1. damage or loss to the property belonging to the employer, or
2. destruction of the property belonging to the employer.

In this case, the gratuity payable to the employee shall be forfeited to the extent of the damage or loss caused to the employer’s property due to the employee’s act, omission, or negligence [Section 4(6)(a)]

2. The gratuity payable to an employee may be forfeited:

1. If the services of such an employee have been terminated for his riotous or disorderly conduct or any other Act of violence on his part, or
2. If the services of such employee have been terminated for any Act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

In the above-stated cases, the gratuity payable to an employee may be forfeited wholly or partially. [Section 4(6)(b)]

The following judicial decisions are important to note in connection with the forfeiture of gratuity by the employer:

• The right of the employer to forfeit the amount of gratuity of an employee whose services were terminated due to any Act, willful omission, or negligence causing any damage to the employer’s property is limited to the extent of damage and the proof of such damage. [Permali Wallance Ltd. Vs. State of Nl.P. (1996) ULLJ 515 (MP)].
• The right of the employer to forfeit the gratuity is available only in the circumstances enumerated in Section 4(6), as stated in points (1) and (2)above, and is not available in any other circumstances as the employee’s right to gratuity is the statutory right. [K.C.Mathew Vs. Plantation Corpn. of Kerala Ltd. (2001) LLR 123 (ker.)].
• The refusal by the employees to surrender land belonging to the employer is not a ground for forfeiture of gratuity. [Travancore Plywood Industries Ltd. Vs. Regional Joint Labour Commissioner, (1996) IILLJ 85 (ker.)].
• in case of termination of services on account of. offence involving moral turpitude the gratuity may be wholly or partially forfeited. In this regard, the Karnataka High Court has held that when an offense of theft under the law involves moral turpitude, gratuity stands wholly forfeited given Section 4 (6) of the Act. [Bharat Gas Mines Ltd. Vs. Regional Labour Commissioner. (Central) (1987) 70 FJR 11 (Karnataka)].

Question 3. Explain how the gratuity payable to employees in a seasonal establishment is calculated under the Payment of Gratuity Act, 1972. The state also the maximum amount of gratuity payable under the Act.
Answer:

Seasonal Establishments:

In the case of seasonal establishment, the employees can be classified into 2 groups.

1. Those who work throughout the year and
2. Those who work only during the season.

The former is entitled to get the gratuity at the rate of 15 days’ wages for every completed year of service or part thereof more than 6 months. The latter are entitled to receive gratuity at the rate of 7 days for each season. Section 4(3) provides that the amount of gratuity payable to an employee shall not exceed? 20 lakhs.

Question 4. Discuss the procedure for determination of the amount of gratuity as per Section 7 of the Payment of Gratuity Act, 1972.
Answer:

Section 7 prescribes the procedure for the determination of the amount of gratuity. As soon as the gratuity becomes payable, the employer shall, whether the employee has made an application or not, determine the amount of gratuity. Then he is to give notice to the person to whom the gratuity is payable and also to the Controlling Authority, specifying the amount of gratuity so determined. The notice shall be in Form L.

• The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom it is payable. If it is not paid within the stipulated period the employer is liable to pay interest at the rate of 10% per annum. If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.
• If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee, or legal heir, as the case may be, specifying the reasons why the claim for gratuity is not considered admissible. In either case, a copy of the notice shall be endorsed to the controlling authority.

Question 5. Mr. Gill, an employee of M/s Sonabheel Tea Ltd., continued to occupy the quarter of the company for eight months after superannuation, the company decided to forfeit the amount of gratuity Mr. Gill. Examine the decision taken by the company to forfeit the amount of gratuity in the light of the Payment of Gratuity Act, 1972.
Answer:

The gratuity of an employee, whose services have been terminated for any Act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss so caused.

The gratuity payable to an employee may be wholly or partially forfeited:

1. if the services of such employee have been terminated for his riotous or disorderly conduct or any other Act of violence on his part or
2. if the services of such employee have been terminated for any Act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

It is not a valid ground forfeiture of the entire gratuity. In the above case, the company is entitled to charge the quarter rent as per rules and after adjustment of such charges, Mr. Gill is entitled to receive the balance gratuity.

Question 6. Discuss the procedure for determination of the amount of gratuity.
Answer:

Amount of Gratuity:

Section 7 of the Payment of Gratuity Act, 1972 provides the procedure for the determination of the amount of gratuity. As soon as the gratuity becomes payable the employer shall whether the employee has made an application or not, determine the amount of gratuity.

• Then he is to give notice to the person to whom the gratuity is payable and also to the controlling authority) specifying the amount of gratuity so determined.
• The employer shall arrange to pay the amount of gratuity within 30 days from the date of its becoming payable to the person to whom it is payable. If it is not paid within the stipulated period the employer is liable to pay interest at the rate of 10 % per annum.
• If the delay in payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment, on this ground, no interest is payable.
• If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to the applicant employee, nominee, or legal heir, as the case may be, specifying the reasons why the claim for gratuity is r.ot considered admissible. In either case, a copy of the notice shall be endorsed to the controlling authority.

Payment of Gratuity 1972 Practical Question And Answers

Question 1. Comment on the following based on legal provisions Mr. S.K. Paul employed in seasonal establishment and was not employed throughout the year claimed gratuity at the rate of 15 days wages for each year of service. But Employer refused to pay any Gratuity to employees of seasonal establishments.
Answer:

Employer shall pay gratuity at the rate of seven days wages for each season to employees who are employed in a seasonal establishment and who are not so employed throughout the year. Wages will include Basic and D.A. Hence Mr. Paul is entitled to Gratuity.

Question 2. ABC Pvt. Ltd. was incorporated on 2nd January 1980 carrying on business from the date of incorporation employing 50 persons. Due to loss, the number of employees reduced to five w.e.f. 02.06.2011. Mr. ‘A’ who retired on 31.05.2013 was refused gratuity on the ground that the total number of employees is below 10 (ten). The employer was justified?
Answer:

• The Payment of Gratuity Act, of 1972 was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments who have rendered a minimum of five years of continuous service with the establishment employing ten or more persons.
• Every employee, other than apprentice irrespective of his wages is entitled to receive gratuity after he has rendered continuous service for five years or more. Gratuity is payable at the time of termination of his service either

1. 1. on superannuation
   2. retirement or resignation or
   3. death or disablement due to accident or disease. Termination of services includes retrenchment.

• However, the condition of five years of continuous service is not necessary if services are terminated due to death or disablement. In case of death of the employee, the gratuity payable to him is to be paid to his nominee, and if no nomination has been made, then to his heirs.
• If the Act has become applicable to any establishment, it will continue to be applicable even if the number of persons employed falls below ten or any number as specified by the Central Government.
• All the employees irrespective of salary or status are entitled to the payment of gratuity on completion of 5 years of service, in case of death or disablement there is no minimum eligibility period.

In light of the above the employer is not justified in refusing gratuity to A.

Question 3. Anurag was an employee of Coffee Estate Ltd. The whole undertaking of Coffee Estate Ltd. was taken over by a new company Asian Coffee Ltd. The Service of Anurag remained continuous in the new company. After serving for one year, Anurag met with an accident and became permanently disabled. Anurag applied to the new company for the payment of gratuity. The company Asian Estate Ltd. refused to pay gratuity because Anurag has served only for a year in the company. Examine the validity of the refusal of the company in the light of the provisions of the Payment of Gratuity Act, 1972.
Answer:

According to Section 4(1) of the Payment of Gratuity Act,1972, gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years or on his superannuation or, on his retirement or resignation or his death or disablement due to accident or disease.

• The condition of the completion of five years of continuous service is not essential in case of the termination of the employment of any employee due to death or disablement for this section.
• Disablement means such disablement as incapacities of an employee for the work that he was capable of performing before the accident or disease resulting in such disablement.
• The given problem fulfills all the above requirements as stated.
• Therefore, Anurag is entitled to recover gratuity after becoming permanently disabled, and continuous service of five years is not required in this case.
• Hence, the company cannot refuse to pay gratuity on the ground that he has served only for a year.

Question 4. Mr. Mahavir joined the company on 25.05.1987 and retired on 30.11.2012 when his salary was INR 70,000 per month. He also received a conveyance allowance of INR 20,000 per month and an average overtime of INR 1,000 per month, calculated as the amount of gratuity.
Answer:

He superannuated on 30.11.2012

Joined on 25.05.1987

He is entitled to 25 years 6 months + 5 = 26 years

Amount of gratuity =

⇒ \(\frac{15 \times 26 \times 70,000}{26}\)

= INR 10,50,000

The maximum ceiling is INR 20,00,000

His gratuity is INR 10,50,000

Question 5. Ram is employed in Sweet Sugar factory, a seasonal establishment. The factory was in operation for four months only during the financial years 2011-12. Ram was not in continuous service during this period. However, he has worked only 60 days. Referring to the provisions of The Payment of Gratuity Act, 1972, decide whether Ram is entitled to gratuity payable under the Act. Would your answer be the same in case Ram works for 100 days?
Answer:

For entitlement of gratuity, one must work for at least 75% of the days on which the establishment was open and in operation. The factory was in operation for 120 days.

• One must work for 75% of 120 therefore 90 days to claim gratuity. Ram is not entitled to gratuity, since he has worked for less than 75% of the number of days on which the establishment was in operation during such period.
• If Ram had worked for 100 days, then he would have been entitled to gratuity since the number of days on which he would have worked, in that case, would have been 75% or more of the number of days on which the establishment was in operation.

6. Ajit an employee of Supertech Copper Ltd., continued to occupy the quarter of the company for eight months after superannuation, the company decided to forfeit the amount of gratuity of Ajit. Examine the decision taken by the company to forfeit the amount of gratuity in the light of the Payment of Gratuity Act, 1972.
Answer:

The gratuity of an employee, whose services have been terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss so caused.

The gratuity payable to an employee may be wholly or partially forfeited:

• If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part or
• If the services of such an employee have been terminated for any act. which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.
• It is not a valid ground for the forfeiture of the entire gratuity. In such a case, the company is entitled to charge the quarter rent as per rules and after adjustment of such charges, Ajit is entitled to receive the balance gratuity

Question 7. Deepak is employed in Assam Coffee Estate Ltd., a seasonal establishment. The factory was in operation for four months only during the financial year 2018-19. Deepak was not in continuous service during this period. However, he has worked only 60 days. Referring to the provisions of The Payment of Gratuity Act, 1972, decide whether Deepak is entitled to gratuity payable under the Act. Would your answer be the same in case Deepak works for 100 days? (5 marks)
Answer:

For entitlement of gratuity, one must work for at least 75% of the days on which the establishment was open and in operation. The factory was in operation for 120 days.

One must work for 75% of 120 – 90 days to claim gratuity. Deepak is not entitled to gratuity, since he has worked for less than 75% of the number of days on which the establishment was in operation during such period.

If Deepak had worked for 100 days, then he would have been entitled to gratuity since the number of days on which he would have worked, in that case, would have been 75% or more of the number of days on which the establishment was in operation.

Question 8. M/s TNT Pvt. Ltd. was incorporated on 2nd March 2009 carrying on business from the date of incorporation employing 70 persons. It’s one of the most renowned companies in the country.

There have been certain turn of events recently and the company has started to face challenges since mid of the year of 2020 due to the COVID-19 pandemic. Like most parts of the world this company was also badly hit by this pandemic, A larger number of companies in India were affected directly or indirectly by this pandemic and complete lockdown. Due to this pandemic and losses, the number of employees reduced to 7 w.e.f. 15-07-2020 by Ms. TNT Pvt. Ltd. Mr. Jain who retired on 30-12-2020 was refused gratuity on the ground that the total number of employees is below 10. Another senior employee of the company Mr. T. K. Singhania retired on 31-12-2020. Mr. Singhania continued to occupy the quarter of the company for eight months after superannuation and as a result, the company decided to forfeit the amount of gratuity of Mr. Singhania. Mr. Arun Bharat an employee of the company was frustrated with his work and willfully caused damage to a machine. M/s TNT Pvt Ltd. had to spend? 95000 to get the machine in working condition and due to this damage Ms. TNT Pvt. Ltd. withholds the gratuity of Mr. Arun Bharat. On the other hand, one employee Mr. Jain retired on 30-11-20 was refused gratuity on the ground that the total number of employees is below ten. Ms TNT Pvt. Ltd. has a separate factory which is a seasonal establishment. Mr. Barun Bharat brother of Mr. Arun Bharat is employed in this factory. The factory was in operation for four months only during the financial year: 2020-21 due to the COVID-19 pandemic. Mr. Barun Bharat was not in continuous service during this period and he has worked only 60 days.

Examine the validity of the decision taken by Ms. TNT Pvt. Ltd. to forfeit the amount of gratuity of Mr. Singhania in the light of the Payment of. Gratuity Act, 1972.
Answer:

1. The gratuity of an employee, whose services have been terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss so caused.
2. The gratuity payable to an employee may be wholly or partially forfeited:

• 1. If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part or.
  2. If the services of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

Hence, it is not a valid ground for the forfeiture of the entire gratuity. In such case, the company is entitled to charge the quarter rent as per rules, and after adjustment of such charges, (Mr. Singhania is entitled to receive the balance amount of gratuity).

Question 9. M/s TNT Pvt. Ltd. was incorporated on 2nd March 2009 carrying on business from the date of incorporation employing 70 persons. It’s one of the most renowned companies in the country. There have been certain turn of events recently and the company has started to face challenges since mid of the year of 2020 due to the COVID-19 pandemic. Like most parts of the world, this company was also badly hit by this pandemic. A larger number of companies in India were affected directly or indirectly by this pandemic and complete lockdown. Due to this pandemic and losses, the number of employees reduced to 7 w.e.f. 15-07-2020 by Ms. TNT Pvt. Ltd. Mr. Jain who retired on 30-12-2020 was refused gratuity on the ground that the total number of employees is below 10. Another senior employee of the company Mr.T.K.Singhania retired on 31-12-2020. Mr. Singhania continued to occupy the quarter of the company for eight months after superannuation and as a result, the company decided to forfeit the amount of gratuity of Mr. Singhania. Mr. Arun Bharat an employee of the company was frustrated with his work and willfully caused damage to a machine. Ms TNT Pvt Ltd. had to spend? 95000 to get the machine in working condition and due to this damage Ms. TNT Pvt. Ltd. withheld the gratuity of Mr. Arun Bharat. On the other hand, one employee Mr. Jain retired on 30-11 -20 was refused gratuity on the ground that the total number of employees was below ten. Ms TNT Pvt. Ltd. has a separate factory which is a seasonal establishment. Mr. Barun Bharat brother of Mr. Arun Bharat is employed in this factory. The factory was in operation for four months only during the financial year: 2020-21 due to the COVID-19 pandemic. Mr, Barun Bharat has not been in continuous service during this period and he has worked only 60 days. Examine the validity of the decision taken by Ms. TNT Pvt. Ltd. to withhold the amount of gratuity of Mr. Arun Bharat in light of the Payment of Gratuity Act,1972.
Answer:

The Employer cannot withhold or forfeit the gratuity of Mr. Arun Bharat since his services were not terminated for the damages caused by the worker as per the Payment of Gratuity Act, 1972.

Question 10. M/s TNT Pvt. Ltd. was incorporated on 2nd March 2009 carrying on business from the date of incorporation employing 70 persons. It’s one of the most renowned companies in the country.

There have been certain turn of events recently and the company has started to face challenges since mid of the year of 2020 due to the COVID-19 pandemic. Like most parts of the world, this. the company was also badly hit by this pandemic. A larger number of companies in India were affected directly or indirectly by this pandemic and complete lockdown. Due to this pandemic and losses, the number of employees reduced to 7 w.e.f. 15-07-2020 by Ms. TNT Pvt. Ltd. Mr. Jain who retired on 30-12-2020 was refused gratuity on the ground that the total number of employees is below 10. Another senior employee of the company Mr. T. K. Singhania retired on 31-12-2020. Mr. Singhania continued to occupy the quarter of the company for eight months after superannuation and as a result, the company decided to forfeit the amount of gratuity of Mr. Singhania. Mr. Arun Bharat an employee of the company was frustrated with his work and willfully caused damage to a machine. Ms TNT Pvt Ltd. had to spend? 95000 to get the machine in working condition and due to this damages M/s TNT Pvt. Ltd. Withheld the gratuity of Mr. Arun Bharat. On the other hand, one employee Mr. Jain retired on 30-11-20 was refused gratuity on the ground that the total number of employees is below ten. Ms TNT Pvt. Ltd. has a separate factory which is a seasonal establishment. Mr. Barun Bharat brother of Mr. Arun Bharat is employed in this factory. The factory was in operation for four months only during the financial year: 2020-21 due to the COVID-19 pandemic. Mr. Barun Bharat was not in continuous service during this period and he has worked only 60 days. From the above decide whether Mr. Barun Bharat is entitled to claim gratuity under the provisions of the Payment of Gratuity Act,1972
Answer:

• In the above case: For entitlement of gratuity one must work for at least 75% of the days on which the establishment was open and in operation. The factory was in operation for 120 days.
• One must work for 75% of 120 – 90 days to claim gratuity.
• Mr. Barun Bharat is not entitled to gratuity, since he has worked for less than 75% of the number of days on which the establishment was in operation during such period.

Question 11. M/s TNT Pvt. Ltd. was incorporated on 2nd March, 2009 carrying on business from the date of incorporation employing 70 persons. It’s one of the most renowned companies in the country.

There have been certain turn of events recently and the company has started to face challenges since mid of the year of 2020 due to the COVID-19 pandemic. Like most parts of the world, this company was also badly hit by this pandemic. A larger number of companies in India were affected directly or indirectly by this pandemic and complete lockdown. Due to this pandemic and losses, the number of employees reduced to 7 w.e.f. 15-07-2020 by Ms. TNT Pvt. Ltd. Mr. Jain who retired on 30-12-2020 was refused gratuity on the ground that the total number of employees is below 10. Another senior employee of the company Mr. T. K. Singhania retired on 31-12-2020. Mr. Singhania, continued to occupy the quarter of the company for eight months after superannuation and as a result, the company decided to forfeit the amount of gratuity of Mr. Singhania. Mr. Arun Bharat an employee of the company was frustrated with his work and willfully caused damage to a machine. Ms TNT Pvt Ltd. had to spend? 95000 to get the machine in working condition and due to this damage Ms. TNT Pvt. Ltd. withheld the gratuity of Mr. Arun Bharat. On the other hand, one employee Mr. Jain retired on 30-11-20 was refused gratuity on the ground that the total number of employees is below ten. Ms TNT Pvt. Ltd. has a separate factory which is a seasonal establishment. Mr. Barun Bharat brother of Mr. Arun Bharat is employed in this factory. The factory was in operation for four months only during the financial year: 2020-21 due to the COVID-19 pandemic. Mr. Barun Bharat was not in continuous service during this period and he has worked only 60 days. Examine the validity of the decision taken by Ms. TNT Pvt. Ltd. for Mr. Jain to refuse to pay the gratuity since the number of employees was reduced to seven w.e.f. 15-07-20 under the provisions of the Payment of Gratuity Act, 1972.
Answer:

Payment of Gratuity Act states that a shop or establishment to which this Act has become applicable shall continue to be governed by this Act despite persons employed therein at any time it has become so applicable falls below ten. Therefore TNT Pvt. Ltd. cannot refuse payment of gratuity to Mr. Jain.

Employees State Insurance Act 1948

Question 1. Objective and Scope of Employees’ State Insurance Act
Answer:

• An act to provide benefits to employees of the organized sector.
• This applies to the whole of India including Jammu and Kashmir.
• The objective of the act is to protect the interest of workers in contingencies such as sickness, disability, maternity, or death due to employment injury.
• Amended in 2010 by the ESI (Amendment) Act, 2010 to increase the purview of the Act.
• Applies to employees receiving wages monthly up to 21,000 per month.

Question 2.Dependent in Employees’ State Insurance Act
Answer:

“Dependant” means any of the following relatives of a deceased insured person, namely

• a widow, a legitimate or adopted son who has not attained the age of twenty-five years, or an unmarried legitimate or adopted daughter.
  [(a) a widowed mother].
• if wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of twenty-five years and is infirm;
• if wholly or in part dependent on the earnings of the insured person at the time of his death
  1. parent other than a widowed mother,
  2. a minor illegitimate son, an unmarried illegitimate daughter, or a daughter legitimate or adopted or illegitimate if married and a minor or if widowed and a minor,
  3. A minor brother an unmarried sister or a widowed sister if a minor,
  4. A widowed daughter-in-law,
  5. A minor child of a pre-deceased son,
  6. A minor child of a pre-deceased daughter where no parent of the child is alive, or
  7. A paternal grand-parent if no parent of the insured person is alive,

Read and Learn More CMA Laws and Ethics Paper

Question 3. Employment injury in Employees’ State Insurance Act
Answer:

• Employment injury means an injury caused to an employee arising out of and in the course of his employment being an insurable employee.
• whether the accident occurs within or outside the territorial limits of India.
• Employment injury need not be confined to the employer’s premises only.
• It extends to time and place(theory of notional extension).
• It is not limited to injury or wound but has broader coverage.
• There needs to be some nexus (means relation) between the employment and the accident.

