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Question 2 (a) Referring to the provisions of the Companies Act, 2013, state whether the following amounts received by the company constitute deposit or not: (i) IQ Books Limited received share application money of ` 50 crore from investors on 8th December, 2024. As the issue was under subscribed, the company refunded the amount to the investors on 20th February, 2025. (ii) Suraj, Raj and Tejas are the promoters of Precious Jewellers Limited. They borrowed a sum of ` 200 crore from ABC Bank Limited for its working capital purpose. The Bank imposed a stipulation that the promoters should contribute at least 20% of the amount borrowed. Hence, Suraj brought in ` 10 crore, Raj brought in ` 15 crore and Mr. K, father of Tejas brought in ` 15 crore. (iii) Pretty Cosmetics Limited issued non-convertible debentures for ` 125 crore and listed it on a recognized stock exchange adhering to SEBI rules and regulations. The company created a charge on its assets in favour of the debenture holders and duly registered the charge. (5 Marks) (b) Spark Services Limited issued a prospectus inviting public offer of securities on 18th June, 2024. The prospectus mentioned that Mr. T is one of the Directors of the Company. Mr. T is a famous social worker who helps in educating the poor children in Rajasthan. The prospectus also mentioned that a certain percentage of funds raised will be utilized towards that community service. Mr. C was impressed by these statements and subscribed to the shares of the company. He was allotted 1000 shares of the company. He subsequently sold 250 shares to Mr. D. On 15th December, 2024, he came to know that Mr. T was not a director and the company never had any intention of doing community service. Mr. C and Mr. D want to rescind the contract. Referring to the provisions of the Companies Act, 2013, examine whether Mr. C and Mr. D can rescind the contract. (5 Marks) (c) Purva Buildcon Ltd. (PBL) is a public company having two subsidiary companies namely Arihant Cements Ltd. (ACL) and Siddharth Bricks Ltd. (SBL). Purva is a Chief Financial Officer of PBL. Ashish and Mrinal, who were the CFO's of ACL and SBL resigned from their respective companies and Purva was offered to take charge of the office of CFO in ACL and SBL, which she accepted. Whether Purva can be designated as CFO simultaneously in two subsidiaries (i.e. in SBL and ACL) besides being CFO of PBL? Examine the matter with reference to the provisions contained in the Companies Act, 2013 as well as in the General Clauses Act, 1897. (4 Marks)

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Detailed Solution & Explanation

(a) (i) As per sub- clause vii of **Rule 2** (1) (c) of Companies (Acceptance of Deposits) Rules, 2014: (i) Any amount received and held towards subscription to any securities (including share application money or advance towards allotment of securities, pending allotment), so long as such amount is appropriated only against the amount due on allotment of the securities applied for. It is clarified by way of Explanation that if the securities for which application money or advance for such securities was received cannot be allotted within 60 days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within 15 days from the date of completion of 60 days, such amount shall be treated as a deposit under these rules. In the light of the facts of the question and provisions of Law: - IQ Books Limited received the share application money on 8th December, 2024 and refunded the same on 20th February, 2025. CORPORATE AND OTHER LAWS Therefore, IQ Books Limited has kept the money for (24+31+19) 74 days with them which is less than (60 days + 15 days) 75 days to be considered the money as deposits. Hence, 50 crore received by IQ Books Limited will not be considered as deposit as it was refunded within the prescribed time limit. (ii) As per sub-clause (xiii) of **Rule 2** (1) (c) of Companies (Acceptance of Deposits) Rules, 2014, any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to the fulfillment of following conditions: (a) the loan is brought because of the stipulation imposed by the lending institutions on the promoters to contribute such finance; (b) the loan is provided by the promoters themselves or by their relatives or by both; and (c) such exemption shall be available only till the loans of financial institution or bank are repaid and not thereafter. In the given question, the amount of 40 crore brought in by Suraj (₹10\displaystyle \text{₹}10 crore), Raj (₹15\displaystyle \text{₹}15 crore) and Tejas (₹15\displaystyle \text{₹}15 crore through his father Mr. K), will not be treated as deposit as this amount brought by the promoters of Precious Jewellers Limited fulfill all the conditions as prescribed by the Act. (iii) As per sub-clause (ixa) of **Rule 2(1)(c)** of companies (Acceptance of Deposits) Rule, 2014, any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognized stock exchange as per applicable regulations made by Securities and Exchange Board of India, will not be treated as deposit. In the given question, the amount of ₹125\displaystyle \text{₹}125 crore raised by Pretty Cosmetics Limited will be treated as deposit as the company has created a charge on its assets in favour of the debenture holders. (b) As per **Section 34** of the Companies Act, 2013, where a prospectus, issued, circulated or distributed, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447 of the Companies Act, 2013. Right of Recission A person who has purchased shares from the company on the basis of the prospectus containing untrue and misleading statement of material facts is entitled to apply to the court for the rescission of the contract, under the relevant provisions of the Indian Contract Act 1872. Exceptions - When right of rescission is not available? As per the Contract Act, 1872, right to rescind allotment of shares will not be available to the subsequent purchasers of shares from the market. In the given question, Mr. C subscribed to 1,000 shares of Spark Services Limited (on the basis of a prospectus which provided false statements related to Mr. T being one of the directors and that the company intended to utilize certain raised funds towards community service). Mr. D purchased 250 shares from Mr. C (i.e. he did not purchase shares on the basis of the prospectus containing untrue and misleading statement). In the light of the above provisions Mr. C can rescind the contract as he purchased shares on the basis of the false statements in prospectus. However, Mr. D cannot rescind the contract. (c) Provisions under the Companies Act, 2013 Chief Financial Officer (CFO) comes within the definition of Key Managerial Personnel (KMP) as defined in **Section 2(51)** read with Section 203(1) of the Companies Act, 2013. **Section 203(3)** of the Companies Act, 2013 provides that Whole Time Key Managerial Personnel shall not hold office in more than one company except in its subsidiary company at the same time. Provisions under the General Clauses Act, 1897 **Section 13(2)** of the General Clauses Act, 1897 provides that in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words in the singular shall include the plural, and vice versa. CORPORATE AND OTHER LAWS With respect to the issue that whether a Whole Time KMP of a holding company be appointed in more than one subsidiary company or can be appointed in only one subsidiary company. It can be noted that **Section 13** of the General Clauses Act, 1897 provides that the word ‘singular’ shall include the ‘plural’, unless there is anything repugnant to the subject or the context. Hence, Purva, the CFO (Whole Time Key Managerial Personnel) may hold office in more than one subsidiary company (i.e. ACL and SBL) as per the present law.

Key Concepts to Understand

Working Capital

The excess of current assets over current liabilities, representing the short-term liquidity available to a business for its day-to-day operations. Positive working capital indicates good short-term financial health.

Debentures

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

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