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Question 6 (a) Silk Textile Limited is a company which is incorporated in India. It holds two subsidiaries- Print Limited (in which it holds 80% of shares) and Stitch Limited (a wholly owned subsidiary). Both the subsidiaries are incorporated outside India. The Board of Directors of Silk Textile Limited intends to call an Extraordinary General Meeting (EGM) of Silk Textile Limited. During the same time, the Board of Print Limited also wanted to hold an EGM on urgent basis at Dubai. The Chairman with the consent of his Board wanted to hold the EGM of Silk Textile Limited at Dubai so that he can attend both the EGM. But the Company Secretary advised the Chairman that he cannot hold the EGM outside India. Referring to the provisions of the Companies Act, 2013, advise the Board of Directors on the following: (i) Whether the Board of Silk Textile Limited can hold its EGM at Dubai? (ii) Whether the EGM of Print Limited can be held at Dubai? (5 Marks) OR (a) Creative Textiles Ltd. is an unlisted public company. The company's paid-up share capital is ` 50 lakh consisting of 5 lakh shares having face value of ` 10 each. Raman is having 50,000 shares in the company. He is not happy with Somnath, who is a director in the company. He believed that Somnath is acting against the interest of the company. Raman wanted to remove Somnath from the directorship. Removal of a person from the directorship requires the approval of the shareholders in the general meeting. The Annual General Meeting (AGM) of the company has recently been concluded and the next AGM will be held in the next year. Considering the case and referring to the provisions of the Companies Act, 2013, advise: (i) Can Raman as an individual shareholder make a requisition to the company for calling of the Extra-ordinary General Meeting for putting such resolution? (ii) If the company does not call the EGM on the requisition of Raman, whether Raman can himself call the EGM? (5 Marks) (b) Beauty Cosmetics, a company incorporated in Korea has established its branch office in Chennai for conducting its business in India. The structure of paid-up share capital of Beauty Cosmetics as at 31st March 2024 is as below: The company does not have any Preference Share Capital. Equity share capital held by Mr. L, an Indian citizen: 10% Equity share capital held by Mr. R, an Indian Citizen: 20% CORPORATE AND OTHER LAWS Equity share capital held by Fairness Cosmetics Limited, an Indian company: 20% You being a Chartered Accountant are asked to explain with reference to the provisions of the Companies Act, 2013: (i) Whether Beauty Cosmetics shall be deemed to be a Foreign Company or an Indian Company for the business carried on by it in India, and (ii) for the business carried on by it in India, will it be required to comply with the relevant provisions of the Companies Act, 2013 as if it is an Indian Company? (5 Marks) (c) Mitali Diamonds Limited is a company engaged in the business of cutting, polishing and trading of diamonds in and outside India. The company exports the diamonds to USA. For the last five financial years, the foreign exchange earned by the company in exporting diamonds is as under: FY 2023-24 USD 1,25,000 FY 2022-23 USD 1,10,000 FY 2021-22 USD 95,000 FY 2020-21 USD 98,000 FY 2019-20 USD 93,000 The company wants to give donation of USD 10,000 to an institution situated in USA which provides technical support and training in the field of cutting and polishing of raw diamonds. This will help the company in guiding its own employees, posted in USA to get the requisite training. Referring to the provisions of the Foreign Exchange Management Act, 1999, state whether the company can give donation to such institution in USA? (4 Marks)

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Detailed Solution & Explanation