Includes:

• Injury by knocking the belt of pulley though caused by ignorance of employee himself
• Injury caused by a person who was beaten at the job though there was a threat pre-announced due to a call for strike

Excludes: Accident while on the way to the office

Question 4. Types of disablement in Employees’ State Insurance Act
Answer:

Temporary Disablement in Employees’ State Insurance Act : A condition resulting from an employment injury that requires medical treatment and results in the employee being temporarily incapable.

Permanent Partial Disablement in Employees’ State Insurance Act

• It means such disablement of a permanent nature, as reduced the earning capacity of an employee in every employment which he was capable of undertaking at the time of the accident resulting in the disablement.
• Provided that every injury specified in Part II of the Second Schedule to the Act shall be deemed to result in permanent partial disablement.

Permanent Total Disablement in Employees’ State Insurance Act

• It means such disablement of a permanent nature as incapacitates an employee for all work which he was capable of performing at the time of the accident resulting in such disablement.
• Provided that permanent total disablement shall be deemed to result from every injury specified in Part -1 of the Second Schedule to the Act or from any combination of injuries specified in Part- 2 thereof, where the aggregate percentage of loss of earning capacity, as specified in the said Part – 2 against those injuries, amount to 100% or more.

Employees’ State Insurance Act Noteworthy Points:

• The rate of contribution towards the Employees’ State Insurance Fund is 3.25% and 0.75% of employee’s wages by the employers and employees respectively.
• According to the ESI Act, 1948 wages include any remuneration paid at intervals not exceeding two months.
• Factory or establishment to which the Employees’ State Insurance Act,1948 applies has to be registered within 15 days.
• The judge of the Employees Insurance Court (ElC)should be either a Judicial Officer or a Legal practitioner for at least 5 years.

Question 5. Changes in Employees State Insurance Act, 1948
Answer:

• Employees must be registered online on the date of appointment; the online system shall allow a maximum of 10 days to register the new employee.
• The employee will have to collect their Biometric ESI permanent card from the nearest Branch Office.
• Contribution against an employee must be deposited within the due date. One shall not be able to deposit a contribution online after 42 days from the end date of the contribution period.
• Exemption from payment of employee’s contribution
• The average daily wages during a wage period for exemption from payment of employee’s contribution under section 42 shall be up to and inclusive of rupees one hundred seventy-six only.

Contribution has been reduced:

Employees State Insurance Act 1948 Short Note Question And Answers

Question 1. Write a note on the following Purposes for which ESI funds may be expended under the Employees’ State Insurance Act, 1948.
Answer:

• Various purposes for which ESI funds may be expended under the Employees State Insurance Act, of 1948. are as follows:-
• Payment of benefits to the insured person or their families.
• Payment about any contract entered for implementing the provisions of the Act.
• Payment of salaries to the employees of Employee State Insurance Corporation.
• Payment of fees to members of the standing committee

2. Write a short note on the following term Dependent in Employees’ State Insurance Act
Answer:

“Dependant” means any of the following relatives of a deceased insured person, namely,

• A widow, a legitimate or adopted son who has not attained the age of twenty-five years, or an unmarried legitimate or adopted daughter.
• A widowed mother].
• If wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of twenty-five years and is infirm;
• If wholly or in part dependent on the earnings of the insured person at the time of his death,
• A parent other than a widowed mother,
• A minor illegitimate son, an unmarried illegitimate daughter, or a (b)daughter legitimate or adopted or illegitimate if married and a minor or if widowed and a minor,
• A minor brother an unmarried sister or a widowed sister if a minor,
• A widowed daughter-in-law,
• A minor child of a pre-deceased son,
• A minor child of a pre-deceased daughter where no parent of the child is alive, or
• A paternal grandparent if no parent of the insured person is alive.

Employees State Insurance Act 1948 Distinguish Between Question And Answers

Question 1. Distinguish between the following ‘Principal employer’ and ‘immediate employer ‘1 under the Employees’ State Insurance Act, 1948.
Answer:

According to Section 2(17) of the Employees’ State Insurance Act, 1948 principal employer means:

‘Immediate employer’ means a person, about employees employed by or through him, who has undertaken the execution on the premises of a factory or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory on the establishment of the principal employer.

Employees’State Insurance Act 1948 Descriptive Question And Answers

Question 1. What are the different purposes for which employees’ state insurance funds may be utilized by the central government?
Answer:

• Purposes for which the fund may be expended Section 28 of the Act provides the Central Government may utilize the State Insurance Fund only for the following purposes:
• payment of benefits and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families, the provision of such medical benefit to their families by the provisions of this Act and defraying the charges and costs in connection therewith;
• payment of fees and allowances to members of the corporation, the Standing Committee and the Medical Benefit Council, the Regional Boards, Local Committees, and Regional and Local Medical Benefit Councils;
• payment of salaries, leave and joining time allowances, traveling and compensatory allowances, gratuities, and compassionate allowances, pensions, contributions to provident or another benefit fund of officers and
• servants of the corporation and meeting the expenditure in respect of offices and other services set up to give effect to the provisions of this Act;
• establishment and maintenance of hospitals, dispensaries, and other institutions and the provision of medical and other ancillary services for the benefit of insured persons and, where the medical benefit is extended to their families;
• payment of contributions to any State Government, local authority, or any private body or individual, towards the cost of medical treatment and attendance provided to insured persons and, where the medical benefit is extended to their families, including the cost of any building and equipment, by any agreement entered into by the Corporation; ‘.
• defraying the cost (including all expenses) of auditing the accounts of the Corporation and of the valuation of its assets and liabilities;
• defraying the cost (including all expenses) of the Employees’ insurance Courts set up under this Act;
• payment of any sums under any contract entered into for this Act by the Corporation or the Standing Committee or by any officer duly authorized by the Corporation or the Standing Committee on that behalf;
• payment of any sums under any doctor, order, or award of any Court or tribunal against the corporation or any of Its officers or servants for any net done In the execution of his duty or under a compromise or settlement of any suit or other legal proceedings or claim Instllulod or made against the corporation;
• defraying the cost and other charges of instituting or defending any civil or criminal proceedings arising out of any action taken under this Act;
• defraying oxpondlturo, within the limits proscribed, on measures for the Improvement of the health, will of Insured persons and lor tho rehabilitation and ro-employment of Insured person who has boon disabled or Injured; and
• such other purposes as may be authorized by the corporation with the previous approval of the Control Government.

Question 2. Mention the benefits that are entitled to the insured persons under the Employees’ State Insurance Act, 1948. (6 marks)
Answer:

• Section 46 of the Employees State Insurance Act, 1948 states that the insured persons and their dependents shall be entitled to the following benefits,
• Annual payments to any insured person in case of his sickness
• Annual payments to an insured woman in case of confinement miscarriage or sickness arising out of the pregnancy, confinement, premature birth of a child, or miscarriage
• Annual payments to an insured person suffering from a disablement as a result of an employment injury sustained as an employee
• Annual payments to such dependents of an insured person who dies as a result of an employment injury sustained as an employee
• Medical treatment for and attendance of insured persons
• Payment to the eldest surviving member of the family of an insured person, who has died, towards the expenditure on the funeral of the deceased insured person; if the injured person at the time of his death does not have a family, the funeral payment will be paid to the person who incurs the expenditure.
• The amount of such payment shall not exceed such amount as may be proscribed by the Central Government.
• The claim for such payments shall be made within 3 months of the death of the Insured person or within such an extended period as the Corporation allows on this behalf.

Question 3. Mention any seven purposes for which the ESI fund may be expended.
Answer:

• Section 28 of the Employees State Insurance Act, 1948 provides the Central.
• Government may utilize the State Insurance Fund only for the following purposes:
• payment of benefits: and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families, the provision of such medical benefit to their families by the provisions of this Act and defraying the charges and costs in connection therewith
• payment of fees: and allowances to members of the Corporation, the Standing Committee and the Medical Benefit Council, the Regional Boards, Local Committees, and Regional and Local Medical Benefit Councils
• payment of salaries: leave and joining time allowances, traveling and compensatory allowances, gratuities, and compassionate allowances, pensions, contributions to provident or another benefit fund of officers and servants of the Corporation, and meeting the expenditure in respect of offices and other services set up to give effect to the provisions of this Act
• establishment and maintenance of hospitals, dispensaries, and other institutions and the provision of medical and other ancillary services for the benefit of insured persons and, where the medical benefit is extended to their families
• payment of contributions: to any State Government, local authority, or any private body or individual, towards the cost of medical treatment and attendance provided to insured persons and, where the medical benefit is extended to their families, including the cost of any building and equipment, by any agreement entered into by the Corporation
• defraying the cost: of auditing the accounts of the Corporation and of the valuation of its assets and liabilities;
• payment of any sums: under any contract entered into for this Act by the Corporation or the Standing Committee or by any officer duly authorized by the Corporation or the Standing Committee on that behalf
• payment of sums under any decree, order, or: award of any Court or Tribuna against the Corporation or any of its officers or servants for any act done in the execution of his duty or under a compromise or settlement of any suit or other legal proceeding or claim instituted or made against the Corporation
• defraying expenditure: within the limits prescribed, on measures for the improvement of the health, and welfare of insured persons and forth© rehabilitation and re-employment of insured persons who have been disabled or injured.

Employees State Insurance Act 1948 Practical Question And Answers

Question 1. Attempt the following stating relevant legal provisions and decided case law, if any: Visual Electronics Ltd. sells household consumer durables such as TVs, washing machines, electric stoves, etc., of various manufacturers in its sales outlet. While delivering these items to the homes of the customers, it deputes its employees to install and explain the salient features of these items. It pays its employees an additional amount of defray for the actual traveling expenses. The Employees’ State Insurance Corporation demanded contribution to this additional payment including traveling expenses under the head “wages’. Is the demand of the Employees’ State Insurance Corporation justified?
Answer:

• In the above case, the employer is not liable to contribute to the traveling allowance.
• Traveling allowance does not form part of wages as defined under Section 2 (22) of the ESI Act as held in “S. Ganeshan wasThe Regional Director, ESI Corporation.’
• The demand of Employee’s State Insurance Corporation is not justified.

Question 2. Attempt the following stating relevant legal provisions and decided case law, if any: Lecktronics Ltd. is an establishment covered under the Employees’ State Insurance Act, 1948. The salesmen of the company were paid a commission of 10 % of the sales done by them every month. The ESI Inspector asked the employer to deposit contributions (the sum of money payable to the ESI Corporation by the principal employer in respect of an employee) in respect of the commission paid. Is he justified? Give reasons.
Answer:

• According to the ESI Act, 1948 wages include any remuneration paid at, intervals not exceeding two months.
• The employee receives incentives or commissions in addition to wages.
• As the commission is paid every month, the ESI Inspector can ask the employer to deposit contributions.

Employees Provident Fund and Miscellaneous Provisions Act 1952

Question 1. Objective and Scope of the Employees Provident Fund
Answer:

• An act to provide for the institution of provident funds, pension funds, and deposit-linked insurance fund
• Applies to the whole of India excluding Jammu and Kashmir.
• Administered by Govt, of India through the Employees’ Provident Fund Office.
• The objective of the act is to protect the interest of workers and provide them security in old age.
• This applies to employees receiving wages less than or equal to $ 15,000 per month.

Question 2. Applicability of Employees Provident Fund
Answer:

• Factory having 20 or more persons engaged in the industry mentioned under Schedule I
• Any other establishment to which Central Govt, notifies.

Employees Provident Fund  Excludes:

• Co-operative establishments with less than 50 persons and working without power
• Establishment of under control or under Act of CGor SG where employees are entitled to benefits of provident or pension schemes.

Employees Provident Fund  Note:

• Act to apply even if later on the number of persons is reduced to less than 20
• Act to apply even if the unit divides itself and operates as an independent unit

Read and Learn More CMA Laws and Ethics Paper

Question 3. Employee for Employees Provident Fund
Answer:

A person employed for wages.

Employees Provident Fund  Includes:

• Contract employee
• Apprentice excluding apprentice engaged under Apprenticeship Act
• Part-time employee.

Question 4. Provident Fund
Answer:

• Every employee working in a factory or establishment shall be entitled and required to be a member from the date of joining onwards.
• Contribution is mandatory.
• 10% of the basic wage, dearness allowance, and retaining allowance of an employee to be paid by the employer as the Employer’s Contribution.
• The employee needs to pay an amount equal to the employer’s contribution.
• Employees may even opt to pay higher, but this casts no obligation on the employer.

Question 5. Pension Scheme
Answer:

• Pension to be provided in case of: Superannuation ; Retirement; Total Disablement; Death during service; death after superannuation; widow pension (minimum : ? 450 p.m.); children pension (minimum : ? 115 p.m.); orphan pension (minimum ; ? 170 p.m.)
• A minimum of 10 years is required for entitlement of pension under the Act.
• Superannuation refers to the attainment of the age of 58 years.

⇒ \(\text { Pension }=\frac{\text { PensionableSalary } \times(\text { PensionableService }+2)}{70}\)

• Pensionable Salary to be computed as 12 months’ average salary

Question 6. Employee Deposit Linked Insurance Scheme
Answer:

• 1 % of the basic wage, dearness allowance retaining allowance, and cash value of food concessions of an employee to be paid by the employer as Employer’s Contribution.
• The employee does not make any contribution.
• The employer is also required to pay charges at the rate of 0.01% of the employee members for meeting the administrative charges, subject to a minimum of 2 per month.

Question 7. Noteworthy Points
Answer:

• Casual/temporary/workers called on an urgent basis or for short durations are not to be regarded as employees of the EPF Act.
• Employees Provident Fund Appellate Tribunal presides over cases for determining monies due from employers.

Employees Provident Fund and Miscellaneous Provisions Act 1952 Descriptive Question And Answers

Question 1. What are the benefits of a member of an Employees Provident Fund & Misc? Provisions Act 1952 can get on retirement/death?
Answer:

Retirement benefits are:

1. Accumulated Balance in PF A/C of the employee.
2. The employee pension on reaching 50/58 years of age or leaving/ retirement capital return of pension.
3. Widow pension, children pension, nominee pension, or death of member.
4. Deposit-linked insurance to the family or the nominee.

Question 2. Explain basic wages under The Employees Provident Fund Act, of 1952. Enumerate the items which are not included in it.
Answer:

Basic Wages: As per Section 2(b) of the Employees Provident Funds and Miscellaneous Provision Act, 1952, the term “Basic Wages” means all emoluments which are earned by an employee while on duty or leave

or on holidays with v/ages in either case by the terms of the contract of employment and which are paid or payable in cash to him, but do not include:

1. the cash value of any food concessions;
2. any dearness allowance (that is to say all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus, commission or pay, and other similar allowance payable to the employee in respect of his employment or of work done in such employment; or
3. any presents made by the employer.

Question 3. State the Salient features of Employees Deposit Linked Insurance as outlined in Employee’s Provident Fund & Misc. Provisions Act, 1952.
Answer :

Employees Deposit-linked Insurance Scheme:

1. The Central Government may, by notification in the Official Gazette, frame a scheme to be called the Employees’ Deposit-linked Insurance Scheme to provide life insurance benefits to the employees of any establishment or class of establishments to which this Act applies.
2. There shall be established, as soon as may be after the framing of the Insurance Scheme, a Deposit linked Insurance Fund into which shall be paid by the employer from time to time in respect of every such employee about whom he is the employer, such amount, not being more than one percent of the aggregate of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable about such employee as the Central Government may, by notification in the Official Gazette, specify.
   • Explanation: For this sub-section, the expressions “dearness allowance” and “retaining allowance’’ have the same meanings as in Section 6.
3. The employer shall pay into the Insurance Fund such further sums of money, not exceeding one-fourth of the contribution which he is required to make under sub-section (2), as the Central Government may, from time to time, determine to meet all the expenses in connection with the administration of the Insurance Scheme other than that expenses towards the cost of any benefits provided by or under that scheme.
4. The Insurance Fund shall vest in the Centra! Board and be administered by it in such manner as may be specified in the Insurance Scheme.
5. The Insurance Scheme may provide for all or any of the matters specified in Schedule IV.
6. The Insurance Scheme may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified on this behalf in that Scheme.

Question 4. A person was declared insolvent and the Court ordered the attachment of all his properties. State whether the accumulations in the Provident Fund Account of the person is attachable.
Answer:

• According to Sec. 10 of E.P.F. & M.P. Act, 1952 the amount standing to the credit of any member in the fund or of any exempted employee in a fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment
• under any decree or order of any Court respect of any debt or liability incurred by member or order of any Court in respect of any debt or liability incurred by the member or exempted employee and neither the Official Assignee nor any Receiver appointed under respective
• Acts shall be entitled to or have any claim on any such amount.
• The said treatment will also hold good in case of the death of the person and the accumulated amount is payable to his nominee.

Question 5. Is the amount standing to the credit of a member of the Provident Fund attachable in the execution of a decree or order of the Court Examine the law, on this point, laid down in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
Answer:

Protection against attachment:

• Statutory protection is provided to the amount of contribution to Provident Fund under Section 10 from attachment to any Court decree.
• Sub-section (1) of Section 10 provides that the amount standing to the credit of any member in the fund or any exempted employee in a provident fund shall not in any way, be capable of being assigned or charged and shall not be liable to attachment under any decree or order or any Court in respect of any debt or liability incurred by the member or the exempted employee and neither the official assignee appointed under the Presidency
• Towns Insolvency Act, 1909 nor any receiver appointed under the Provincial Insolvency Act, 1920 shall be entitled to or have any claim on any such amount.
• ‘The amounts standing to the credit of aforesaid categories of persons at the time of their death and payable to their nominees under the scheme or the rules, and the amount shall be free from any debt or other liability incurred by the deceased or the nominee before the death of the member or the exempted employee and shall also not be liable to attachment under any decree or order of any Court.

Question 6. Employees provident funds and Miscellaneous Provisions Act, 1952 does not apply to certain establishments. List out those establishments, (5 marks)
Answer:

The Employees Provident Fund and Miscellaneous Provisions Act, 1952 does not apply to certain establishments as specified under Section 16 of the said Act.

They are as follows:

• Any establishment registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any potato relating to co-operative societies employing less than 50 persons and working without the aid of power or
• To any establishment belonging to or under the Control of the Central Government or a State Government and whose employees are entitled to the benefit of a Contributory Provident Fund or old age pension. Or
• Any other establishment set up under any Central Provincial or State Act and whose employees are entitled to any Contributory provident fund or old age pension.
• Any newly set up establishment (less than 3 years). Central Government having regard to the financial position of any class of establishment or other circumstances of the case may exempt that class of establishment from the operation of this Act for such period as specified in the notification Issued for this purpose.

Question 7. When can a member withdraw from his National Pension Funds account? 
Answer:

Withdrawal from the National Pension Fund Account is allowed for the following purposes-

• For the purchase of a dwelling house/flat or the construction of a dwelling house including the acquisition of a suitable site for this purpose;
• For repayment of loans in special cases;
• Withdrawal within one year before the retirement;
• Such withdrawals are not required to be repaid.

Question 8. Enumerate the Central Record Keeping Agency under the Pension Fund Regulatory and Development Act 2013.
Answer:

Section 21 of the Pension Fund Regulatory and Development Act, 2013 deals with the Central Record keeping Agency:

• The Authority shall, by granting a certificate of registration under sub-section (3) of Section 27, appoint a central record-keeping agency: Provided that the Authority may, in the public interest, appoint more than one central record-keeping agency.
• The central record-keeping agency shall be responsible for receiving instructions from subscribers through the points of presence, transmitting such instructions to pension funds, effecting switching instructions received from subscribers, and discharging such other duties and functions, as may be assigned to it under the certificate of registration^ as may be determined by regulations.
• All the assets and properties owned, leased, or developed by the central record-keeping agency, shall constitute regulated assets and upon expiry of the certificate of registration or earlier revocation thereof, the Authority shall be entitled to appropriate and take over the regulated assets, either by itself or through an administrator or a person nominated by it in this behalf:
• Provided that the central record-keeping agency shall be entitled to be compensated the fair value, to be ascertained by the Authority, of such regulated assets as may be determined by regulations:
• Provided further that where the earlier revocation of the certificate of registration is based on violation of the conditions in the certificate of registration or the provisions of this Act or regulations, unless otherwise determined by the Authority, the central record-keeping agency shall not be entitled to claim any compensation in respect of such regulated assets.

