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Corporate Law
Previous Year Question Paper with Solution
LLM · Group 2 Business Law
2023 Examination
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LLM Group 2 Business Law Corporate Law 2023 Question Paper with Solutions
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First published on munotes.in on 12 August 2026.
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Model answers written and edited by the munotes.in editorial desk.
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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by the University of Mumbai at the 2023 examination.
Four changes date most textbooks on this subject. Inability to pay debts ceased to be a ground of winding up on 15 November 2016, when the Insolvency and Bankruptcy Code substituted section 271, and voluntary winding up went with it: sections 304 to 323 were omitted and section 59 of the Code took over. The Company Law Board was dissolved on 1 June 2016 on the constitution of the National Company Law Tribunal. The certificate of commencement of business is gone: section 11 was omitted on 29 May 2015 and replaced from 2 November 2018 by the declaration in section 10A. And the statement in lieu of prospectus, section 70 of the Act of 1956, has no counterpart in the Act of 2013; section 42 on private placement does its work.
Contents
The questions below are the paper as the University of Mumbai set it at the 2023 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2023 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 7 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Form 39556. Answer any four Questions, all questions carry equal marks
any four of seven · 100 Marks
1.Explain in detail different types of Companies that can be formed under Companies Act. "The liability of the members of a limited company can never be unlimited" Discuss[25]
Answer
For full marks, cover: the classification first, on five axes with the defining section for each, and then, at length, the quoted proposition, which is wrong. The examiner has put a false statement in quotation marks and asked the candidate to discuss it, and the marks are in showing exactly when the liability of a member of a limited company does become unlimited: section 3A, section 7(7)(b), section 339, and the cases in which the veil is lifted. An answer that classifies companies for twenty five marks and treats the quotation as a rhetorical flourish has answered half the question.
The classification of companies
By the mode of incorporation there are chartered companies, created by royal charter and of historical interest only; statutory companies, created by a special Act, such as the Reserve Bank of India and the Life Insurance Corporation of India; and registered companies, formed under the Companies Act, 2013 or an earlier company law, which are what this Act deals with.
By liability, under section 3(2), a company may be limited by shares, where the liability of a member is limited to the amount unpaid on his shares; limited by guarantee, where it is limited to the amount he undertakes by the memorandum to contribute to the assets in the event of winding up, a form used by clubs, chambers of commerce and professional bodies; or unlimited, where under section 2(92) there is no limit on the liability of its members, so that in a winding up the members contribute whatever is required to pay the debts.
By the number of members and by constitutional restrictions, section 2(68) defines a private company as one which by its articles restricts the right to transfer its shares, limits the number of its members to two hundred excluding present and former employee members, and prohibits any invitation to the public to subscribe for any securities; and section 2(71) defines a public company as one that is not a private company, and includes a private company which is a subsidiary of a public company.
Section 2(62) defines a One Person Company, which has one person as a member, must name a nominee in the memorandum under section 4(1)(f), and is exempt from holding an annual general meeting under section 96(1); the rules were amended with effect from 1 April 2021 to remove the paid-up capital and turnover ceilings and to allow a Non-Resident Indian who has stayed in India for one hundred and twenty days to incorporate one.
By control, section 2(46) defines a holding company, section 2(87) a subsidiary, by control of the composition of the Board or of more than one half of the total voting power, with a prescribed limit on layers of subsidiaries, and section 2(6) an associate company, by significant influence, meaning at least twenty per cent of the total voting power or control of business decisions under an agreement. Section 19 forbids a subsidiary from holding shares in its holding company.
By size and by special purpose, section 2(85) defines a small company, currently a company other than a public company whose paid-up capital does not exceed four crore rupees and turnover does not exceed forty crore rupees, excluding a holding or subsidiary company, a section 8 company and a company governed by a special Act; section 8 provides for a company with charitable objects, licensed by the Central Government, applying its profits to its objects and paying no dividend; section 455 provides for a dormant company; section 2(45) defines a Government company, in which not less than fifty one per cent of the paid-up capital is held by the Central Government, a State Government or partly by both; and section 2(42) defines a foreign company, governed by Chapter XXII. A Nidhi under section 406 and a producer company under Chapter XXI-A, restored by the Companies (Amendment) Act, 2020, complete the list.