(a) (i) Can the Board of Silk Textile Limited can hold its EGM at Dubai? As per section 100 of the Companies Act, 2013, the Board may, whenever it deems fit, call an extraordinary general meeting of the company. Provided that an extraordinary general meeting of the company, other than of the wholly owned subsidiary of a company incorporated outside India, shall be held at a place within India. As per the facts given in the question, Silk Textile Limited is a Company incorporated in India and has two subsidiaries incorporated outside India. In Print Limited, it holds 80% of the shares and Stitch Limited is its wholly owned subsidiary. As Silk Textile Limited is incorporated in India the Company can call the EGM anywhere only in India. Hence, it cannot hold its EGM at Dubai (outside India). (ii) Whether the EGM of Print Limited can be held in Dubai? Print Limited is incorporated outside India and its 80% shares are held by Silk Limited (incorporated in India). Hence, it is not a wholly owned subsidiary of Silk Limited. Only a wholly owned subsidiary of a company incorporated outside India, can hold its EGM outside India. In view of the above, Print Limited cannot hold its EGM in Dubai. OR (a) (i) Can Raman, as an individual shareholder make a requisition for calling an EGM? According to section 100 of the Companies Act, 2013, in the case of company having a share capital, EGM may be called by the Board of Directors at the requisition of such number of members who hold, on the date of receipt of requisition, at least 1/10th of such paid-up share capital of the company as on that date carries the right of voting. If the Board does not, within 21 days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than 45 days from the date of receipt of such requisition, the meeting may be called and held by the requisitionists themselves within a period of three months from the date of the requisition. In the given question, Raman is holding 1/10th [5,00,000/50,00,000] of the paid up share capital. Hence, he can, even as a single CORPORATE AND OTHER LAWS shareholder (holding 1/10th of the paid up share capital), make a requisition to the company for calling the EGM. (ii) If the company does not call the EGM on the requisition of Raman If the company does not within 21 days from the date of receipt of a valid requisition from Raman, proceed to call the EGM for the consideration of the matter of removal of Somnath, on a day not later than 45 days from the date of receipt of such requisition, the meeting may be called by Raman himself within a period of 3 months from the date of the requisition.[**Section 100(4)**]. In this regard, **Rule 17** of the Companies (Management and Administration) Rules, 2014 containing the provisions with regard to calling of EGM by requisitionists shall be followed. Further, section 100 (5) of the Act provides that a meeting under sub- section (4) by the requisitionists shall be called and held in the same manner in which the meeting is called and held by the Board. (b) (i) Whether Beauty Cosmetics shall be deemed to be a foreign company or an Indian company? As per section 2(42) of the Companies Act, 2013, a ‘foreign company’ means any company or a body corporate incorporated outside India which has: (a) 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. In the given question, Beauty Cosmetics, a Korean company has established a place of business in India (branch office in Chennai) and also carries on the business in India. Hence, Beauty Cosmetics shall be deemed to be a foreign company under the Companies Act, 2013 for the business carried on by it in India. Further, according to section 379(2) of the Companies Act, 2013, where not less than 50% of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company incorporated outside India is held by: (i) one or more citizens of India; or (ii) by one or more companies or bodies corporate incorporated in India; or (iii) by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such foreign company shall also comply with the provisions of Chapter XXII and other prescribed provisions of the Companies Act, 2013, with regard to the business carried on by it in India as if it were a company incorporated in India. In the given question, 50% (10% + 20% + 20%) of the share capital of Beauty Cosmetics (incorporated in Korea) is held by Mr. L (Indian Citizen), Mr. R (Indian Citizen) and Fairness Cosmetics Limited (Indian Company) respectively. Hence, Beauty Cosmetics shall be deemed to an Indian company for the business carried on by it in India. (ii) Whether Beauty Cosmetics, for the business carried on by it in India, be required to comply with the provisions of the Act? Since, Beauty Cosmetics shall be deemed to an Indian company for the business carried on by it in India, it is required to comply with the relevant provisions of the Companies Act, 2013, as if it is an Indian company. (c) As per Schedule III to the Foreign Exchange Management Act, 1999, remittances by persons other than individuals shall require prior approval of the Reserve Bank of India, for donations exceeding 1% of their foreign exchange earnings during the previous three financial years or USD 5,000,000, whichever is less, for: a. Creation of Chairs in reputed Educational Institutes, b. Contribution to Funds (not being an investment fund) promoted by Educational Institutes; and CORPORATE AND OTHER LAWS c. Contribution to a Technical Institution or Body or Association in the field of activity of the Donor Company. In the given question, Mitali Diamonds Limited can donate lower of USD 3,300 [1% of (1,25,000 + 1,10,000 + 95,000)] or USD 5,000,000. Thus, Mitali Diamonds Limited can give a donation of USD 3,300 without RBI approval and for USD 10,000 it shall require prior approval of the Reserve Bank of India to the said institution as this institution is a Technical Institution or Body or Association in the field of activity of the Donor Company.

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