Employees Provident Fund and Miscellaneous Provisions Act 1952 Practical Question And Answers

Question 1. Mr. Malhotra aged 50 years joined the P.F. Scheme on 01.01.2003. He decided to leave the service w.e.f. 01.07.2012 provided he gets a Pension under the E.P.F. Scheme. Advise based on Rules.
Answer:

Pension is allowed when:

• an employee attains the age of 50 Years or more and
• When he has completed a total sen/ice of 10 years or more and
• when he is not receiving any other EPF Pension from any other

Employer. It is presumed he is not receiving any other EPF Pension.

• He has attained the minimum age of 50 years but he has not completed a minimum of 10 years of service.
• Hence, he will not be entitled to a pension if he leaves w.e.f. 1.7.12. He will, however, be entitled to a pension if he leaves the Employment after 1.1.2013.

Question 2. ‘A’ on retirement withdrew the entire amount of his accumulation in the Provident Fund. Later on, he was appointed for a fixed tenure. Employer disagreed to allow P.F. benefit given his retirement and withdrawal of the entire amount. Offer your views based on Rule’s position.
Answer:

When any employee withdraws all his deposited amount from his provident fund account, his account is treated as closed and no further benefit can be given to the employee on this account. Hence employer was right.

Question 3. An inspector appointed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 inspects 10 p.m. (five hours after factory timings) and seeks to take copies of the “shareholders Register”. How far under the Act is his action reasonable?
Answer:

Under Section 13(2) of the Employees Provident Funds and Miscellaneous Provision Act,1952, an inspector can inspect and make copies of, take an extract from any book, register, or other documents maintained about the establishment and where he has reason to believe that any offense under this Act has been committed by an employer seize with assistance as he may think fit, such book, register or other documents or portions thereof as he may consider relevant in respect of that offense.

• The register of shareholders is not relevant to any offense mentioned in the Act.
• He is not justified in taking copies of such a register. Moreover, he should take copies of documents during working hours.
• It is unreasonable on his part to take copies at 10.00 p.m.
• In the present case, the inspector had sought to take copies of the shareholder’s register which is irrelevant to the offense, after working hours (10.00 pm) which is not reasonable.

Question 4. Sushil retired from the services of ABC Limited, on 31st March 2014. He had a sum of? 10 lakhs in his Provident Fund Account. It became due for payment to Sushil on 30 April 2014, but the company made the payment of the said amount after one year. Sushil claimed for the payment of interest on the due amount at the rate of 15 percent per annum for one year. Decide, whether the claim of Sushil is tenable under the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
Answer:

According to Section -7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the employer shall be liable to pay simple interest of 12% per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment.

However, the higher rate of interest specified in the Scheme cannot exceed the lending rate of interest charged by any scheduled bank. As per the above provision, Sushil can claim for the payment of interest on the due amount of 12 percent per annum or at the rate specified in the Scheme, whichever is higher, for one year. Here in the absence of a specified rate, Sushil can claim only 12 percent per annum interest on the due amount. Hence, the claim of Sushil for an interest rate of 15% is not tenable.

Question 5. After serving 15 years, Mr. Anand died on 30.09.2015 when his last twelve months’ average monthly wages were? 5,000. Calculate the amount to Employees Linked Deposit Insurance (ELDI) which can be paid to the nominee of Anand. (3 marks)
Answer:

As per the current amendment [The Employees Deposit Linked Insurance Scheme, 1976 as amended by the Employees Deposit Linked Insurance (Amendment) Scheme, 2011], higher of the below-mentioned would be paid to the nominee of the deceased. –

Average monthly wages drawn (up? to 6,500) during the twelve months preceding the month of death, multiplied by twenty. (Maximum amount payable is ? 1,30,000)

Or

An amount equal to the average balance in the accounts of the deceased in . the fund where the average balance exceeds? 50,000, the amount payable shall be? 50,000 plus 40% of the amount over $ 50,000 (subject to a maximum benefit of $ 1,00,000). [In this case, it is assumed that the average Fund balance is $ 1,00,000]

Hence,

Option A = 5,000 x 20= 1,00,000

Option B = 50,000 + 40% of 50,000 =  70,000

Therefore, the amount to be paid to the nominee of Mr. Anand (Higher than A and B) is $ 1,00,000

Payment Of Bonus Act 1965

Question 1. Applicability and Objective of the Payment of Bonus Act, 1965
Answer:

• The Act extends to the whole of India and applies to
• Factory defined under Factories Act, 1948
• Another establishment in which twenty or more persons are employed on any day during an accounting year.
• The objective of the Payment of Bonus Act, of 1965 is the timely payment of bonuses to the employees.
• The Payment of Bonus Act contains provisions relating to applicability, valuation, set off, set on, payment, calculation of allocable surplus, etc. which ensures that the employers do not exploit the employees while making the payment.

Question 2.Employee
Answer:

• Any person employed on a salary or wage not exceeding 7,21,000 per month in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical, or clerical work for hire or reward whether the terms of employment be express or implied.
• Does not include an apprentice.

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Question 3. Classes of employees not covered by the Payment of Bonus Act
Answer:

Following are the classes of persons not governed by the Payment of Bonus Act, of 1965:

• Employees employed by the Life Corporation of India.
• Seamen as per Section 3(42) of the Merchant Shipping Act, 1958.
• Employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948.
• Employees employed by an establishment engaged in any industry called or by or under the authority of any department of Central Government a State Government or a local authority.
• Employees employed by:
  • the Indian Red Cross Society or any other institution of a like nature.
  • universities and other educational institutions.
  • institutions established not for profit.
• Employees employed by RBI
• Employees employed by
  1. IFCI
  2. SFC (State Financial Corporation)
  3. Deposit Insurance Corporation
  4. NABARD (National Bank for Agriculture & Rural Development)
  5. UTI (Unit Trust of India)
  6. IDBI (Industrial Development Bank of India)
  7. SIDBI (Small Industries Development Bank of India)
  8. NHB (National Housing Bank)
  9. Any other financial institution (other than a Banking Company) being an establishment in the public sector, which the central government may by notification specify.

Question 4. What is Allocable Surplus
Answer:

• About the employer is a company (not being a banking company) that has not made the arrangements prescribed under the Income for the declaration and payments of the dividends within India: 67% of the available surplus in an accounting year.
• Other Employers: 60% of the available surplus

Question 5.Meaning of Salary Or Wage as per Bonus Act
Answer:

All remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment

Includes-

• Dearness Allowance (DA)

Excludes-

• Any other allowance which the employee is for the time being entitled to.
• Value of any house accommodation or supply of light, water, medical attendance, or other amenity
• Travelling concession
• Bonus (including incentive, production, and attendance bonus)
• Contribution paid or payable by the employer to any pension or provident fund
• Retrenchment compensation or any gratuity or other retirement benefit payable to the employee
• Commission payable to the employee.

Note:

• Free food allowance or free food by his employer shall be deemed to form part of the salary or wage of such employee.
• Retaining allowance and dearness allowance paid to the workman are also included in the definition of salary or wage.
• Lay-off compensation is also included within the ambit of wages.
• Subsistence allowance given during suspension is not included in wages.

Question 6. Calculation of Amount payable as Bonus
Answer:

Gross profit is calculated as per the First or Second Schedule.

Computation of Gross Profits

The gross profits derived by an employer from an establishment in respect of any accounting year shall:

• In the case of a banking company, be calculated in the manner specified in the First Schedule.
• In any other case, be calculated in the manner specified in the Second Schedule.
• From this Gross profit, the sum deductible under Section 6 is deducted.

Sums Deductible from Gross Profits

• any amount by way of depreciation admissible under the provisions of sub-section (1) of Section 32 of the Income-tax Act
• any amount by way of development rebate or investment allowance or development allowance which the employer is entitled to deduct from his income under IT Act.
• Any direct tax that the employer is liable to pay for the accounting year in respect of his income, profits, and gains during that year
• Any other sums as are specified in respect of the employer in the Third Schedule.
  • Add the sum equal to the difference between the direct tax calculated on gross profit for the previous year and the direct tax calculated on gross profit arrived at after deducting the bonus paid or payable to the employees.
  • The figure so arrived is available surplus.
  • Of this surplus, 67% in the case of a company (other than a banking company) and 60% in all other cases shall be the “allocable surplus” which is the amount available for Payment of bonuses to employees.

Question 7. Who is Eligible for Bonus
Answer:

Every employee shall be entitled to be paid by his employer an accounting year, bonus, under the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year.

Question 8. When is an employee disqualified for a Bonus
Answer:

An employee shall be disqualified from receiving a bonus if he is dismissed from service for:

• Fraud
• Riotous or Violent behavior while on the premises or the establishment.
• Theft, misappropriation, or sabotage of any property of the establishment.

Question 9. Concept of Minimum Bonus
Answer:

• Where in respect of any accounting year, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section the employer shall, instead of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty percent of such salary or wage.
• Where the salary or wage of an employee exceeds three thousand and five hundred rupees per mensem, the bonus payable to such employee shall be calculated as if his salary or wage were three thousand and five hundred rupees per mensem.

Question 10.The time limit for payment of Bonus
Answer:

• Where there is a dispute regarding payment of bonus pending before any authority: Within a month from the date on which the award becomes enforceable ‘
• In any other case: Within eight months from the close of the accounting year.

Payment Of Bonus Act 1965 Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions:  ABC Ltd. which incurred heavy loss during 2011-12 has not paid Bonus to any of its employees.
Answer:

• As per the Payment of Bonus Act, of 1965, the employer should pay a minimum bonus of 8.33% to the employee for his salary or wages earned during the accounting year. The minimum bonus should not be less than INR 100 otherwise INR 100 will be paid. Minimum bonus will have to be paid even if
• the employer, does not have any allocable surplus in the concerned accounting year. If the employee has not attained fifteen years of age at the beginning of the year, the minimum bonus will not be less than INR 60.

Question 2. The workers of a factory were paid a lump sum Bonus during the Id festival, which was not at a fixed time of the year. When the statutory bonus becomes due, can the employer adjust the festival bonus from it? What other dues, if any, may be deducted from the statutory bonus?
Answer:

• It is very customary these days to pay interim bonuses in the form of puja bonuses or other customary bonuses, then the employer is entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee will be entitled to receive only the balance.
• Moreover, if an employee is found guilty of misconduct causing financial loss to the employer, then the employer can deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only.
• If an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 percent of his salary or wage for ‘the days he has worked in that accounting year, is proportionately reduced.

Question 3. A worker was caught red-handed for theft and was suspended for four days after a proper inquiry. Is he entitled to a bonus payable to an employee under The Payment of Bonus Act, of 1965? 
Answer:

Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving a bonus under this Act, if he is dismissed from service for:

1. Fraud; or
2. Riotous or violent behavior while on the premises of the establishment; or
3. Theft, misappropriation, or sabotage of any property of the establishment
4. Hence, the worker is not entitled to a bonus.

Question 4. What procedure shall an employee adopt for the recovery of the amount of bonus due to him from his employer under the Payment of Bonus Act, 1965?
Answer:

Recovery of bonus due from an employer:

• In those cases where any money by way of bonus is due to an employee from his employer under a settlement or an award or agreement, the employee is entitled to recover the same by following the procedure prescribed in Section 21 of the Act.
• It is important to note here that the mode of recovery of the bonus prescribed under this section shall be available only if the bonus sought to be recovered is due under a settlement an award or an agreement.
• It will not apply to the recovery of the bonus which is payable under the act.

The provisions relating to the recovery of the bonus, as contained in Section 21, are as under:

1. The bonus due to an employee from his employer under a settlement orawardard’ or agreement, can be recovered by him by making an application to the Appropriate Government for the recovery of the same.
2. The application may be made by the employee himself or by any person
   authorized by him in writing. In case of the death of the employee, such an application may be made by his assignee or heirs. ‘
3. On receipt of the application, if the Appropriate Government is satisfied that any money is so due to the employee, it shall issue the certificate for that amount to the collector, and the collector shall proceed to recover the same in the same manner as an arrear of land revenue.
4. The application to the Appropriate Government should be made within one year from the date on which the money became due to the employee from the employer. However, the Government may entertain such application even after the expiry of said one year, if it is satisfied that the applicant had sufficient cause for not making the application within the prescribed period of one year.

Question 5. Explain the “time limit for payment of bonus’ to the employees in different circumstances under the provisions of the Payment of Bonus Act, 1965.
Answer:

The time limit for payment of bonus:

Section 19 of the Payment of Bonus Act, 1965 prescribes the time limit for the payment of bonuses under the following conditions:

1. Under Section 19 (1) (a) of the said Act, where the dispute is between the employer and the employees regarding the payment of a bonus and such dispute is under reference to the prescribed authority, the employer is bound to pay his employee bonus in cash within one month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute.
2. Under Section 19 (1) (b) of the said Act, in all other cases, the payment of the bonus is to be made within 8 months from the closing of the accounting year. But this period of 8 months may be extended up to a maximum of 2 years by the Appropriate Government or by any authority prescribed by the Appropriate Government only on an application to it by the employer and is satisfied that sufficient reasons exist for granting an extension. Moreover, the extension can be made only by an order.

Question 6. Discuss the procedure for the recovery of a bonus due from an employer.
Answer:

Procedure for the Recovery of Bonus Due from an Employer Section 21 of the Act provides the procedure for the recovery of a bonus in case the employer has not paid under a settlement or an award or agreement. In such cases:

• The employee himself or
• Any other person authorized by him in writing on this behalf or
• In the case of the death of the employee, his assignee or heirs may make an application to the appropriate Government for the recovery of the money due to him.
• If the appropriate Government or such authority authorized is satisfied that any money is due, it shall issue a certificate to the Collector for that amount to the Collector who shall proceed to recover the said amount in the same manner as an arrear of land revenue.
• It may be noted that every such application shall be made within one year from the date on which the money becomes due to the employee from the employer.
• As such application may be entertained after the expiry of the said period of one year; if the Appropriate Government is satisfied that the applicant had sufficient cause for not making the application within the said period.

Payment Of Bonus Act, 1965 Practical Question And Answers

Question 1. All the employees who are covered under the Bonus Act were paid a Holi Bonus of  500/- each. Later on, due to loss, the Employer paid a minimum Bonus of 8.33% but after a deduction of said $ 500/-. Whether Employer was justified.
Answer:

Yes, the Employer was justified as per provisions of Section 17the the Payment of Bonus Act, 1965. The Employer is entitled to deduct the amount of any Puja Bonus or other customary Bonus (here Holi Bonus) so paid from the amount of bonus payable to the employees m respect of that accounting year.

Question 2. Comment tho following based on legal provisions Mr, E joined as Supervisor on a monthly salary of INR 6/50 on 1 Feb 2013 and resigned on 28 Feb 2013. His employer paid a Bonus of 10% (to all the eligible employees. Hence Mr. E is entitled to a Bonus for the tho period of his service.
Answer:

The following conditions should be satisfied for entitlement of bonus under the Payment of Bonus Act.

1. He has worked for less than 30 days
2. His salary Wages does not exceed  21,000 per month [Section 2(13))
3. Provided such establishment comes under the Payment cf Bcnus Act. Mr. E is not entitled to the bonuses because he has not worked for a minimum period of 30 days.

Question 3. A company having its registered head office in Kolkata has three departments in Delhi, Chennai, and Mumbai. The company paid minimum bonus under the Payment or Bonus Act, to all its entitled employees or head office except tho employees or departments located outside Kolkata. Stale whether the employer was right.
Answer:

The employer Is wrong. As per Section 3 of the Pnymont of Bonus Act, 1965, the purpose of computation of bonus, an establishment shall include departments, undertakings, and branches. It is important whether they are situated in Sano Placolaco or not.

Exception: A branch, department o ultra shift not be treated as a pad of an establishment if the following 2 cohorts are satisfied:

• A separate B/S and PSL A/c has been p?  prepared for such branch, department, or undertaking.
• Such branch, department, or undertaking has never even* been treated as part of the establishment for computation of bonus
• But since the question is silent regarding the returned exceptions, we may assume that the establishment consists of different departments, undertakings, and branches, and all such units are treated as part of the same establishment for computer on to bonus.

Hence, the employer’s contention is not correct and the employees of ah the three departments are entitled to bonuses.

Question 4. Mr. Sharma is a supervisor in a factory drawing a salary of 77,000 pm. In a particular accounting year, he is on one month’s leave with a salary. Ha, the employer declared the minimum bonus payable as per the Payment 0! Bonus Act. 1955. to a!! eligible employees State in this connection:

1. What shall: be the salary that should” be taken into account for the cash-out bonus payable to him?
2. What shall be the total bonus payable to him? m that accounting year?
3. What would be your answer if the company suffered losses in that accounting year?
4. Is the bonus payable to him if he was illegally terminated?

Answer:

1. The bonus will be calculated at 77,000 even if the employee earns a higher salary. Where the salary or wage of an employee exceeds 77,000 per mensem, the bonus payable to such employee under Section 10 or. as the case may be under Section 11, shall be calculated as if his salary and wage were 77,000 per mensem (Section 12). This means employees getting a salary or wage up to 71,000 will be covered by the Act. but for payment of bonus, the* salary will be taken as 77.000. Amendment of Calculation of Bonus through Amendment of Sec. 12.
   • Sec. 12 of the Principal Act, provided that the bonus payable to an employee shall be in proportion to his/her salary. However, where an employee’s salary was over INR 3,500 per month, to calculate a bonus, the salary was assumed to be? 3,500 per month. To maximize bonus earnings, the Amendment Act has increased the wage ceiling from $ 3,500 per month to $ 7,000 per month or the minimum wage for the scheduled employment as fixed by the appropriate government, whichever is higher.
     Again of this section, the Scheduled Employment shall have the same meaning as assigned to it in Clause of Sec. 2 of the Minimum Wages Act, 1948.
2. The total bonus payable to him in that accounting year should be (7,000 x 12 x 8.33) = $ 6,997 To calculate the total working days, leave with salary or wages shall be deemed to be working days for the employee. Therefore, Mr. Sharma would be eligible for 12 months bonus.
3. The bonus shall have to be paid by the employer notwithstanding
   anything contained in Section 10(1), but this payment is subject to the other provisions of the Act. Even if the employer suffers a loss during the accounting year, he is bound to pay the minimum bonus as prescribed in Section 10 (State vs Sardar Dalip Singh Majhithia, 1979).
4. Disqualifications for payment of Bonus: (Section  9)’ notwithstanding anything contained in the Act, an employee shall be disqualified from receiving bonus under the Act, if he is dismissed from services for:

• • Fraud
  • Riotous or violent behavior while on the premises of the establishment; or
  • Theft, misappropriation,tion, or sabotage of any property of the establishment.
  • If an employee is illegally terminated from service, illegal remains qualified and eligible to receive a bonus.
  • If an employee was prevented from work because of an illegal order, he would be eligible for the bonus.

Question 5. A workshop is employing 50 workmen. A shop- supervisor draws monthly wages of? 9,000. HRD paid bonuses to all employees except the supervisor. The supervisor contends that he is also entitled to the bonus. Referring to the provisions of the Payment of Bonus Act, 1965, decide whether HRD’s action is cor. ect?
Answer:

• No, HRD’s action is not correct. The upper limit of sales is fixed in Section 2 (13) by the Payment of Bonus (Amendment) Act, 2015.
• Every employee whose gross salary is less than $ 21,000 shall be entitled to be paid an aid bonus by his employer provided he has worked in the establishment for not less than thirty working days
• Given this, the supervisor draws ing monthly salary of $ 9,000 and is entitled to receive five bonuses from the company.

Question 6. Kelson Limited has two separate units in Delhi and Mumbai in India. Every unit of the said company prepares and maintains its separate Balance Sheet and Profit and Loss Account. Delhi unit is incurring continuous losses and hence bonus is not paid to the employees of this unit. Decide, under the Payment of Bonus Act, 1965 whether the employees of the said unit can claim an aim bonus on the ground that the unit incurring loss is a part of one single establishment. NT?
Answer:

All the two units shall be treated as two separate establishments since all the two units maintain separate B/S and accounts.