The quoted proposition, and why it is wrong
Read literally, the sentence is a statement about the ordinary case and it is correct there. In a company limited by shares the member's obligation is to pay what remains unpaid on his shares; if the shares are fully paid he owes nothing, whatever the company's debts. That is the rule in Salomon v. A. Salomon and Co. Ltd., [1897] AC 22, where the House of Lords held that the company is at law a different person from the subscribers, so that Salomon's unsecured trade creditors could not reach him, and his own debentures ranked ahead of them. Section 2(22) states the rule and section 2(55) makes the member's liability a liability to the company, not to its creditors, so a creditor cannot sue a member at all.
But the word "never" is what the question is testing, and the Act itself contradicts it in three places.
First, section 3A. If at any time the number of members of a company is reduced below seven in the case of a public company or below two in the case of a private company, and the company carries on business for more than six months while the number is so reduced, every person who is a member during the time it so carries on business after those six months, and who is cognisant of the fact, is severally liable for the payment of the whole debts of the company contracted during that time and may be severally sued. The section was inserted by the Companies (Amendment) Act, 2017 and reproduces section 45 of the Companies Act, 1956. It is a complete answer to the quotation: the members are the members of a limited company, and their liability for that period is unlimited and personal.
Second, section 7(7)(b). Where a company has been got incorporated by furnishing false or incorrect information, by suppressing a material fact, or by any fraudulent action, the Tribunal may, on an application and after hearing the company, direct that the liability of the members shall be unlimited, or order regulation of the management, or removal of the name from the register, or winding up. Again the members are members of a limited company, and again the limit is removed, this time by judicial order.
Third, section 339. If in the course of winding up it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose, the Tribunal may, on the application of the Official Liquidator, the Company Liquidator, a creditor or a contributory, declare that any person who is or has been a director, manager or officer, or any persons who were knowingly parties to the carrying on of the business in that manner, shall be personally responsible, without any limitation of liability, for all or any of the debts of the company. A member who is knowingly party to fraudulent trading is within those words.
Two further provisions belong in the answer. Section 75 makes an officer responsible for the acceptance of deposits, where they were accepted with intent to defraud the depositors, personally responsible without any limitation of liability for the losses incurred by the depositors. And section 286 assumes the existence of directors and managers of a limited company whose liability is unlimited under the Act, and requires them, in a winding up, to contribute as if they had been members of an unlimited company at the commencement of the winding up, with the proviso that a person who ceased to hold office a year or more before the commencement is not liable.
Beyond the statute, the veil is lifted by the courts. In Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622, the Supreme Court lifted the veil where a builder had collected money from purchasers for space it did not own, holding that the corporate character may be disregarded where it is used for evasion of legal obligations or to perpetrate fraud, and directed that the personal properties of the directors and their family members be available to satisfy the claims.
In Gilford Motor Co. Ltd. v. Horne, [1933] Ch 935, an employee bound by a covenant not to solicit his former employer's customers formed a company to do exactly that; the injunction went against both. In Jones v. Lipman, [1962] 1 WLR 832, a vendor who had agreed to sell land transferred it to a company he controlled to defeat specific performance, and the decree was made against the company as well. In Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407, the Supreme Court restated the principle while refusing to apply it, holding that the veil is pierced only where the corporate form is a mere facade concealing the true state of affairs, and not merely because there is common control.
Two decisions must be given on the other side, so the answer is balanced. In Bacha F. Guzdar v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, the Court held that a shareholder has no interest, legal or equitable, in the property of the company; and in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40, it refused to lift the veil at the instance of the company itself so as to let it claim the fundamental rights of its shareholders. The veil is lifted against the person who chose the form, not for him.
The precise statement to write down. The proposition is right as a general rule of the company's ordinary working and wrong as an absolute. The liability of a member of a limited company is limited unless the membership falls below the statutory minimum and business is carried on for more than six months with his knowledge, in which case section 3A makes it unlimited; unless the incorporation was obtained by fraud and the Tribunal so directs under section 7(7)(b); unless he was knowingly party to fraudulent trading, in which case section 339 makes him personally liable without limit; and unless the court lifts the veil because the form is a facade. The word "never" is therefore the error, and it is the error the examiner planted.
Conclusion. The Act offers a menu of corporate forms, from the One Person Company through the small, private, public, section 8, Government and foreign company, distinguished by incorporation, liability, membership, control and size. Limited liability is the defining privilege of most of them, but it is a privilege the law confers and can withdraw. Sections 3A, 7(7)(b), 75, 286 and 339, and the veil-lifting cases from Gilford Motor to Skipper Construction, show that the correct proposition is not that the liability of a member of a limited company can never be unlimited, but that it is unlimited only where the law says so, and the law says so whenever the corporate form is being used for something it was not given for.
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