Employees of the nuthatch are incurring losses:

• Are not entitled to claim a bonus on the ground sound that the unit incurring loss is a part of one single establishment;
• Are entitled to a minimum bonus per the provisions of Sections 10,12,13 and 14 of the Payment of Bonus Act, 1965, the new minimum bonus is payable whether or not there is any allocable surplus (and whether the establishment has made a profit or incurred a loss).

However, for computation of bonus, the amount of allocable surplus shall be taken for that particular unit only, and not of all the two units taken together.

Minimum Wages Act 1948

Question 1. Objective and Scope of the Minimum Wages Act, 1948
Answer:

• An Act to protect the interests of workers employed in the unorganized sector.
• The Act extends to the whole of India.
• The objective of the Act was to prevent the exploitation of labor and prescribe the minimum wages for employees in certain employment.

Question 2. Who is an Employee
Answer:

• Employee means any person who is employed for:
• Hire or reward to do any work
• skilled or unskilled
• manual or clerical in scheduled employment in respect of which minimum rates of wages have been fixed

Includes:

• • An out-worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted, or otherwise processed.
  • Employee declared to be an employee by the appropriate Government;
  • Employeo includes contract employees

Excludes: Member of the Armed Forces.

Question 3. What is meant by the term Wages
Answer:

Wages means all remunerations, capable of being expressed in terms of money, which would be payable to a person employed in respect of his employment in case the terms of the contract of employment were fulfilled.

Includes: House rent allowance

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Excludes:

• Any house accommodation supply of light, water, medical attendance
• Any other amenity or any service excluded by Appropriate Government
• Any contribution paid by the employer to any PF
• Any traveling allowance
• Any sum paid to the person employed to defray special expenses
• Any gratuity payable on discharge

Question 4. Who fixes the minimum rates of Wages
Answer:

• The Appropriate Government has to fix the minimum rates of wages payable to employees employed in employment.
• The appropriate Government shall review the minimum rates so fixed at such intervals as it may think fit, such intervals not exceeding 5 years, and revise the minimum rate of wages, if necessary.
  • This can be fixed only if there are a minimum of 1000 employees in the state in that Scheduled Industry
  • Minimum wages can be revised on a retrospective basis.
• Minimum wages under the Minimum Wages Act, of 1948 may be fixed as:
  • Time work
  • Piece work
  • Guaranteed time rate
  • Overtime rate
• Apart, from the aforesaid manner, it can also be fixed as follows:
  • Different scheduled employments
  • Different classes of work
  • Based on adults, adolescents, etc.

Question 5. Procedure for Fixing End Revising Minimum Wages
Answer:

There are two methods the Appropriate government may follow in fixing the minimum rate of wages:

Committee Method:

• Under the committee method, the appropriate Government appoints Committees and sub-committees
• After considering the toe ed/tee of the committee, the appropriate Government  one  fix or revise the minimum wages by official notification in the Official Gazette
• The government is not bound to accept the recommendations given by, the rate.

Notification Method:

• Notification MetUndernder’s notification  method is the appropriate Government by rate-caution to the Office Gazette publish the proposals for “horn rates of wages from a date rat less than 2 months from the date of ras-etcetera, The persons so affected by the rates of wages may t^/e them represented,
• After remastering tea representation from the various groups, the Government will prescribe the minimum rates of wages

Other Noteworthy Points:

• Payment of less than  minimum wage is an offense
• Even though the Company is running into Josses it has to pay minimum wages
• Minimum wages need to be paid in cash, though they may be paid in kind too.
• In case of termination of service of an employee, wages are to be paid within 2 days from the date of such termination.
• Imprisonment of 6 months or a fine of up to 500 or both in case of breach of the Act by paying lesser than stipulated minimum wages.

Question 6. Central Government
Answer:

For Scheduled employment carried under the authority of the central Act

• Railway
• Mines
• Oil field

Minimum Wages Act 1948 Short Note Question And Answers

Question 1. Write short notes on Overtime under the Minimum Wages Act, of 1943 )
Answer:

Overtime:

Section 14(1) states that where an employee whose minimum rate of wages is fixed under this Act by the hour, by the day, or by such a longer wage period as may be authorized, works on any day over the number of hours constituting a normal working day, the employer shall pay him for every hour or part of an hour so worked in excess at the eve rime rate fixed under this Act or any law of the appropriate government for the time being in force whichever is higher.

1. Rule 25 states that when a worker works more than 9 hours on any day or more than 48 hours in a week, he shall be entitled to overtime v/ages.
2. In the case of employment in agriculture – one and a half times the ordinary rate of wages; in the case of any other scheduled employment – double the ordinary rate of wages.
3. A register in this regard should be maintained. If no overtime wage is paid for a particular month a NIL entry in the register should be made.
4. Section 14(2) states that this Act shall not prejudice the operation of the provisions of Section 59 of the Factories Act in any case where those provisions are applicable.

Minimum Wages Act 1948 Descriptive Question And Answers

Question 1. Explain the Cost of Living Index Number under the Minimum Wages Act, of 1948.
Answer:

“Cost of living Index Number” about employees in any scheduled employment in respect of which minimum rates of wages have been fixed,
means the Index Number ascertained and declared by the Competent Authority by notification in the official gazette to be the cost of living index number applicable to employees in such employment.

Question 2. A is engaged in two types of jobs in a factory, that of mechanic and watchman. The wage rates are different for two different jobs. The employer calculates his minimum wage on an average rate. State whether this is correct, and explain your views as per the Payment of Minimum Wages Act, 1948.
Answer:

• Where an employee does two or more classes of work, to each of which a different minimum rate of wages is applicable, the employer shall pay
• such employee in respect of the time respectively occupied in each such class of work, wages at not less than the minimum rate in force in respect of each such class.
• Thus, the employer just cannot pay him at a simple average rate of both wages of both classes of job.

Question 3. Explain the procedure for fixing and revising minimum wages under the Minimum Wages Act, of 1948.
Answer:

Procedure for Fixing and Revising Minimum Wages (Sec.5):

1. In fixing minimum rates of wages in respect of. any scheduled employment for the first time under this Act or in revising minimum rates of wages so fixed the appropriate government shall either:
   • appoint as many committees and sub-committees as it considers necessary to hold inquiries and advise it in respect of such fixation or revision as the case may be, or
   • by notification in the Official Gazette, publish its proposals for the information of persons likely to be affected thereby and specify a date not less than two months from the date of the notification on which the proposals will be taken into consideration.
2. After considering the advice of the committee or committee appointed under clause (a) of sub-sec. (1) or as the case may be, all representations received by it before the date specified in the notification under clause (b) of that sub-section, the appropriate government shall by notification in the Official Gazette, fix or as the case may be revise the minimum rates of wages in respect of each scheduled employment and unless such notification otherwise provides it shall come into force on the expiry of three months from the date of its issue :
   • Provided that where the appropriate government proposes to revise the minimum rates of wages by the mode specified in clause (b) of sub-sec. (1) the appropriate government shall consult the Advisory Board also.

Question 4. The Minimum Wages Act, of 1948 prescribes payment of wages in cash only. Comment.
Answer:

1. Minimum wages payable under this Act shall be paid in cash.
2. Where it has been the custom to pay wages wholly or partly in kind, the Appropriate Government thinking that it is necessary in the circumstances of the case may by notification in the Official Gazette authorize the payment of minimum wages either wholly or partly in kind.
3. If the Appropriate Government thinks that provision should be made for the supply of essential commodities at concession rates the Appropriate Government may by notification in the Official Gazette authorize the provision of such supplies at concessional rates.
4. The cash value of wages in kind and of concessions in respect of supplies of essential commodities at concessional rates authorized under sub-section (2) and (3) shall be estimated in the prescribed manner

Question 5. Explain the procedure for fixing and revising minimum wages under the Minimum Wages Act, of 1948.
Answer:

Procedure for Fixing and Revising Minimum Wages (Sec. 5)

In fixing minimum rates of wages in respect of any scheduled employment for the first time or in revising minimum rates of wages so fixed, the appropriate Government shall follow either of the following 2 methods:

1. Appointment of committees: The appropriate Government shall appoint 1. as many committees and sub-committees as it considers necessary to hold inquiries and advise it in respect of fixation or revision of minimum rates of wages, as the case may be
2. Publication of proposals in the Official Gazette: The appropriate Government shall, by notification in the Official Gazette, publish its proposals for the information of persons likely to be affected by the fixation or revision of minimum rates of wages. It shall also specify a date on which the proposals will be taken into consideration. The date so specified shall not be less than 2 months from the date of the notification.

• • After considering the advice of the committee or committees [under Sec. 5(1) or all representations received by it before the date specified in the notification [under Sec. 5(1) (b)], the appropriate Government shall, by notification in the Official Gazette, fix or revise the minimum rates of wages in respect of each scheduled employment.
  • The fixation or revision shall come into force on the expiry of 3 months from the date of the issue of notification unless the notification otherwise provides [Sec. 5(2)].
  • The power of the Government under Sec. 5(2) to issue notification revising minimum wages includes the power to give retrospective effect to the notification.

Question 6. Describe the procedures for an employee to claim the short payment of wages or non-payment of wages under the Minimum Wages Act, of 1948.
Answer:

• If there is any short payment of wages or wages over time etc., may be claimed by the employee himself or through any legal practitioner or any official of a registered trade union authorized by him or any Inspector or any person acting with the permission of the Authority by applying to the concerned authority.
• For this purpose the appropriate Government may appoint any commissionerforworkmen’s Compensation; or any Officer of the Central Government exercising functions as a Labour Commissioner for any region; or any Officer of the State Government not below the rank of Labor Commissioner; or any other Officer with experience as a Judge of a Civil Court or as a stipendiary Magistrate to be the authority to hear and decide for any specified area for all claims.
• The claim shall be presented to the authority by the employee within six months from the date on which the minimum wages or other amount became payable.
• The Authority may a claim beyond the six months if he is satisfied that the applicant had sufficient cause for not making the application within the prescribed period.
• Rule 27 provides that a single application in respect of several employees may be filed before the authority.
• The application shall be made in duplicate in Forms 6, 6A, or 7, one copy of which shall bear the prescribed court fee.
• The authorization shall be given in Form 8.
• The Authority shall serve the copy of the application to the employer by registered post a notice in Form 9 to appear before him on a specified date.
• He shall hear the applicant and the employer and after such further inquiry, if any, as it may consider necessary may, without prejudice of any other penalty to the employer, direct the payment to the employee of the amount by which the minimum wages payable to him exceed the amount paid, together with compensation as the authority may think fit, not exceeding 10 times the amount of such excess; in any other case, the payment of the amount together with the payment of such compensation as the Authority may think fit, not exceeding $ 10.
• If the employer fails to appear on the specified date the Authority may hear and determine the application ex-parte.
• If the applicant fails to appear on the specified date the application will be dismissed.
• Any such order may be set aside on sufficient cause being shown by the defaulting party within one month of the date of the said order and the application shall be re-heard.
• If the Authority finds the application is a vexatious one he may impose a penalty on the employees not exceeding $ 50 to the employer.
• The amount due may be recovered as if it were a fine imposed by the Authority of a Magistrate.
• Every direction of the Authority shall be final.

Payment Of Wages Act 1936

Question 1. Objective and Scope of the Payment of Wages Act, 1936
Answer:

• Regulates the payment of wages to certain classes of persons employed in the industry.
• Prevents exploitation of workers by ensuring timely payment without unauthorized deductions
• The scope of this act is limited to the person drawing the wages for the month, which does not exceed $ 24,000 per month w.e.f. 29.08.2017.
• The department is enforcing this legislation on the persons employed at the registered factories.
• Applies to the whole of India including J&K.
• Prevents exploitation of workers by ensuring timely payment without unauthorized deductions.

Question 2.Responsibility for payment of wages
Answer:

• Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid under this Act.
• Employer includes legal representatives of the deceased employer.

Question 3. Fixation of wage period and time of payment of wages
Answer:

• The wage period should not exceed one month.
• In case an employee is engaged in an establishment in which less than one thousand persons are employed, wages shall be paid before the expiry of the seventh day after the last day of the wage period.
• In case an employee in an establishment in which more than one ‘ thousand persons are employed, wages shall be paid before the expiry
  of the tenth day after the last day of the wage period.
• Prevents exploitation of workers by ensuring timely payment without unauthorized deductions.

Wages to be paid in currency coins and currency notes

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Question 4. Deduction which may be made from wages
Answer:

Following deductions can be made by an employer while making payment of wages:

• Fines.
• Deduction for absence of duty.
• Deduction for damage to or loss of goods expressly entrusted to the employed person.
• Deduction for house accommodation supplied by an employer.
• Deduction for amenities and services provided by the employer.
• Deduction for recovery of advances provided by employer.
• Deduction for recovery of loan given by employer.
• The deduction is required to be made by order of a Court.
• Deduction for subscription to, and repayment of advances from any provident fund.
• The deduction is made with the written authorization of the person employed for payment of any premium on his Life Insurance Policy.
• Deduction for contribution to funds made for the welfare of employees.
• Deduction for contributions to any insurance scheme framed by the Central Government for the benefit of its employees.

Question 5.Mode of Payment
Answer:

• Wages can be paid in coins or currency notes or both
• employers may pay by cheque or by crediting the wages in the bank A/C of the employee.

Question 6.Maintenance of registers and records
Answer:

An employer shall maintain registers and records giving full particulars of the person employed by him, work performed by them, wages paid to them, the deduction made from wages, etc.

Question 7.Claims arising out of deduction from wages or delay in payment of wages and penalty for malicious or vexatious claims
Answer:

• The State Government shall appoint an authority to hear and decide claims arising out of deductions from the wages or delay in payment of wages.
• An aggrieved person can apply to the authority appointed by The State Government.
• Where an application is made by an applicant, the authority shall hear the applicant and the employer.
• After hearing and further enquiry the authority can direct the refund to the employed person of the amount deducted or the payment of delayed wages.

Question 8.Other Noteworthy Points
Answer:

• Includes contract employees
• The deduction of the fine imposed cannot exceed 3% of the wage

Payment Of Wages Act 1936 Short Note Question And Answers

Question 1. Write a short note on the following Limit of deductions from wages
Answer:

Limit of Deductions from Wages:

Section 7(3) provides up to which limit of the wage, the deductions may be made from the wages of the employees. Notwithstanding anything contained in this Act, the total amount of deductions that may be made in any wage period from the wages of any employed person shall not exceed:

• In cases where such deductions are wholly or partly made for payments to cooperative societies – 75% of such wages and
• In any other case – 50% of such wages.

Where the total deductions authorized under sub-section (2) exceed seventy-five percent or as the case may be, fifty percent of the wages the ‘ excess may be recovered in such manner as may be prescribed.

Payment Of Wages Act 1936 Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions Works Manager has deducted INR 500 from wages towards the cost of tools and raw materials supplied to workers for employment (Payment of Wages Act).
Answer:

As per the Payment of Wages Act, of 1936, the deductions will be made only if there is a provision in this regard. Tools etc. are not eligible for deductions as per this Act, hence the works manager is wrong if he deducts any amount on account. of tools and raw materials.

Question 2. Wages can not be paid by cheque but can be paid in kind. Answer based on the provision of Payment of Wages Act 1936.
Answer:

An employer may after obtaining the written authorization of employed persons pay them the wages either by cheque or by crediting to their Bank A/c. In all other cases, wages shall be paid in current coins or currency notes or both but cannot be paid in kind.

Question 3. What are the conditions to deduct for recovery of advances made under the Payment of Wages Act, of 1936?
Answer:

Deductions under Clause (f) of sub-Section (2) of Section 7 (the Payment of Wages Act, 1936) shall be subject to the following conditions namely:

• Recovery of the advance of money given before employment began shall be made from the first payment of wages in respect of a complete wage period, but no recovery shall be made of such advances given for traveling expenses;
• Recovery of advances of money given after employment began shall be subject to such conditions as the Appropriate Government may impose;
• Recovery of advances of wages not already earned shall be subject to any rules made by the Appropriate Government regulating the extent to which such advances may be given and the installments by which they may be recovered.

Question 4. Anil Pvt. Ltd. imposed a fine on Anurag, one of its employees for regularly reporting late for work. The fine was imposed on 4ft June 2014. The management wanted to recover the amount in November 2014 during a half-yearly increment. Can the Company recover this amount of fine, state your views as per the Payment of Wages Act, 1936.
Answer:

As per Section 8 (6) of the Payment of Wages Act 1936, no fines can be recovered after the expiry of 90 days from the date on which it is imposed. So ABC Pvt. Ltd. will not be able to recover the fine in November 2014 as the gap exceeded 90 days.

Question 5. The responsibility for the payment of wages is that of the employer. Explain.
Answer:

Sec. 3 of the Payment of Wages Act, 1936, lays down that every employer shall be responsible for the payment to persons employed by him of all wages
required to be paid under the Act. In Addition To the employer, the following persons shall also be responsible for the payment of wages.

1. In factories, the person named as manager,
2. In industrial or other establishments, the person, if any, who is responsible to the employer for the supervision and control of the industrial or other establishments;
3. Upon railways otherwise than in factories, the person nominated by the railway administration on this behalf for the local area concerned;
4. In the case of a contractor, a person designated by such contractor;
5. In any other case, a person designated as responsible for complying with the provisions of the Act.

Question 6. What are the different kinds of deductions that can be made from wages under the Payment of Wages Act, of 1936?
Answer:

• Section 7 gives the details of the deduction from wages.
• The wages of an employed person shall be paid to him without deductions of any kind except those authorized by or under this Act.
• Every payment made by the employed person to the employer or his agent shall for this Act, be deemed to be a deduction from wages.
• Any loss of wages resulting from the imposition, for good and sufficient cause upon a person employed of any of the following penalties, namely:-
• The withholding of increment or promotion (including the stoppage of increment at an efficiency bar);
• The reduction to a lower post or time scale or a lower stage in a time scale; or
• Suspension;
  • Shall not be deemed to be a deduction from wages in any case where the rules framed by the employer for the imposition of any such penalty conform with the requirements if any which may be specified on this behalf by the Appropriate Government by notification in the Official Gazette.
  • Section 7(2) provides that Deductions from the wages of an employed person shall be made only by the provisions of this Act and may be of the following kinds only namely:
• Fines;
• Deductions for absence from duty;
• Deductions for damage to or loss of goods expressly entrusted to the employed person for custody, or for loss of money for which he is required to account, where such damage or loss is directly attributable to his neglect or default;
• Deductions for house accommodation supplied by the employer or by the government or any housing board set up under any law for the time being in force (whether the government or the board is the employer or not) or any other authority engaged in the business of subsidizing house accommodation which may be specified in this behalf by the appropriate Government by notification in the Official Gazette;
• Deductions for such amenities services supplied by the employer as the Appropriate Government or any officer specified by it on this behalf may by general or special order authorize;
• Deductions for recovery of advances of whatever nature (including
  advances for traveling allowance or conveyance allowance), and the interest due in respect thereof, or for adjustment of over-payments of wages;
• Deductions for recovery of loans made from any fund constituted for the welfare of labor by the rules approved by the appropriate Government and the interest due in respect thereof;
• Deductions for recovery of loans granted for house-building or other purposes approved by the appropriate Government and the interest due in respect thereof;
• Deductions of income-tax payable by the employed person;
• Deductions required to be made by order of a court or other authority competent to make such order;
• Deductions for subscriptions to and for repayment of advances from any provident fund to which the Provident Funds Act, 1952 applies or any recognized provident funds as defined in Section 2(38) of the Indian Income Tax Act, 1961 or any provident fund approved in this behalf by the appropriate Government during the continuance of such approval;
• Deductions for payments to cooperative societies approved by the appropriate Government or any officer specified by it on this behalf or to a scheme of insurance maintained by the Indian Post Office and
• Deductions, made with the written authorization of the person employed for payment of any premium on his life insurance policy to the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 or for the purchase of securities of the Government of India or any State Government or for being deposited in any Post Office Saving Bank in furtherance of any savings scheme of any such government.
• Deductions made with the written authorization of the employed person, for the payment of his contribution to any fund constituted by the employer or a trade union registered under the Trade Unions Act, 1926 for the welfare of the employed persons or the members of their families, or both, and approved by the appropriate Government or any officer specified by it in this behalf, during the continuance of such approval;
• Deductions made, with the written authorization of the employed person, for payment of the fees payable by him for the membership of any trade union registered under the Trade Unions Act, 1926;
• Deductions, for payment of insurance premium on Fidelity Guarantee Bonds;
• Deductions for recovery of losses sustained by a railway administration on account of acceptance by the employed person of counterfeit or base coins or mutilated or forged currency notes;
• Deductions for recovery of losses sustained by a railway administration on account of the failure of the employed person to invoice, bill, collect, or account for the appropriate charges due to that administration, whether in respect of fares, freight, demurrage wharfage, and carnage or respect of the sale of food in catering, establishments or respect of the sale of commodities in grain shops or otherwise;
• Deductions for recovery of losses sustained by a railway administration on account of any rebates or refunds incorrectly granted by the employed person where such loss is directly attributable to his neglect or default;
• Deductions, made with the written authorization of the employed person, for contribution to the Prime Minister’s National Relief Fund or to such other Fund as the Central Government may, by notification in the Official Gazette specify;
• Deductions for contributions to any insurance scheme framed by the Central Government for the benefit of its employees.

Nothing contained in this section shall be construed as precluding the employer from recovering from the wages of the employed person or otherwise any amount payable by such person under any law for the time being, in force other than the Indian Railways Act 1890.

Pension Fund Regulatory And Development Act 2013

Question 1.National Pension System
Answer:

National Pension System means the contributory pension system referred to in Section 20 whereby contributions from a subscriber are collected and accumulated in an individual pension account using a system of points of presence, a central record-keeping agency, and pension funds as may be specified by regulations;

Question 2.National Pension System Trust
Answer:

National Pension System Trust means the Board of Trustees who hold the assets of subscribers for their benefit;

Question 3.Pension Fund
Answer:

A pension fund means an intermediary that has been granted a certificate of registration under sub-section (3) of Section 27 by the Authority as a pension fund for receiving contributions, accumulating them, and making payments to the subscriber in the manner, as may be specified by regulations;

Question 4. Point of presence
Answer:

Point of presence” means an intermediary registered with the Authority under sub-section (3) of Section 27 as a point of presence and capable of electronic connectivity with the central record-keeping agency to receive and transmit funds and instructions and payout of funds;

Question 5.Document
Answer:

The document shall include any matter written, expressed, or described upon any substance using letters, figures, or marks, or by more than one of those means, in printed or in electronic version, which is intended to be used, or which may be used, by the Interim Pension Fund Regulatory and Development Authority, or Authority or an intermediary or any other entity connected with the National Pension System, to record that matter;

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Question 6.Individual pension Account
Answer:

Individual pension account means an account of a subscriber, executed by a contract setting out the terms and conditions under the National Pension System;

Question 7.Intermediary
Answer:

Intermediary include pension funds, central record-keeping agencies, National Pension System Trust, pension fund advisers, retirement advisers, point of presence, and such other persons or entities connected with the collection, management, record keeping, and distribution of accumulations;

Question 8. Central Record-Keeping Agency
Answer:

A central record-keeping agency is an agency registered under Section 27 to perform the functions of record-keeping, accounting, administration, and customer service for subscribers to schemes;

Question 9. Regulated Assets
Answer:

Regulated assets means the assets and properties, both tangible and intangible, owned, leased, or developed by and other rights belonging to, the central record-keeping agency;

Question 10.Securities Appellate Tribunal
Answer:

Securities Appellate Tribunal means a Securities Appellate Tribuna established under sub-section (1) of Section 15-K of the Securities and Exchange Board of India Act, 1992

Pension Fund Regulatory And Development Act 2013 Short Note Question And Answers

Question 1. Write short notes on the Central Recording Keeping Agency.
Answer:

Central Recordkeeping Agency:

• The Authority shall, by granting a certificate of registration under sub-section (3) of Section 27, appoint a central record-keeping agency: Provided that the Authority may, in the public interest, appoint more than one central record-keeping agency.
• The central record-keeping agency shall be responsible for receiving instructions from subscribers through the points of presence, transmitting such instructions to pension funds, effecting switching instructions received from subscribers, and discharging such other duties and functions, as may be assigned to it under the certificate of registration or as may be determined by regulations.
• All the assets and properties owned, leased, or developed by the central record-keeping agency, shall constitute regulated assets and upon expiry of the certificate of registration or earlier revocation thereof, the Authority shall be entitled to appropriate and take over the regulated assets, either by itself or through an administrator or a person nominated by it in this behalf:
• Provided that the central record-keeping agency shall be entitled to be compensated the fair value, to be ascertained by the Authority, of such regulated assets as may be determined by regulations:
• Provided further that where the earlier revocation of the certificate of registration is based on violation of the conditions in the certificate of registration or the provisions of this Act or regulations, unless otherwise determined by the Authority, the central record-keeping agency shall not be entitled to claim any compensation in respect of such regulated assets.

Question 2. Write short notes on Point of Presence.
Answer:

Point of presence:

• The Authority may, by granting a certificate of registration under sub-section (3) of Section 27, permit one or more persons to act as a point of presence to receive contributions and instructions, transmitting them to the Trustee Bank or the central record-keeping agency, as the case may be, and pay out benefits to subscribers in. accordance with the regulations made by the Authority from time to time in this regard.
• A point of presence shall function by the terms of its certificate of registration and the regulations made under this Act.

Question 3. Write short notes on the Pension Fund.
Answer:

Pension funds:

• The Authority may, by granting a certificate of registration under sub-section (3) of Section 27, permit one or more persons to act as a pension fund to receive contributions, accumulate them, and make payments to the subscriber in such manner as may be specified by regulations.
• The number of pension funds shall be determined by regulations and the Authority may, in the public interest, vary the number of pension funds: Provided that at least one of the pension funds shall be a Government company.
• The pension fund shall function by the terms of its certificate of registration and the regulations made under this Act.
• The pension fund shall manage the schemes according to the regulations.

Pension Fund Regulatory And Development Act 2013 Descriptive Question And Answers

Question 1. What are the basic features of the national pension system as contained in the Pension Fund Regulatory and Development Authority Act, 2013?
Answer:

The National Pension System shall have the following basic features, namely:

• every subscriber shall have an individual pension account under the National Pension System
• withdrawals, not exceeding twenty-five percent of the contribution made by the subscriber, may be permitted from the individual pension account subject to the conditions, such as purpose, frequency, and limits, as may be specified by the regulations
• The functions of record keeping, accounting, and switching of options by the subscriber shall be effected by the central record-keeping agency
• there shall be a choice of multiple pension funds and multiple schemes.

Provided that

1. the subscriber shall have an option of investing up to a hundred percent of his funds in Government Securities; and
2. the subscriber, seeking minimum assured returns, shall have the option to invest his funds in such schemes providing minimum assured returns as may be notified by the Authority
3. there shall be the portability of individual pension accounts in case of a change of employment
4. collection and transmission of contributions and instructions shall be through points of presence to the central record-keeping agency
5. there shall not be any implicit or explicit assurance of benefits except a market-based guarantee mechanism to be purchased by the subscriber
6. a subscriber shall not exit from the National Pension System except as may be specified by the regulations; and
7. at exit, the subscriber shall purchase an annuity from a life insurance company according to the regulations.

Question 2. Discuss the different provisions relating to pension funds as per section 23 of the PFRDA Act, 2013
Answer:

The following provisions relating to pension funds have been laid down in Section 23 of the PFRDA Act, 2013:

1. The Authority may, by granting a certificate of registration under Sub Section (3) of Section 27, permit one or more persons to act as a pension fund to receive contributions, accumulate them, and make payments to the subscriber in such manner as may be specified by regulations.
2. The number of pension funds shall be determined by regulations and the Authority may, in the public interest, vary the number of pension funds: Provided that at least one of the pension funds shall be a Government company. Here, for this sub-section, the expression “Government Company” shall have the meaning assigned.
3. The pension fund shall function by the terms of its certificate of registration and the regulations made under this Act.
4. The pension fund shall manage the schemes according to the regulations.

Question 3. Explain the Provision of the National Pension System.
Answer:

National Pension System [Section 20]

1. The contributory pension system notified by the Government of India in the Ministry of Finance vide notification number F. No. 5-7-2003 ECB And PR, dated the 22nd December 2003, shall be deemed to be the National Pension System with effect from the 1st day of January 2004, and such National Pension System may be amended from time to time by regulations.
2. Notwithstanding anything contained in the said notification, the National Pension System shall, on the commencement of this Act, have the following basic features, namely:
   • every subscriber shall have an individual pension account under the National Pension System;
   • withdrawals, not exceeding twenty-five percent of the contribution made by the subscriber, may be permitted from the individual pension account subject to the conditions, such as purpose, frequency, and limits, as may be specified by the regulations;
   • the functions of record keeping, accounting, and switching of options by the subscriber shall be effected by the central record keeping agency;
   • there shall be a choice of multiple pension funds and multiple schemes Provided that
   • the subscriber shall have an option of investing up to a hundred percent of his funds in Government Securities; and
   • the subscriber, seeking minimum assured returns, shall have the option to invest his funds in such schemes providing minimum assured returns as may be notified by the Authority.
   • There shall be portability of individual pension accounts in case of a change of employment.
   • collection and transmission of contributions and instructions shall be through points of presence to the central record-keeping agency;
   • there shall not be any implicit or explicit assurance of benefits except a market-based guarantee mechanism to be purchased by the subscriber;
   • a subscriber shall not exit from the National Pension System except as may be specified by the regulations; and
   • at exit, the subscriber shall purchase an annuity from a life insurance company according to the regulations.
3. In addition to the individual pension account mentioned in Clause (1) of sub-section (2), a subscriber may also, at his option, have an additional account under the National Pension System having the features mentioned in Clauses (3) to (5) of sub-section (2) and also have the additional feature that the subscriber shall be free to withdraw part or all of his money at any time from the additional account.

Question 4. What are the eligibility norms of the central record-keeping agency?
Answer:

Eligibility norms of the central record-keeping agency:

The central record-keeping agency, points of presence, and pension funds shall satisfy the eligibility norms as may be specified by the regulations, including minimum capital requirement, past track- record including the ability to provide guaranteed returns, costs and fees, geographical reach, customer base, information technology capability, human resources, and such other matters.

Company Types Promotion Formation And Related Procedures

Question 1. Company
Answer:

• A company is an association of both natural and artificial persons incorporated under the existing law of a country.

A company has a separate legal entity from the persons constituting it.

Question 2. Characteristics of a Company
Answer:

The main characteristics of a company are corporate personality, limited liability, perpetual succession, separate property, transferability of shares, common seal, capacity to sue and be sued, contractual rights, limitation of action, separate management, termination of existence, etc.

Question 3. Compared to other types of business associations
Answer:

As compared to other types of business associations, an incorporated company has the advantage of corporate personality, limited liability, perpetual succession, transferable shares, separate property, capacity to sue, flexibility, and autonomy. ‘

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Question 4. Disadvantages and inconveniences in incorporation
Answer:

There are, however, certain disadvantages and inconveniences in incorporation. Some disadvantages are formalities and expenses, corporate disclosures, separation of control from ownership, greater social responsibility, greater tax burden in certain cases, and cumbersome winding-up procedure.

Question 5. The doctrine of the lifting or piercing of the corporate veil
Answer:

• The separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only.
• Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
• The Tribunal will break through the corporate shell and apply the principle Or doctrine of “lifting of or piercing the corporate veil”.

Question 6.LLP
Answer:

• It is an alternative corporate business form that gives the benefits of the limited liability of a company and the flexibility of a partnership.
• LLP can continue its existence irrespective of changes in partners.
• It is capable of entering into contracts and holding property in its name.
• LLP is a separate legal entity and is liable to the full extent of its assets.
• Still, the liability of the partners is limited to their agreed contribution to the LLP.

Question 7.Corporation
Answer: An organization formed under state law to carry on a business enterprise in such a manner as to make the enterprise distinct from its owners. ”

Question 8. Illegal association
Answer:

• As per Section 464 of the Companies Act, no association or partnership consisting of more than such number of persons as may be prescribed shall be formed to carry on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force.
• The number of persons which may be prescribed under this section shall not exceed 100. Rule 10 of Companies (Miscellaneous) Rules, 2014 prescribes 50 persons in this regard.

Question 9. Types of Company
Answer:

From the point of view of incorporation, companies can be classified as chartered companies, statutory companies, and registered companies.

• Companies can be categorized as unlimited companies, companies limited by guarantee, and companies limited by shares.
• Companies can also be classified as public companies, private companies, one-person companies, small companies, associations not for profit having a license under Section 8 of the Act, Government Companies, Foreign Companies, Holding Companies, Subsidiary Companies, Associate Companies, Investment Companies, and Producer Companies.

Question 10.Private Company
Answer:

A private company has been defined under Section 2(68) of the Companies Act, 2013 as a company that has a minimum paid-up capital of $ 1,00,000 or such higher paid-up capital as prescribed and by its articles restricts the right to transfer its shares, limits the number of its members to two hundred and prohibits any invitation to the public to subscribe for any securities of the company.

Amendment Made by Companies (Amendment) Act, 2015 Provides that in clause (68), the words “of one lakhs rupees or higher paid-up share capital” shall be omitted.

Question 11.One Person Company
Answer: One Person Company” means a company that has only one person as a member.

Question 12.“Small Company”
Answer:

“Small company” means a company, other than a public company

1. paid-up share capital which does not exceed $ 50,00,000 or such higher amount as may be prescribed which shall not be more than $ 5 crores; or
2. 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 $ 20 crores.

Amendment made by Companies (Amendment) Act, 2017:

Revised Section 2(85)

“Small Company means a company, other than a public company,

1. paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
2. turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.”

Question 13. Public Company
Answer:

A public company is a company that is not a private company and has a minimum paid-up share capital of $ 5 lakh or such higher paid-up capital, as may be prescribed.

Amendment Made by Companies (Amendment) Act, 2015: Provides that in clause (68), the words “of $ 5 lakhs or higher paid-up share capital” shall be omitted.

Question 14.Limited Company
Answer: A limited company is a company limited by shares or by guarantee. An unlimited company is a company not having any limit on the liability of its members.

Question 15.Foreign Company
Answer:

Foreign Company means any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.

Question 16.Investment Company
Answer: An Investment Company is a company whose principal business is the acquisition of shares, debentures, or other securities.

Question 17.Association not-for-profit
Answer:

Section 8(1) permits the registration, under a license granted by the Central Government, of associations not for profit with limited liability without being required to use the word “Limited” or the words “Private Limited” after their names.

The Central Government may grant such a license if:

• it is intended to form a company for promoting commerce, art, science, sports, education, research, social welfare, religion, charity protection of the environment, or any such other object, and the company prohibits payment of any dividend to its members but intends to apply its profits or other income in promotion of its objects
• A company in which not less than 51 % of the paid-up share capital is held by the Central Government, or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company that is a subsidiary company of such a Government Company.

Question 19.Holding Company
Answer:

As per Section 2 (46), a holding company, about one or more other companies, means a company of which such companies are subsidiary companies. Amendment made by Companies (Amendment) Act, 2017 Explanation to Section 2(46) “Explanation  For this clause, the expression “company” includes any body corporate;”

Question 20.Subsidiary Company
Answer:

Section 2 (87) provides that a subsidiary company or subsidiary, about any other company (that is to say the holding company), means a company in which the holding company

• Controls the composition of the Board of Directors
• Exercises or controls more than one-half of the total share capital either on its own or together with one or more of its subsidiary companies.

Question 21.Control
Answer:

It shall include the right to appoint a majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Question 22.Dormant Companies
Answer:

As per Section 455 (1) where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

Question 23.Associate Company
Answer:

As per Section 2(6), “Associate Company”, about another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

Amendment made by Companies (Amendment) Act, 2017:

Revised Explanation to Section 2(6)– “Explanation For this clause

• the expression “significant influence” means control of at least twenty percent, of total voting power, or control of or participation in business decisions under an agreement;
• the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.”

Question 24.Position of OPC in India under the Companies Act, 2013
Answer:

• As per Section 2(62) of the Companies Act, 2013, “One Person Company” means a company that has only one person as a member.
• Section 3(1 )(c) lays down that a company may be formed for any lawful purpose by one person, where the company to be formed is to be a person Company, that is to say, a private company.
• In other words, a personal company is a kind of private company. A One-person company shall have a minimum of one director. Therefore, a one-person company will be registered as a private company with one member and one director.

Question 25. Promoters 25 Promoters
Answer:

Promoters 25 Promoters are the persons who conceive the idea of forming a company and take the necessary steps to incorporate it by registration, provide it with share and loan capital, and acquire the business or property which it is to manage [Section 2(69)].

Question 26. Promoters
Answer: 26A promoter is neither an agent of nor a trustee for the company. But they occupy a fiduciary position in the company.

Question 27. promoters
Answer: Disclosure by promoters to the company should be through the medium of the Board of Directors.

Question 28. Promoters
Answer: A promoter has no legal right to claim promotional expenses for his services unless there is a valid contract.

Question 29. Liabilities of promoter
Answer:

• Incorporation of company by furnishing false information
• Civil Liability for misstatements in prospectus
• Punishment for fraudulently inducing persons to invest money
• Contravention of provisions relating to private placement
• Failure to cooperate with the Company Liquidator during winding up
• Criminal Liability for misstatement in the prospectus.

Question 30. Rights of promoters
Answer:

1. Right to receive preliminary expenses;
2. Right, to recover the proportionate amount from the Co-promoters.

Question 31. Procedure for Incorporation of a Company
Answer:

1. Application for Availability of Name of Company;
2. Preparation of Memorandum and Articles of Association;
3. Filing of Documents with Registrar of Companies;
4. Declaration from the professional;
5. Declaration from the subscribers to the Memorandum;
6. Furnishing verification of Registered Office
7. Filing of particulars of Subscribers
8. Filing particulars of first directors along with their consent to act as directors
9. Power of Attorney: Execution of power of attorney on a non-judicial stamp paper of a value prescribed in state stamp laws.
10. Issue of Certificate of Incorporation by Register.

Question 32. Steps to be taken by a promoter
Answer:

The first few steps to be taken by a promoter in incorporating a company are to apply for the availability of the name of the company, prepare the memorandum and articles of association, and get them vetted, printed, stamped, and signed. The promoter should then execute a power of attorney and fill in additional documents as required under section 7. He should then file a statutory declaration and pay the registration fees.

Question 33.Civil as well a3 criminal liability
Answer:

Civil as well as criminal liability may be imposed on a promoter for any misleading Statement in the prospectus if loss or damage has been -stored by a person who has subscribed for any securities of the company on the faith of the prospectus.

34. Conclusive Evidence
Answer:

The Certificate of Incorporation is conclusive evidence that everything is in order as regards registration and that the company has come into existence from the earliest moment of the day of incorporation stated therein.

35. Memorandum of Association
Answer:

• A Memorandum of Association is a document that sets out the constitution of the company and it is the foundation on which the structure of the company stands.
• It defines as well as confines the powers of the company, if the company enters into a contract or engages in any trade or business that is beyond the powers conferred on it by the memorandum, such a contractor the act will be ultra vires the company and hence void.
• However, the Companies Act 2013 shall override the provisions in the memorandum of a company if the latter contains anything contrary to the provisions of the Act.

36. Clauses
Answer:

Memorandum of Association consists of :

1. Name Clause
2. Situation Clause
3. Object Clause
4. Liability Clause
5. Capital Clause
6. Subscription Clause

37. Articles
Answer:

Articles means the articles of association of a company as originally framed or a.s shared from time to time in pursuance of any previous company law or of this Act It also includes the regulations contained in Tables F to J in Schedule I Of the Act, in so far as they apply to the company.

Question 38.Scope and powers of the company
Answer:

The memorandum lays down the scope and powers of the company and the articles govern how the objects of the company are to be carried out and can be framed and altered by the members.

Question 39. Alter its articles of association
Answer:

A company has a statutory right to Alter its articles of association. However, the power to alter is subject to the provisions of the Act and the conditions contained in the memorandum. Any alteration so made shall be as valid as if originally contained in the articles.

Question 40.Registration of MOA Or AOA
Answer:

The memorandum and articles, when registered, bind the company and its members to the same extent as if they have been signed by the company and by each member to observe and be bound by all the provisions of the memorandum and of the articles.

Question 41.Alteration of memorandum
Answer:

1. Name Change:
   • Pass Special Resolution
   • Approval of Central Government
   • To delete the word “private” approval from the Central Government is not required in case of conversion of a private company to a public company.
2. Change in Registered Office:
   • Change within local limits: Pass Board Resolution and Special Resolution Notice of change to the registrar in INC 22 within 15 days of such change
   • Change of State: Approval of Central Govt. In INC 23 the Approval should be registered with Registrar for Incorporation Certificate
   • Change in jurisdiction of Registrar: Get confirmation by the Regional Director Communication of confirmation by the Regional Director to the company within 30 days.
3. Change in Liability:
   • Needs a Special Resolution to be passed.
   • file the same with the Registrar in form MGT 14.
4. Change in Capital:
   • alteration of the capital clause to be authorized by the Articles of Association [Section 61]; Ordinary Resolution
   • If by division or consolidation in capital, the voting percentage gets| affected then a confirmation from the Tribunal is mandatory.
   • Notify the alterations made and a copy of the Resolutions passed shall| be filed with the Registrar within 30 days.
   • The Registrar shall record the notice and make the alterations required.

Question 42.The doctrine of constructive notice
Answer:

As per the doctrine of constructive notice, every person dealing with the company is deemed to have a “constructive notice” of the contents of its memorandum and articles.

• Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporation by the memorandum or other documents of the constitution.
• Nevertheless, they are entitled to assume that the directors or other persons exercising authority on behalf of the company are doing so by the internal
• Regulations as set out in the Memorandum And Articles of Association.

Question 43.The doctrine of indoor management
Answer:

• While the doctrine of constructive notice seeks to protect the company against outsiders, the doctrine of indoor management operates to protect outsiders against the company.
• While persons contracting with a company are presumed to know the provisions of the contents of the memorandum and articles, they are entitled to assume that the provisions of the articles have been observed by the officers of the company.
• However, there are certain exceptions to the doctrine of indoor management.

Question 44.The doctrine of ultra vires
Answer:

In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited by the doctrine of ultra vires (The word ‘ultra’ means beyond and the word ‘vires’ means powers).

Question 45. Share capital
Answer:

The share capital of a company can be classified as:

1. nominal, authorized, or registered capital;
2. issued and subscribed capital;
3. called up and uncalled capital;

Question 46.Share
Answer: A share is defined as a share in the share capital of a company, including stock except where a distinction between stock and shares is expressed or implied.

Question 47.Two classes of shares
Answer: The Companies Act, 2013 permits a company limited by shares to issue! two classes of shares, namely equity share capital and preference share capital.

Question 48.Preference share
Answer: A preference share or preference share capital is that part of share capital that carries a preferential right concerning both dividends and capital.

Question 49.Types of preference shares
Answer: Preference shares may be of various types, namely participating and non-participating, cumulative and non-cumulative shares, and redeemable and! irredeemable preference shares.

Question 50. Equity share capital
Answer: Equity share capital means all share capital which is not preference share! [capital

Question 51. Sweat equity shares
Answer:

This means equity shares issued by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how on making available rights like intellectual property rights or value additions, by whatever name called.

• Issue of sweat equity shares to be authorized by special resolution at a general meeting.
• The apodal resolution authorizing sweat equity shares is not valid if the allotment is made after 12 months of passing the resolution, i.o the validity of a special resolution is 12 months.
• The price of sweat equity shares Is to be determined by a registered valuer.
• The company shall maintain a Register of Sweat Equity Shares in Form No. SH 3
• The issue of sweat equity shares to employees and directors at a discount under Section 54 is outside the scope of Section 53,

Question 52. Rights issue
Answer:

The rights issue is an issue of capital to be offered to the existing shareholders of the company through a letter of offer.

• Listed companies to inform concerned stock exchanges
• Company to give notice to equity shareholder giving him 15-30 days to decide
• The company can issue shares to other than the existing shareholder for cash or other than cash if a special resolution is obtained
• Price to be determined by the registered valuer’s report
• The provisions of Section 62 apply to all types of companies.

Question 53. Bonus share
Answer:

1. When a company is prosperous and accumulates large distributable profits, it converts these accumulated profits into capital and divides the capital among the existing members in proportion to their entitlements.
2. Members do not have to pay any amount for such shares. A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus shares

• Authorized by articles
• Authorized on the recommendation of the board in general meeting
• No default in payment of interest or principle in respect of debt securities and fixed deposits and respect of payment to employees
• Partly paid-up shares are to be made fully paid up on allotment
• Listed companies to follow SEBI regulations
• Once announced by the board about the bonus issue no company should withdraw the same.

Question 54. Issuo of sharos at premium [Section 52]
Answer:

• Share premium to be transferred to share premium account.
• Utilization of the share premium account should be as prescribed in Section 52.

Question 55. Issue of shares at discount [Section 53]
Answer:

• Issue of shares at discount is prohibited except by issue of sweat equity shares.
• Any share issued by the company at a discount shall be void.

Question 56. Issue of shares with differential voting rights [Section 43(a) (if)]
Answer:

• Articles to authorize the issue
• Ordinary resolution to be passed and if shares are listed then approval through postal ballot.
• not to exceed 26% of the total post-issue paid equity capital including shares with differential voting rights at any point in time
• The company has not been penalized under specified legislature in the last 3 years
• No default in filing financial statements in the last 3 years.
• No default in payment of dividends.

Question 57. Issue Or redemption of preference shares [Section 55]
Answer:

• Issue to be authorised by special resolution
• Explanatory statement to be annexed to the notice of general meeting containing the relevant material facts
• No company shall issue irredeemable preference shares or redeemable preference shares with a redemption period beyond 20 years.
• Infrastructural companies may issue preference shares for a period exceeding 20 years but not exceeding 30 years

Question 58. ESOP
Answer:

• Pass special resolution
• Disclosures to be made in the explanatory statement
• Free pricing in conformity with accounting policies
• Separate resolution to be obtained for granting options to employees of holding/subsidiaries
• Minimum 1-year period between grant of options and vesting of option
• The company is free to set a lock-in period
• Option granted shall not be transferable, pledged, hypothecated, mortgaged in any manner
• Disclosures to be made in the board report
• Register to be maintained in form shelf – 6
• Listed companies, to comply with SEBI guidelines

Question 59.Preferential issue Rule 13 of the companies (share capital and debentures) rules, 2014
Answer:

• Pass special resolution
• The listed company shall follow SEBI regulations
• The issue to be authorized by the articles
• Securities to be made fully paid up on allotment
• Disclosures to be made in the explanatory statement to be annexed to the notice of the general meeting
• Allotment to get completed within 12 months if not completed a fresh resolution is required
• Price determination by the registered valuer’s report

Question 60.Prospectus
Answer:

• The prospectus has been defined as any document described or issued as a prospectus and includes a red herring prospectus referred to in Section 32 a shelf prospectus referred to in Section 31 or any notice, circular, or advertisement.
• other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.
• A company is an association of both natural and artificial persons incorporated under the existing law of a country. A company has a separate legal entity from the persons constituting it.

Question 61. Ingredients of a prospectus
Answer:

One of the ingredients of a prospectus is to make an invitation to the public to subscribe for securities of a body corporate which is construed as including a reference to any section of the public, whether selected as members or debenture holders of the company or as clients of the person issuing the prospectus. However, there are exceptions to it.

Question 62. Shelf prospectus
Answer:

A shelf prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus (Section 31).

Question 63. Red herring prospectus
Answer: Red herring prospectus means a prospectus that does not include complete particulars of the quantum or price of the securities included therein.

Question 64. Content of prospectus
Answer: Companies Act and SEBI guidelines provide for contents and disclosures required in a prospectus.

Question 65. Abridged prospectus
Answer:

• A bridged prospectus is usually a shorter form of the Prospectus and possesses all the significant features of a Prospectus.
• This accompanies the application form for public issues.

Question 66. Private placement
Answer:

“Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through the issue of a private placement offer letter and which satisfies the conditions specified in Section 42.

• Offer Letter to be in Form No. PAS-4
• The offer shall not be made to more than 200 persons excluding QIBs and the employees of the company in a financial year under the scheme of ESOS only the person addressed in the application can apply
• Before passing a special resolution at a general meeting.
• All monies payable on subscription shall not be paid by cash.
  If unable to allot within 60 days then repay the money in 15 days from the end of those 60 days and the money shall be refunded with interest 12%p.a.
• Offer only to be made to those whose names are recorded by the company
• The record shall be kept in Form No. PAS-5

A copy of the record is to be filed with the registrar along with PAS-4 and with SEBI and the stock exchange within 30 days.

Amendment made by Companies (Amendment) Act, 2017:

• The Private Placement process is simplified by doing away with separate offer letter details to be kept by the company and reducing the number of filings to the Registrar.
• To ensure that investor gets adequate information about the company that is making private placement, the disclosures made under the Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital and Debenture) Rules, 2014, embodied in the Private Placement Application Form.
• There would be ease in the private placement offer-related documentation to enable quick access to funds.
• A change in the definition of private placement is proposed to cover all securities offers and invitations other than right.
• There is condensed format of private placement offer letter and application form likely to be introduced
• The Companies would be allowed to make offers of multiple security instruments simultaneously.
• Restriction on utilization of subscription money before making actual allotment and additionally, before filing the allotment return to the registrar. Since the contract is concluding on allotment and return filing is just post-conclusion compliance, there may be difficulty in compliance.
• The penalty provisions for raising capital are proposed to be rationalized by linking it to the amount involved in the issue (twice the amount involved or 2 crores whichever is lower).
• The period for filing a return of the allotment is proposed to be reduced to 15 days.

Question 67.Buy-back of shares
Answer:

The repurchase of shares by a company to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply) or to eliminate any threats by shareholders who may be looking for a controlling stake.

Question 68.Reduction of capital
Answer:

• Reduction of capital means a reduction of issued, subscribed, or paid-up share capital of the company. Various modes of reduction have been laid down in the Companies Act.
• The reduction of share capital is governed by the provisions of Section 66 of the Companies Act, 2013.
• Reduction of share capital is required to be done by special resolution.
• The reduction of share capital is to be confirmed by the Tribunal.

Question 69.Surrender of shares
Answer: Surrender of shares means surrender to the company on the part of a shareholder of shares voluntarily. It amounts to a reduction of capital.

Question 70.Forfeiture of shares
Answer: A company may if authorized by its articles, forfeit shares for non-payment of calls and the same will not require confirmation of the Tribunal and amounts to a reduction of capital.

Question 71.Diminution of capital
Answer:

Diminution of capital is the cancellation of the unsubscribed part of the issued capital. It can be effected by an ordinary resolution provided articles of the company authorize to do so. It does not need any confirmation from the Tribunal.

Question 72.Debenture
Answer: A debenture is a document given by a company under its seal as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge.

Amendment made by Companies (Amendment) Act, 2017

In Section 2 in clause (30), the following proviso shall be inserted, namely: “Provided that-

1. The instruments referred to in all-D of the Reserve Bank of India Act, 1934
2. such other instrument, as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company, shall not be treated as debenture.”

Question 73.Kinds of debentures
Answer: Debentures may be of different kinds, viz. redeemable debentures, registered and bearer debentures, secured and unsecured or naked debentures, and convertible debentures.

Question 74.Debenture stock
Answer: A debenture stock is a borrowed capital consolidated into one mass for the sake of convenience.

Question 75.Debenture Redemption Reserve
Answer:

Section 71(4) of the Act requires every company to create a debenture redemption reserve account to which an adequate amount shall be credited out of its profits available for payment of dividends until such debentures are redeemed and shall utilize the same exclusively for the redemption of a particular set or series of debentures only.

Question 76.Appointment of Debenture Trustees
Answer:

• Section 71(5) read with Rule 18(2) of aforesaid rules, provides that a company before making an issue of a prospectus or an offer or inviting the public or members to more than 500 persons, shall appoint one or more debenture trustees.
• The names of the debenture trustees shall be stated in the letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders. Before the appointment of a debenture trustee or trustee, written consent shall be obtained from such a debenture trustee.

Question 77.Duties of Debenture Trustees
Answer:

Section 71(6) read with Rule 18(3) of aforesaid rules provides that a debenture trustee shall take steps to protect the interests of the debenture holders and redress their grievances.

It shall be the duty of every debenture trustee to:

• satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the issue of debentures or with the trust deed;
• satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders
• call for periodical status or performance reports from the company
• Inform the debenture holders immediately of any breach of the terms of the issue of debentures or covenants of the trust deed
• Ensure the implementation of the conditions regarding the creation of security for the debentures, if any, and debenture redemption reserve

Question 78.Debenture trust deed
Answer: A debenture trust deed is a document created by the company, whereby debenture trustees are appointed to protect the interest of Debenture holders before they are offered for public subscription.

Question 79.Company
Answer: The company may accept deposits from its members by passing a resolution in a general meeting and subject to conditions as may be prescribed in the Rules including Credit rating, Deposit insurance, etc.

Question 80.Eligible company
Answer:

Eligible company public companies may accept deposits, if it has a net worth of not less than $ 100 crore or a turnover of not less than ? 500 crores and which has obtained the prior consent of the company in a general meeting using a special resolution and also filed the said resolution with the Registrar of Companies and where applicable, with the Reserve Bank of India before making any invitation to the Public for acceptance of Deposits:

Question 81.Deposit trustees
Answer:

No company under sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement inviting secured deposits unless the company has appointed one or more deposit trustees to create security for the deposits.

Question 82.Deposit insurance
Answer:

Amendment made by Companies (Amendment) Act, 2017: A contract providing for deposit insurance at least thirty days before the issue of circular or advertisement.

In Section 73 of the principal Act, in sub-Section (2), clause (d) shall be omitted;

Question 83.Foreign investment
Answer:

Repatriation Capital flows from a foreign country to the country of origin. This usually refers to returning returns on foreign investment in the case of a corporation or transferring foreign earnings home in the case of an individual.

Question 84. Quantum of deposits
Answer:

Question 85. The procedure for acceptance of the deposit
Answer:

Amendment Made by Companies (Amendment) Act, 2015 Punishment for Contraction of Section 73 or 76 “Section 76A. Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under Section 73 or Section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under Section 73 or 76 or rules made thereunder or such further time as may be allowed by the Tribunal under Section 73:

1. the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with a fine which shall not be less than $ 1 crore but which may extend to $ 10 crores; and
2. every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with a fine which shall not be less than $ 25 lakhs but which may extend to $ 2 crores, or with both.

Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under Section 447.”

Question 86. Charge
Answer:

A charge is a security given for securing loans or debentures by way of a mortgage on the assets of the company. As mentioned earlier, the power of the company to borrow includes the power to give security.

• A charge may be created either through the act of parties or by operation of law.
• A charge created by operation of law does not require registration. But a charge created by an act of parties requires registration.
• The charge may be in perpetuity.
• A charge only gives a right to receive payment out of a particular property.
• A charge is good against subsequent transferees with notice.
• In case of charge, no personal liability is created. But where a charge is the result of a contract, there may be a personal remedy.
• There is no such transfer of interest in the case of a charge.

Question 87. Two Kinds of Charges
Answer:

There are two kinds of charges, fixed or specific charges and floating charges.

Question 88. Fixed Charge
Answer:

• A charge is called fixed or specific when it is created to cover assets that are ascertained and definite or are capable of being ascertained and defined, at the time of creating the charge Example, land, building, plant, and machinery.
• A fixed charge, therefore, is a security in terms of certain specific property, and the company gives up its right to dispose of that property until the charge is satisfied.

Question 89.Floating Charge
Answer:

• A floating charge, as a type of security, is peculiar to companies as borrowers.
• A floating charge is not attached to any definite property but covers the property of a fluctuating type Example, stock-in-trade, and is thus necessarily equitable.
• A floating charge is a charge on a class of assets present and future which in the ordinary course of business changes from time to time and leaves the company free to deal with the property as it sees fit until the holders of charge take steps to enforce their security.

Question 90.Crystallization of Floating Charge
Answer:

• A floating charge attaches to the company’s property generally and remains dormant till it crystallizes or becomes fixed.
• The company has a right to carry on its business with the help of assets over which a floating charge has been created till the happening of some event which determines this right.

A floating charge crystallizes and the security becomes fixed in the following cases:

• when the company goes into liquidation
• When the company ceases to carry on its business;
• When the creditors or the debenture holders take steps to enforce their security
• For example by appointing a receiver to take possession of the property charged
• on the happening of the event specified in the deed

Question 91.Mortgage
Answer:

• A mortgage is the transfer of an interest in a specific immovable property to secure the payment of money advanced in or to be advanced by way of a loan, existing or future debt, or the performance of an agreement that may give rise to a pecuniary liability.
• A mortgage is created by the act of the parties.
• A mortgage requires registration under the Transfer of Property Act, of 1882.
• A mortgage is for a fixed term.
• A mortgage is a transfer of an interest in a specific immovable property.
• A mortgage is good against subsequent transferees.
• A simple mortgage carries personal liability unless excluded by an express contract.
• A mortgage is a transfer of an interest in a specific immovable property.

Question 92.Registration of Charges- Section 77(1)
Answer:

Any charge created

• within or outside India,
• on its property or assets or any of its undertakings,
• whether tangible or otherwise, and situated in or outside India Shall be registered.
  1. Particulars of charges that are being filed with Registrar of Companies I are to be signed by the company creating the charge and the charge holder in Form No. CHG-1 (for other than Debentures) or Form CHG-9 (for debentures) as the case may be.
  2. The Charge has to be registered within 30 days of its creation.

As per Companies (Amendment), Act, 2019

The time limit for filing charges created on or after 2.11.2018 reduced The charge should be filed within 30 days from its creation. In case of charges created on or after 2.11.2018, RoC can allow an extension of up to 30 days (total of 60 days from the date of creation of charge, on payment of

• Prescribed additional loos. RoC can allow further extension of 60 days on alternate payment of such ad valorem fees as may be prescribed – first and second proviso to Section 77(1) of the Companies Act, 2013 amended vide ho Companies (Amendment) Act, 2019.
• Thoro has no provision to grant a further extension for the registration of charges. Section 87 of the Companies Act, 2013 has been amended w.e.f. 2.11.2018 to provide that the Central Government cannot order rectification of the register of charges in such cases.
• Provision In respect of charges created before 2.11.2018 Registrar can allow’ filing of particulars of such registration within 300 days of such creation, on payment of additional fee as prescribed.
• Ho can grant further extension of up to 6 months on payment of additional fees as may be proscribed – first and second proviso to Section 77(1) of the Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.
• Registrar can condone delay up to 300 days on being satisfied that the company had sufficient cause for not filing particulars and instrument of charge within 30 days, on payment of an additional fee – Rule 4 of Companies (Registration of Charges) Rules, 2014.
• If the charge is not filed within 300 days of creation, a further extension could be granted by the Central Government under section 87 of the Companies Act, 2013 – second proviso to Section 77(1) of the Companies Act, 2013 as existing up to 2.11.2018 [powers delegated to Regional Director]. Now, such an extension cannot be granted.
• Punishment for not filing charges or giving false Information Amendment made by Companies (Amendment) Act, 2020 “(1) If any company is in default in complying with any of the provisions of this Chapter, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.”.

Question 93.Satisfaction of Charges.
Answer:

• According to Section 82 read with the rules, the company shall give intimation to the Registrar of the payment or satisfaction in full of any charge within thirty days from the date of such payment or satisfaction in Form No. CHG-4 along with the fee.
• The Registrar may, on an application by the company or the charge holder, allow such intimation of payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such additional fees as may be prescribed.

Question 94.Notice of Charge
Answer:

• According to Section 80, where any charge on any property or assets of a company or any of its undertakings is registered under Section 77, any person acquiring such property, assets, undertakings, or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.
• The section clarifies that if any person acquires a property, assets, or undertaking for which a charge is already registered, it would be deemed that he has complete knowledge of the charge from the date the charge is registered.

Question 95.Consequences of Non- Non-registration of Charge
Answer: According to Section 77 of the Companies Act, 2013, all types of charges created by a company are to be registered

96. Particulars of Charges
Answer:

The following particulars in respect of each charge are required to be filed with the Registrar:

• date and description of the instrument creating charge
• the total amount secured by the charge
• date of the resolution authorising the creation of the charge; (in case of issue of secured debentures only)
• general description of the property charged
• list of the terms and conditions of the loan and
• name and address of the charge holder.

Question 97. Central Government can Order Rectification of the Register of Charges Only When Delay was in Respect of Filing of Satisfaction of Charge or Mistake Made in Filing Charges
Answer:

The Central Government can order the rectification of the register on any of the following grounds:

The Central Government is satisfied that the:

1. the omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time required under this Chapter, or
2. the omission or misstatement of any particulars concerning any such change or modification or concerning any memorandum of satisfaction or other entry made in pursuance of section 82 or 83, was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors or shareholders of the company.
3. it may, on the application of the company or any person interested and on such terms and conditions as the Central Government deems just and expedient, direct that the time for the giving of intimation of payment or satisfaction shall be extended or, as the case may require, that the omission or misstatement shall be rectified Section 87 of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

• Central Government cannot order rectification of the register of charges if there was a delay in filing of the original charge itself, beyond the specified period or extended period as allowable under section 77 of the Companies Act, 2013.
• Application for rectification can be made by the company or any person interested. Thus, the secured creditor (Bank or FI) can make an application if the charge or its modification was not filed in time, as the secured creditor is certainly interested in registration/modification of the charge.
• Powers to order rectification of the register of charges have been delegated to the Regional Director vide Notification F No. 1-6-2014 – CL. V dated 21.5.2014.

Question 98.Annual general meeting
Answer:

An annual general meeting is required to be held every year by every company whether public or private, limited by shares or by guarantee, with or without share capital or unlimited company.

• The annual general meeting should be held once every year.
• The first annual general meeting of the company should be held within 9 months from the closing of the first financial year.
• Subsequent annual general meetings of the company should be held within 6 months from the closing of the financial year.
• The gap between the two annual general meetings should not exceed 15 months.

Question 99.Extra-Ordinary General Meeting
Answer:

All general meetings other than annual general meetings are called extra-ordinary general meetings (EGM). According to SS-2 items of business other than ordinary business may be considered at an EGM or using a postal ballot, if thought fit by the Board. This means that all the transactions dealt with in an EGM shall be special business.

• By the Board Suo Motu
• By Board on the requisition of members
• By requisitionists
• By Tribunal

Question 100.Class meetings
Answer: Class meetings are those meetings which are held by holders of a particular class of shares Example. preference shares.

Question 101.Motion
Answer: A motion becomes a resolution only after the requisite majority of members have adopted it.

Question 102.Methods voting
Answer: Various methods that may be adopted for taking votes on a motion properly placed before a meeting are by show of hands, by poll, by postal ballot, and by electronic voting.

Question 103.Kinds of resolutions
Answer:

• There are four kinds of resolutions under the Act
• Ordinary Resolution
• Special Resolution
• A resolution requiring special notice
• Board Resolution.

Question 104.Notice of Meeting
Answer:

A general meeting of a company may be called by giving not less than 21 clear days’ notice either in writing or through electronic mode.

• Notice through electronic mode shall be given in such manner as may be prescribed.
• In the case of Section 8 company, 14 days’ clear notice is required instead of 21 days.
• ‘Clear days’ means days exclusive of the day of the notice of service and of the day on which the meeting is held.

Question 105.Contents of Notice
Answer:

• Place of meeting
• Day of meeting
• Time of meeting
• Agenda
• Proxy clause with reasonable prominence

Question 106. Notice through Electronic Mode Rule 18 of Companies (Management and Administration) Rules, 2014
Answer:

A company may give notice through electronic mode. Electronic mode’ means any communication sent by a company through its authorized and secured computer program:

• The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company.
• E-mail shall state the name of the company, a notice of the type of meeting, and the date on which the meeting is scheduled.
• If notice is sent in the form of an e-mail attachment, such attachment shall be in the Portable Document Format (PDF).
• There shall be no difference in the text of the physical version of the notice and the electronic version except concerning the mode of dispatch of the notice.
• If a member entitled to receive notice fails to provide or update the relevant e-mail address to the company, the company shall not be in default for not delivering notice via e-mail.

The company may send e-mails through the in-house facility or authorize any third-party agency to provide a bulk e-mail facility.

Question 107.Persons entitled to receive Notice
Answer:

In terms of Section 101 (3), a notice of every meeting of the company must be given to:

1. every member of the company, legal representative of any deceased member, or the assignee of an insolvent member;
2. the auditor or auditors of the company; and
3. every director of the company.

A private company, which is not, a subsidiary of a public company may prescribe, by its Articles, persons to whom the notice should be given.

Question 108.Quorum
Answer:

In the case of a public company, the quorum shall depend on the number of members as on the date of the meeting:

• If members are not more than 1000- the quorum shall be 5.
• If members are more than 1000 but less than 5000- the quorum shall be 15.
• If members are more than 5000- the quorum shall be 30
• In the case of the private company, 2 members personally present shall be the quorum of the meeting.

Question 109. Adjourned Meetings
Answer:

• Notice of an adjourned meeting- Where the meeting stands Adjourned to the same day in the next week at the same time and place or to such other day, not being a National Holiday, or at such other time and place as the Board may determine there the company shall give at least 3 days notice to the members either individually or by publishing an advertisement in 2 newspapers (one in English and one in vernacular language).
• No quorum in an adjourned meeting- If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for holding the meeting, the members present, being not less than two in number, will constitute the quorum.
• If a Meeting is adjourned sine die or for thirty days or more, a Notice of the adjourned Meeting shall be given by the provisions contained herein above relating to Notice.

Question 110.Chairman of Meetings
Answer:

• Unless the articles of the company are otherwise provided, the members personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands.
• If a poll is demanded on the election of the Chairman, it shall be taken forthwith by the provisions of this Act and the Chairman elected on a show of hands shall continue to be the Chairman of the meeting until some other person is elected as Chairman as a result of the poll, and such other person shall be the Chairman for the rest of the meeting.

Question 111.Proxies
Answer:

• A person who is appointed by a member to attend and vote at a meeting in the absence of the member at the meeting is termed a proxy.
• Thus proxy is an agent of the member appointing him.
• The term ‘proxy’ is also used to refer to the instrument by which a person is appointed as a proxy. Section 105 of the Companies Act, 2013 provides that a member, who is entitled to attend to vote, can appoint another person as a proxy to attend and vote at the meeting on his behalf.

Question 112. Demand for Poll
Answer:

Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his motion, and shall be ordered to be taken by him on a demand made in that behalf by the following person(s):

1. In the case of a company having a share capital: by the members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than $ 5,00,000/- or such higher amount as may be prescribed, has been paid-up and
2. In the case of any other company by any member or members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power.
3. The Chairman shall get the validity of the demand verified.

The demand for a poll may be withdrawn at any time by the persons who made the demand.

Question 113. Postal Ballot
Answer:

• As per Section 2(65) “postal ballot” means voting by post or through any electronic mode.
• The following items of business shall be transacted only using voting through a postal ballot:
• Alteration of the objects clause of the memorandum
• Alteration of articles of association
• Change in place of registered office outside the local limits of any city, town, or village
• Change in objects for which a company has raised money from the public through a prospectus
• Issue of shares with differential rights as to voting or dividend
• Variation in the rights attached to a class of shares or debentures
• Buy-back of shares by a company
• Election of a director
• Sale of the whole or substantially the whole of an undertaking of a company.

Amendment made by Companies (Amendment) Act, 2017

Any item of business required to be transacted using a postal ballot (as stated above), may be transacted at a general meeting by a company that is required to provide the facility to members to vote by electronic means under Section 108, in the manner provided in that section.

Question 114.Circulation of Members’ Resolution
Answer:

As per Section 111, a company shall, on the requisition in writing of a certain number of members, give notice to members of any proposed resolution intended to be moved in the meeting or circulate any statement concerning matters referred to in the proposed resolution. The company shall be bound to give notice of resolution only if the requisition is deposited not less than six weeks before the meeting. In case of other requisitions not less than 2 weeks before the meeting.

Question 115.Minutes
Answer:

Section 118 provides that every company shall prepare, sign, and keep minutes of proceedings of every general meeting, including the meeting called by the requisitionists and all proceedings of the meeting of any class of shareholders or creditors or Board of Directors or committee of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every such meeting concerned.

Company Types Promotion Formation And Related Procedures Short Note Question And Answers

Question 1. Write a short note on the following Revocation of the license
Answer:

Revocation of Licence

Section 8(6) provides that the Central Government, by order, revoke the license granted to the company registered under this section:

• if the company contravenes any of the requirements of this section; or
• any of the conditions subject to which a license is issued; or
• he affairs of the company are conducted fraudulently or in a manner violative of the objects of the company.
• The Central Government shall direct the company to convert its status and change its name to add the words ‘limited’ or ‘private limited’ to its name. No such order will be passed without allowing the company to be heard.
• A copy of such order shall be given to the Registrar.
• The Registrar shall, without prejudice to any action taken, on application, in the prescribed form register the company accordingly.

Question 2. Write short notes on out of the following terms Alteration of Share Capital
Answer:

Alteration of Share Capital:

A Limited Company having a Share Capital may, if so authorized by its articles, alter its memorandum by passing an ordinary resolution in its general meeting to:

1. increase its authorized share capital by such amount as it thinks expedient;
2. consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;
3. convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination.
4. sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.
5. cancel shares which, at the date of the passing of the resolution on that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled.

• • All the above alterations do not require confirmation by the Tribunal except that alteration relating to consolidation and division which results in changes in the voting percentage of shareholders shall not take effect unless it is approved by the Tribunal on an application made in the prescribed manner
  • These alterations are, however, required to be notified and a copy of the resolution should be filed with the Registrar within 30 days of the passing of the resolution along with an altered memorandum. [Section 64(1)]
  • The Registrar shall record the notice and make any alteration that may be necessary in the company’s memorandum articles or both.
  • The cancellation of shares under section 61(1) of the Act shall not be deemed to be a reduction of share capital. Section 64 (1) provides that a notice is required to be given to the Registrar for alteration of share capital.

Question 3. Write short notes on Small Companies
Answer:

Section 2(85) of the Companies Act, 2013 defines ‘small company’ as a company, other than a public company

1. paid-up share capital that does not exceed $ 50 lakh or such higher amount as may be prescribed which shall not be more than $ 10 crore; and
2. turnover which is 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 crores.

This definition shall not apply to the following companies –

• A holding company or subsidiary company
• A company registered under Section 8 or
• A company or a body corporate governed by any special Act.

Question 4. Write short notes on the Red herring prospectus
Answer:

Red herring prospectus:

The Explanation to Section 32 defines the term red herring prospectus’ as a prospectus that does not include complete particulars of the quantum or price of the securities included therein Section 32 provides that a company proposing to make an offer of securities may issue a red herring prospectus before the issue of a prospectus.

• The same shall be filed with the Registrar at least three days before the opening of the subscription list and the offer. It shall carry the same obligations as apply to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
• At the time of closing of the offer, the prospectus stating the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the SEBI.

Question 5. Write Short Notes on the Revocation of license under Section 8(6) of the Companies Act.
Answer:

Revocation of License (Section 8(6) of Companies Act, 2013): Provides that the Central Government may, by order, revoke the license granted to the company registered under this section –

1. If the company contravenes any of the requirements of this section or
2. Any of the conditions subject to which a license is issued or
3. The affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to the public interest.

• The Central Government shall direct the company to convert its status and change its name to add the words “Limited” or “Private Limited” to its name.
• No such order will be passed without allowing the company to be heard. A copy of such order shall be given to the Registrar.
• The Registrar shall, without prejudice to any action taken, on application, in the proscribed form, register the company accordingly.

Company Types Promotion Formation And Related Procedures Descriptive Questions And Answers

1. A chemical manufacturing company distributed 7 twenty lakhs to scientific institutions for the furtherance of scientific education and research. Referring to the provisions of The Companies Act, 2013, decide whether the said distribution of money was ‘ultra vires’ the company.
Answer:

The doctrine of Ultra Vires :

• Ultra means beyond and Viresmeansn powers. Ultra Viros moans beyond power. Any action of the company is Ultra Viroo if such action is not authorized in the MOA.
• The MOA defines and confines the powers of the company and the company can operate only within the scope of the authority given to it by its MOA and the Company’s Act, 2013.
• Any action beyond the scope of MOA or Company’s Act, 2013 is Ultra Viros of the company.
• It is also dear that the company can not ratify such action or make such action valid, even if every member assents to it.
• Whatever was ultra vires the company will remain ultra vires.
• Any action that is ultra vires but intra vires to the company can be ratified by the company.
• If any act is ultra vires to the directors the body of shareholders can ratify it.
• The term ultra viros means beyond powers.
• More, in the given case, a chemical manufacturing company distributed 20 lakhs to scientific institutions for furtherance (moans continuance, persistence, maintenance) of scientific education and research.
• It is not ultra vires since it is conducive to the continued growth of the company as a chemical manufacturer.
• A similar view was found in the case of Evans V. Brunner Mond And Company, (1921) Ch 359.
• Hero, a company was incorporated to carry on the business of manufacturing chemicals.
• The objects clause in the memorandum of the company authorized the company to do all such business and things as may be incidental or conducive to the attainment of the above objects or any of thorn by a resolution the directors were were authorized to distribute $ 1,00,000 out of surplus reserve account to such universities in the U.K. as they might select for the furtherance of scientific research and education.
• The resolution was challenged on the ground that it was beyond the objects clause of the memorandum and therefore it war, ultra vires the power of the company.
• The directors proved that the company had great difficulty in finding trained men and the purpose of the resolution was to encourage scientific training of more men to enable the company to recruit staff and continue Our progress.
• The Tribunal held that the expenditure authorized by the resolution was necessary for the continued progress of the company as a chemical manufacturer and thus the resolution was incidental or conducive to the attainment of the main object of the company and consequently it was not ultra vires.
• “Acts incidental or ancillary’’ are those acts, which have a reasonable proximate connection with the objects stated in the objects clause of the memorandum.

Question 2. Explain provisions of the Companies Act, 2013 regarding documents containing otter of securities for sale to be deemed prospectus. 
Answer:

Document Containing offer of Securities for Sale to be Deemed Prospectus:

Section 25(1) of the Companies Act, 2013 states that when a company agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public:

• Any document by which the otter for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company; and
• All enactments and rules of law as to the contents of the prospectus and as to liability in respect of misstatements, in and omissions from, prospectus, or otherwise relating to the prospectus, shall apply with the modifications specified in sub-section (3) and (4) and shall have effect accordingly, as if the securities had been offered to the public for subscription and as if persons accepting the offer in respect of any securities were subscribers for those securities, but without prejudice to the liability, if any, of the persons by whom the offer is made in respect of misstatements contained in the document or otherwise in respect thereof.

Section 25(2) states that unless the contrary is proved, it shall be evidence that an allotment of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the public if it is shown:

• that an offer of the securities or any of them for sale to the public was made within six months after the allotment or agreement to allot; or
• that at the date when the offer was made, the whole consideration was to be received by the company in respect of the securities that had not been received by it.

As per Section 25(3); Section 26 as applied by this section shall have effect as if:

1. It required a prospectus to state in addition to the matters required by that section to be stated in a prospectus:
   • The net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and
   • The time and place at which the contract where under the said securities have been or are to be allotted may be inspected;
2. The persons making the offer were persons named in a prospectus as directors of a company.

Question 3. A company wants to buy back its shares in the current financial year. State the defaults which make the company ineligible to buy back its shares as outlined in the Companies Act, 2013.
Answer:

Prohibition for Buy-Back in Certain Circumstances [Section 70]

1. No company shall directly or indirectly purchase its shares or other specified securities:
   • Through any subsidiary company including its own subsidiary companies
   • Through any investment company or group of investment companies or
   • If a default is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.
   • Provided that the buy-back is not prohibited if the default is remedied and three years have lapsed after such default ceased to subsist.
2. No company shall, directly or indirectly, purchase its shares or other specified securities in case such company has not complied with the provisions of Sections 92,123,127 and 129.

Question 4. Can a non-profit organization be registered as a company under the Companies Act, 2013? If so, what procedure does it have to adopt? ABC Limited decided to buy back shares. Advise the Company’s Board of Directors about the sources of which the . company can buy back its shares. Define the term ‘Small Company’ as contained in the Companies Act, 2013.
Answer:

Registration of a non-profit organization or company :

1. Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company:
   • Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object;
   • Intends to apply its profits, if any, or other income in promoting its objects; and
   • Intends to prohibit the payment of any dividend to its members, the Central Government may, by license issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.
2. The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
3. A firm may be a member of the company registered under this section.
4. A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
   • A company registered under this section may convert itself into a company of any other kind only after complying with such conditions as may be prescribed.
5. Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by license, allow the company to be 5.
6. Registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be the words “Private Limited” from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.
7. The Central Government may, by order, revoke the license granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a license is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to the public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words.
8. “Private Limited”, as the case may be, to its name and thereupon the registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly.
9. Provided that no such order shall be made unless the company is given a reasonable opportunity to be heard. Provided further that a copy of every such order shall be given to the registrar.
10. Where a license is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section. Provided that no such order shall be made unless the company is given a reasonable opportunity to be heard.
11. Where a license is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties, and obligations as may be specified in the order.
12. If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under Section 269.
13. A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

Sources:

According to Section 68(1) of the Companies Act, 2013, a company may purchase its shares or other specified securities (hereinafter referred to as “buy-back”) out of:

1. its free reserves
2. the securities premium account
3. the proceeds of any shares or other specified securities.

However, no buy-back of any kind of shares or other specified securities can be made out of the proceeds of an earlier issue of the same kind of shares or the same kind of other specified securities.

Thus, the company must have at the time of buy-back, sufficient balance in any one or more of these accounts to accommodate the total value of the buy-back.

1. “Small company” means a company, other than a public company,
   • paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
   • turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.
2. Amendment made by Companies (Amendment) Act, 2017: Revised Section 2(85)-
3. “Small Company means a company, other than a public company,
   • Paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
   • Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be, prescribed which shall not be more than one hundred crore rupees.”

Question 5. Explain the Red Herring Prospectus under the Companies Act, 2013. State the procedure for shifting a registered office of the company from one state to another state under the provisions of the Companies Act, 2013.
Answer:

Red Herring Prospectus [Section 32 of the Companies Act, 2013]:

1. A company proposing to make an offer of securities may issue a red herring prospectus before the issue of a prospectus.
2. A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the Registrar at least three days before the opening of the subscription list and the offer.
3. A red herring prospectus shall carry the same obligations as apply to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.
4. Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.

Procedure for shifting the registered office from one state to another state (Section 13, of the Companies Act, 2013):

To shift the registered office from one state to another the the following procedure will have to be followed:

• Hold a Board Meeting to call a general meeting of the members of the company in which the shifting of the registered office from one state to another will have to be approved;
• The general meeting of the members will have to pass a special resolution approving the change of address of the registered office from one state to another as required by Section 13 (1) of the Companies Act, 2013.
• Make an application to the Central Government in INC no. 23 form and manner as may be prescribed, for getting its approval under Section 13 (4) of the Companies Act, 2013.
• Under Section 13 (7) of the Companies Act, 2013, where an alteration of the Memorandum results in the transfer of the registered office of the company from one state to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the registrar of each of the states, within such time and in such manner as may be prescribed, and the registrars shall register the same.
• The registrar of the state where the registered office is being shifted shall issue a fresh certificate of incorporation indicating the alteration.
• The name change will be effective only after the issue of the fresh certificate of incorporation by the Registrar of the state where the registered office is being shifted.

Question 6. What are the conditions stipulated in the Companies Act, 2013 for the formation of a Person Company? Discuss the procedure of alteration of the memorandum of association as per the Companies Act, 2013.
Answer:

Conditions

The following are the conditions for the formation of an OPC:

• No person shall be eligible to incorporate more than an OPC or become a nominee in more than such company
• Where a natural person, being a member of OPC by this rule becomes a member in another such company by his being a nominee in that OPC, such person shall meet the eligibility criteria within 182 days
• No minor shall become a member or nominee of OPC or can hold share with beneficial interest
• Such a company cannot be incorporated or converted into a Section 8 company
• Such a company cannot carry out Non-Banking Financial investment activities including investment activities in securities of any corporation;
• No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of OPC, except the threshold limit of paid-up share capital is increased beyond $ 50 lakh or its average annual turnover during the relevant period exceeds $ 2 crore rupees.

The procedure of alteration of the memorandum:

Section 13 of the Companies Act, 2013 provides the provisions that deal with the alteration of the memorandum.

The provision says that:

1. Alteration by special resolution: The Company may alter the provisions of its memorandum with the approval of the members by a special resolution.
2. Name Change of the company: Any change in the name of a company shall be effected only with the approval of the Central Government in writing. However, no such approval shall be necessary where the change in the name of the company is only the deletion therefrom, or addition thereto, of the word “Private”, on the conversion of any one class of companies to another class. The change of name shall not be allowed to a company that has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.
3. Entry in Register of Companies On any change in the name of a company, the Registrar shall enter the new name in the Register of Companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.
4. Change in the registered office: The alteration of the memorandum relating to the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government on an application in such form and manner as may be prescribed.
5. Disposal of the application of change of place of the registered office: The Central Government shall dispose of the application of change of place of their registered office within sixty days Before passing the order, the Central Government may satisfy itself that:
   • The alteration has the consent of the creditors, debenture-holders, and other persons concerned with the company, or
   • the sufficient provision has been made by the company either for the due discharge of all its debts and obligations, or
   • adequate security has been provided for such discharge.
6. Filing with Registrar: A company shall, about any alteration of its memorandum, file with the Registrar:
   • the special resolution passed by the company under. sub-section (1);
   • the approval of the Central Government under subsection (2), if the alteration involves any change in the name of the company.
7. Filing of the certified copy of the order with the registrar of the states: Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of each of the States within such time and in such manner as may be prescribed, who shall register the same.
8. Issue of fresh certificate of incorporation: The Registrar of the State where the registered office is being shifted, shall issue a fresh certificate of incorporation indicating the alteration.
   • Amendment made by Companies (Amendment) Act, 2017
   • In Section 12 of the Principal Act,
   • In subsection (1), for the words “on and from the fifteenth day of its incorporation”, the words “within thirty days of its incorporation” shall be substituted.
   • In subsection (4), for the words “within fifteen days”, the words “within thirty days” shall be substituted.
9. Change in the object of the company: A company, that has raised money from the public through a prospectus and still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless special resolution through the postal ballot is passed by the company and:
   • The details, concerning such resolution, shall also be published in the newspapers (one in English and one in vernacular language) which are in circulation at the place where the registered office of the company is situated and shall also be placed on the website of the company, if any, indicating there in the justification for such change;
   • The dissenting shareholders shall be allowed to exit by the promoters and shareholders having control by regulations to be specified by the Securities and Exchange Board.
10. Registrar to certify the registration on the alteration of the objects: The Registrar shall register any alteration of the memorandum concerning the objects of the company and certify the registration within thirty days from the date of filing of the special resolution.
11. Alteration to be registered: No alteration made under this section shall have any effect until it has been registered by the provisions of this section.
12. Only members have a right to participate in the divisible profits of the company: Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, intending to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

Question 7. Discuss the procedure for conducting a poll in a meeting

Elucidate the circumstances in which a company cannot buy back its shares as per the provisions of the Companies Act, 2013 (6marksl
Answer:

• Section 108 (5) provides that where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as he deems necessary, to scrutinize the poll process and votes given on the poll to report thereon to him.
• Section 108(6) provides that the Chairman of the meeting shall have the power to regulate how the poll shall be taken.

Rule 21 provides that the Chairman of a meeting shall, in the poll process, ensure that

1. The Scrutinizers are provided with the Register of Members, specimen signatures of the Members, Attendance Register, and Register of proxies
2. The Scrutinizers are provided with all documents received by the company
3. The Scrutinizers shall arrange for polling papers and distribute them to the members and proxies present at the meeting
4. In case of joint shareholders, the polling paper shall be given to the first named holder or in his absence to the joint holder attending the meeting as appearing in the chronological order in the folio
5. The polling shall be in Form No. MGT-12
6. The Scrutinizers shall keep a record of the polling papers received in response to the poll by initializing it
7. The Scrutinizers shall lock the seal and empty the polling box in the presence of members and proxies
8. The Scrutinizers shall open the polling box in the presence of two persons as witnesses after the voting process is over
9. In case of ambiguity about the validity of a proxy, the Scrutinizer shall decide the validity in consultation with the Chairman
10. The Scrutinizers shall ensure that if a member who has been appointed in a proxy, has voted in person, the proxy’s vote shall be disregarded
11. The Scrutinizers shall count the votes cast on the poll and prepare a report thereon addressed to the Chairman
12. The Scrutinizer shall submit the report to the Chairman who shall countersign the same
13. The Chairman shall declare the result of the voting on the poll. The result may either be announced by him or a person authorized by him in writing.
14. The Scrutinizes shall submit a report to the Chairman of the meeting in Form No. MGT-13. The report shall be signed by the scrutinizer(s) and the same shall be submitted by them to the Chairman within 7 days from the date the poll is taken.
15. Section 70 provides that no company shall directly or indirectly purchase its shares or other specified securities-
16. Through any subsidiary company including its own subsidiary companies
17. Through any investment company or group of investment companies; or
18. If a default is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act,
19. Interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or
20. Repayment of any term loan or interest payable thereon to any financial institution or banking company.
21. The buyback is not prohibited if the default is remedied and three years have lapsed after such default ceased to subsist.

Question 8. Discuss the procedure for conversion of a private company into an OaPerson Company.
Answer:

Conversion of a Private Company into an OPC:

• Rule 7 provides the procedure for the conversion of a private company into an OPC. Rule 7(1) provides that a private company other than a Section 8 company, having paid-up share capital of? 50 lakh or less and an average annual turnover during the relevant period is ? 2 crores or less may convert itself into OPC by passing a special resolution in the general meeting.
• Before passing such resolution the company shall obtain a ‘No Objection Certificate’ in writing from the members and creditors. The OPC shall file a copy of the resolution with the Registrar of Companies within 30 days from the date of passing such resolution in Form No. MGT-14.
• The company shall apply for Form No. INC-6 for its conversion into OPC along with fees.

The following documents are to be attached:

• The directors of the company shall give a declaration by way of an affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid-up share capital of the company is? 50 lakhs or less or average annual turnover is less than X 2 crores, as the case, maybe
• The list of members and creditors;
• The latest Audited Financial Statement;
• The copy of the No objection letter of secured creditors.
• On being satisfied and complied with the requirements the Registrar shall issue the certificate.

Question 9. What are the procedures for sending notice through electronic mode under the Companies Act, 2013?
Answer:

1. The company may give notice through electronic mode. For this rule, the expression “electronic mode” shall mean any communication sent by a company through its authorized and secured computer program which is capable of producing confirmation and keeping a record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.
2. A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing an electronic link or Uniform Resource -Locator for accessing such notice.
   1. The e-mail shall be addressed to the person entitled to receive such
      e-mail as per the records of the company or as provided by the depository:
   2. Provided that the company shall provide an advance opportunity at least once in a financial year, to the member to register his e-mail address and changes therein and such request may be made by only those members who have not got their email recorded or to update a fresh email id and not from the members whose e-mail ids are already registered.
   3. The subject line in the e-mail shall state the name of the company, notice of the type of meeting, place, and the date on which the meeting is scheduled.
   4. If notice is sent in the form of a non-editable attachment to an e-mail, such attachment shall be in the Portable Document Format or a non-editable format together with a ‘link or instructions’ for the recipient to download a relevant version of the software.
   5. When notice or notifications of availability of notice are sent by e-mail, the company should ensure that it uses a system that produces confirmation of the total number of recipients e-mailed and a record of each recipient to whom the notice has been sent and a copy of such record and any notices of any failed transmissions and subsequent re-sending shall be retained by or on behalf of the company as “proof of sending”.
   6. The company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be held responsible for a failure in transmission beyond its control.
   7. If a member entitled to receive notice fails to provide or update the relevant e-mail address to the company, or the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.
   8. The company may send e-mail through the in-house facility or its registrar and transfer agent or authorize any third party agency providing bulk e-mail facility.
   9. The notice made available on the electronic link or Uniform Resource Locator has to be readable, and the recipient should be able to obtain and retain copies the company shall give the complete Uniform Resource Locator or address of the website and full details of how to access the document or information.
   10. The notice of the general meeting of the company shall be simultaneously placed on the website of the company if any and on the website as may be notified by the Central Government.

Question 10. What are the features of companies registered under section 8 of the Companies Act, 2013?

Discuss the provisions of the Companies Act, 2013 regarding the issue of bonus shares.
Answer:

Section 8 of the Companies Act 2013, Provides that these companies intend to promote art, commerce, sports, safety, science, research, healthcare, social welfare, religion, protection of the environment, etc.

The following are the features of companies registered under Section 8 of the Companies Act, 2013:

• Has its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object
• Intends to apply its profit, if any, or other income in promoting its objects and
• Intends to prohibit the payment of any dividend to its members
• The company registered under this Section shall enjoy all the privileges and be subject to all the obligations of the limited company
• A firm may be a member of the company registered under this section
• A company registered under this Section shall not alter the provisions of its memorandum and articles except with the previous approval of the Central Government
• A company registered under this section may convert itself into a company of any other kind only after complying with such conditions as may be prescribed.

Section 63 of the Companies Act, 2013 states the issue of bonus shares. Section 63(1) states that a company issues fully paid-up bonus shares to its members out of its

1. Free reserves;
2. The securities premium account; or
3. The capital redemption reserve account

No bonus shares shall be made by capitalizing reserves created by the revaluation of assets. Section 63(2) provides that no company shall capitalize its profits or reserves to issue fully paid-up shares unless.

• It is authorized by its articles
• It has, on the recommendation of the Board, been authorized in the general meeting of the company
• It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it
• It has not defaulted in respect of the payment of statutory dues of the employees, such as contribution to provident fund, gratuity, and bonus
• The partly paid-up shares, if any outstanding on the date of allotment are made fully paid up

It complies with such conditions as may be prescribed Section 63(3) provides that the bonus shares shall not be issued instead of dividends. Rule 14 states that the company that once announced the decision of the Board recommending a Bonus issue shall not subsequently withdraw the same.

Question 11. What is meant by Lifting of Corporate Veil? In which circumstances the corporate veil can be lifted by the court?  State the procedure for shifting a registered office of the company from one state to another state under the provisions of the Companies Act, 2013.
Answer:

The separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only.

• Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
• The Court will break through the corporate shell and apply the principle/doctrine of “lifting of or piercing the corporate veil”.
• The Court will look behind the corporate entity and take action as though no entity separate from the members existed and make the members or the controlling persons liable for debts and obligations of the company.

In the following circumstances, different courts found it necessary to lift the corporate veil and punish the actual persons who did wrong or unlawful acts under the name of the company:

1. Protection of Revenue: The Court may ignore the Separate Legal Entity status of a Company, where it is used for tax invasion or circumventing tax obligation.
2. Determination of the enemy character of the Company: The company being an artificial person cannot be an enemy or friend. But during the war, it may become necessary to lift the corporate veil and see the persons behind it to determine whether they are friends or enemies. This is due to the reason that though a company enjoys a Separate Legal Entity its affairs are run by individuals.
3. Prevention of fraud: Where a Company is used for committing fraud or improper conduct, the Court may lift the corporate veil and look at the realities of the situation.
4. Protection of public policy: The Court shall lift the Corporate Veil without any hesitation to protect the public policy and prevent transactions opposed to public policy.
5. Company mere sham or cloak: Where the Company is a mere sham and was a ploy used for committing illegalities and to defraud people, the Court shall lift the Corporate Veil.
6. Where a Company acts as an agent of its shareholders: If there is an arrangement between the shareholders and a Company to the effect that the Company will act as an agent of shareholders to carry on the business, the business is essential that of the shareholders and will have unlimited liability.
7. Avoidance of Welfare Legislation: Where a Company tries to avoid its legal obligations, the corporate veil shall be lifted to look at the real picture.
8. To punish for contempt of Court: The company being an artificial person cannot disobey the orders of the Court. Therefore, the persons at fault should be identified.

A company is required to adopt the following procedures to shift its registered office from one state to another;

1. The company shall pass a special resolution.
2. Alteration in the memorandum must be made for any of the.‘‘specified purposes” given u/s 16.
3. An application for alteration shall be made by the company to
   Central Governments (13) (7) of Companies Act, 2013. Also, notice shall be served on ROC who shall have a right to state his objections and suggestions.
4. As per Rule 30 of the Companies (Incorporation) Rules, 2014, the application for seeking approval for alteration of the memorandum about the change of place of the registered office from one
   • State to another shall be filed with the Central Government in Form INC – 23 and shall be accompanied by the following documents:
   • A copy of the memorandum and articles of association;
   • A copy of the notice convening the general meeting along with a relevant Explanatory Statement;
   • A copy of the special resolution sanctioning the alteration by the members of the company;
   • A copy of the minutes of the general meeting at which the resolution authorizing such alteration was passed, giving details of the number of votes cast in favor or against the resolution;
   • An affidavit verifying the application;
   • The list of creditors and debenture holders entitled to object to ‘ the application;
   • An affidavit verifying the list of creditors;
   • The document relating to the payment of the application fee;
   • A copy of the board resolution or Power of Attorney or the executed Vakalatnama, as the case may be.
5. CG may dispense with the consent of a creditor in appropriate cases. Moreover, CG may confirm the alteration in terms as it thinks fit.
6. The company is required to file with the registrar of each state:
   1. Order of CG; and
   2. A copy of a memorandum, as altered, within 3 months plus 3 months (maximum) extended by CG.
7. The Registrar of the new state shall register the charge and give a certificate of registration of office.

Question 12. Sweat equity shares are issued to directors or employees at a discount or. for consideration other than cash. Discuss under the provisions of the Companies Act, 2013.
Answer:

Section 2(88) defines the expression ‘sweat equity shares’ as such equity shares as are issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their, know-how or making available rights like intellectual property rights or value additions, by whatever name called.

For this purpose, the term ‘employee’ means-

1. A permanent employee of the company who has been working in India or outside India; or
2. A director of the company, whether a full-time director or not; or
3. An employee or a director as defined above of a subsidiary, in India or outside India, or of holding company of the company.

Section 54 provides that a company may issue sweat equity shares of a class of shares already issued if the following conditions are fulfilled:

1. the issue is authorized by a special resolution passed by the company;
2. the resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued.
3. where the equity shares of the company are listed on a recognized stock exchange, the sweat equity shares are issued by the regulations made by SEBI on this behalf. If they are not so listed, the sweat equity shares are issued by such rules as may be prescribed.

Note: Rule 8(1) provides that a company other than a listed company shall not issue sweat equity shares to its directors or employees at a discount or for consideration other than cash, for their providing know-how or making available rights like intellectual property rights or value additions unless the issue is authorized by a special resolution passed by the company in general meeting.

Question 13 What are the benefits of One Person Company?
Answer:

Benefits of A One-Person Company

1. The meaning of One Person Company is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans and access to the market, limited liability, and legal protection available to companies.
2. Before the new Companies Act, 2013 came into effect, at least two shareholders were required to start a company. But now the concept of One Person Company would provide tremendous opportunities for small businessmen and traders, including those working in areas like
   handloom, handicrafts, and pottery.
3. Prior they were working as artisans and weavers on their own, so they did not have a legal entity of a company. But now the OPC would help them do business as an enterprise and allow them to start their ventures with a formal business structure.
4. Further, the amount of compliance by a one-person company is much lesser in terms of filing returns, balance sheets, audits, etc: Also, rather than the middlemen usurping profits, the one-person company will have direct access to the market and the wholesale retailers.

Question 14. What is the procedure for issuing of renewed share certificate under the Companies Act, 2013?
Answer:

Issue of renewed share certificate

Rule 6 states that the certificate of any share(s) shall not be issued either in exchange for those which are sub-divided or consolidated or in replacement of those which are defaced, mutilated, tom or old, decrepit, worn out where the pages on the reverse for recording transfers have been duly utilized unless the certificate instead of which it is issued is surrendered to the company.

The company may charge such fees as the Board thinks fit, not exceeding $ 50/- per certificate issued on splitting or consolidation of share certificate(s) or in replacement of share certificates) that are defaced, mutilated, tom or old, decrepit or worn out. In such cases, It shall be stated on the face of the share that it is “Issued instead of Share Certificate No.

• Subdivided Or replaced Or on consolidation” and also that no fee shall be payable under a scheme of arrangement sanctioned by the High Court or Central Government.
• A company may replace all the existing certificates with new certificates upon subdivision or consolidation of shares merger demerger or any reconstitution without requiring old certificates to be surrendered. The details of such nature are to be entered in the Register maintained for this purpose.

Company Types Promotion Formation And Related Procedures Practical Question And Answers

Question 1. The company was incorporated on 6 October 2013. The certificate of incorporation of the company was issued by the Registrar on 25th October 2013. The company on 10th October 2013 entered into a contract, which created its contractual liability. The company denies the said liability on the ground that the company is not bound by the contract entered into before issuing a certificate of incorporation. Decide, under the provisions of The Companies Act, 2013, whether the company can be exempted from the said contractual liability.
Answer:

Upon the registration of the documents as required under the Companies Act, 2013 for incorporation of a company, and on payment of the necessary fees, the Registrar of Companies issues a certificate that the company is incorporated (u/s 34) Section 35 provides that a certificate of incorporation issued by the Registrar is conclusive as to all administrative acts relating to the incorporation and as to the date of incorporation.

• The date of incorporation is the birth certificate of a company. The date of issue of the birth certificate cannot affect the date of birth of the company.
• The facts given in the problem are similar to those in the case of Jubilee Cotton Mills Us. Lewis (1924) A.C. 1958 where it was held that an allotment of shares made on the date after incorporation could not be declared void on the ground that it was made before the company was incorporated when the certificate of incorporation was issued at a later date.
• Applying the above principles the contention of the company in this case cannot be tenable (means acceptable).
• It is immaterial that the certificate of incorporation was issued at a later date.
• Since the company came into existence on the date of incorporation stated on the certificate, it is quite legal for the company to enter into contracts.
• To conclude the contracts entered into by the company before the issue of certificate of incorporation shall be binding upon the company. The date of the issue of the certificate is immaterial.

Question 2. The MOA of a Company was signed by two adult members and by a guardian of the other five minor members, the guardian signing separately for each minor member. The Registrar registered the company and issued under his hand a certificate of incorporation. The plaintiff contended that (1) conditions of registration were not duly complied with, (2) that there were no seven subscribers to the MOA. Will the Tribunal uphold his contention?
Answer:

• No. Once the ROC issues the certificate of incorporation, it is conclusive evidence that all the formalities as required by law regarding the incorporation of the company have been complied with.
• The certificate of incorporation is conductive for all purposes.
• According to Section 35 of the Companies Act, 2013, a certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereof and no arguments whatsoever can be heard against the incorporation after the issue of a certificate of incorporation.

Question 3. The management of Ambika Properties Ltd. has decided to take up the business of chemical processing activity because of the downward trend in the real estate business. There is no provision in the object clause of the Memorandum of Association to enable the company to carry on such business. State with reasons whether its object clause can be amended. State briefly the procedure to be adopted for change in the object clause in the light of Companies Act, 2013.
Or
Manish, a textile dealer, supplied certain bales of cloth to the. company that is duly incorporated has obtained a certificate of incorporation. However, the company went into liquidation before it could obtain a certificate to commence business. Can Manish claim the price of bales of cloth in liquidation proceedings?
Answer:

According to Section 13(8) of the Companies Act, 2013, a company, which has raised money from the public through a prospectus and still has any unutilized amount out of the money so raised, shall not change the objectives for which it raised the money through prospectus unless a special resolution is passed by the company and

• The prescribed details concerning! such resolutions are published in the newspapers (one in English and one in vernacular language) which are in circulation at the place where the registered office of the company is situated and are also placed on the website of the company, if any, indicating herein the justification for such change;
• The dissenting shareholders shall be allowed to exit by the promoters and shareholders having control by regulations to be specified by the Securities and Exchange Board.
• The Registrar shall register the alteration of the memorandum concerning the objects of the company and certify the registration within thirty days from the date of filing of the special resolution.
• ‘ It may be noted that no alteration concerning objects shall have any effect until it has been registered as aforesaid [Sec.13(10)].
• No, as all contracts, after incorporation but before obtaining a certificate to commence business are provisional and not binding on the company till such certificate is obtained.

Note: The answer is given as per Section 149(4) of the Companies Act, 1956, which is replaced by Section 11 of the Companies Act, 2013. As per the Companies (Amended) Act, 2015 Section 11 stands omitted

Question 4. XYZ Ltd. issued a Notice to hold its Annual General Meeting on 30th September 2019. The notice was posted to the members on 7th September 2019. Some members of the company allege that the company had not complied with the provisions of the Companies Act. Referring to the provisions of the Act decide.

1. Whether the meeting has been validly called?
2. If there is a shortfall, state and explain how many days the notice falls short of the statutory requirement.
3. Can the delay in giving notice be condoned?

Answer:

Under Section 101(1) of the Companies Act, 2013, the Annual General Meeting (AGM) of a company may be called by giving not less than clear twenty-one days’ notice either in writing or through electronic mode in such manner as may be proscribed.

• Also, it is to be noted that a clear 21-day notice means that the data of which the notice is served and the date of the meeting are excluded from sending the notice.
• Further, Rule 35(6) of the Company (incorporation Rules,2014, provides that in case of delivery by post, such service shall be deemed to have been effected – in the case of the notice of meeting, at the expiration of forty-eight hours after the letter containing the same is posted. Therefore, in the given question:

1. A 21-day clear notice must be given. In the given problem, only 20 days’ notice is served (after excluding 48 hours from the time of its posting day of sending, and the date of the meeting). Hence, the meeting was not validly called.
2. As explained in (1) above, notice falls short by 1 day.
3. The Companies Act, 2013 does not provide anything specific regarding the condonation of delay in giving notice. Therefore, the delay in giving the notice calling the meeting cannot be condoned.