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Corporate Law
Previous Year Question Paper with Solution
LLM · Group 2 Business Law
2023-24 Examination
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LLM Group 2 Business Law Corporate Law 2023-24 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 2023-24 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 2023-24 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2023-24 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
Answer any four Questions, all questions carry equal marks
any four of seven · 100 Marks
1.State the essentials for formation of company. Explain in detail explain the process for Incorporation of Company. As per Sec 3A of Companies Act 2013, in what cases "Members can be held severally liable".[25]
Answer
For full marks, cover: the essentials as the conditions section 3 actually imposes, not as a general description of promotion; the process as a sequence with the statutory time limits attached to each step, because the timings are what the examiner can mark; and then section 3A worked out clause by clause, because the third limb is a precise question about a short section and the marks are in the four conditions that must all be satisfied before a member becomes severally liable.
The essentials for the formation of a company
Section 3(1) states them in one sentence. A company may be formed for any lawful purpose by seven or more persons in the case of a public company, two or more in the case of a private company, and one person in the case of a One Person Company, by subscribing their names or names to a memorandum and complying with the requirements of this Act in respect of registration.
Four essentials therefore have to be present. First, the requisite number of persons, and the number is a condition of continued existence and not merely of formation, which is what section 3A is about. Second, a lawful purpose: an association formed for an unlawful object cannot be registered, and section 8 provides the separate route for charitable objects with a licence from the Central Government. Third, subscription to the memorandum, which under section 4 must state the name, the State of the registered office, the objects, the liability, the capital and the subscription, and, in the case of a One Person Company, the nominee under section 4(1)(f). Fourth, compliance with the requirements of registration, which is section 7.
Section 3(2) adds the choice of liability: limited by shares, limited by guarantee, or unlimited.
The promoters do the work before any of this, and their position is legal, not merely commercial. Section 2(69) defines a promoter as a person named as such in the prospectus or in the annual return, or who has control over the affairs of the company directly or indirectly whether as shareholder, director or otherwise, or in accordance with whose advice, directions or instructions the Board is accustomed to act, excluding a person acting merely in a professional capacity.
A promoter stands in a fiduciary relation to the company he is forming: he may not make a secret profit, and he must disclose any interest in a transaction with the company to an independent Board or to the members. Erlanger v. New Sombrero Phosphate Co., (1878) 3 App Cas 1218, is the authority: a syndicate bought an island for £55,000 and sold it to a company it had formed, through a nominee, for £110,000, the Board being the syndicate's own men; the House of Lords allowed the company to rescind. Gluckstein v. Barnes, [1900] AC 240, went further and required the promoter to account for an undisclosed profit even where rescission was impossible.
A contract made before incorporation binds nobody as the company's contract, because there is no principal in existence and there can be no ratification. Sections 15(h) and 19(e) of the Specific Relief Act, 1963 supply the Indian solution: a pre-incorporation contract warranted by the promoters for the purposes of the company may be specifically enforced by or against the company if the company has accepted the contract and communicated the acceptance to the other party.
The process of incorporation, step by step with the time limits
Name. Section 4(4) permits an application to the Registrar for reservation, and section 4(5)(i) makes the reservation valid for twenty days from approval. Section 4(2) forbids a name identical with or too nearly resembling that of an existing company, or one the Central Government considers undesirable. Section 4(5)(ii) cancels a reservation obtained by wrong or false information and imposes a penalty of up to one lakh rupees.
Documents. The memorandum in the form of the appropriate Table in Schedule I under section 4(6); the articles under section 5, which may contain provisions for entrenchment under section 5(3) requiring conditions more restrictive than a special resolution for the alteration of specified provisions; the declarations under section 7(1)(b) and 7(1)(c); the address for correspondence; proof of identity of subscribers; and the particulars, Director Identification Numbers and consents of the first directors.
Filing and incorporation. The application under section 7(1) is made to the Registrar of the jurisdiction where the registered office is to be, now on the single integrated SPICe+ form which carries the name, the incorporation, the Director Identification Number, PAN, TAN, EPFO and ESIC registration, professional tax registration in Maharashtra, a bank account and optionally GSTIN. Section 7(2) requires the Registrar, on being satisfied, to register the documents and issue the certificate of incorporation; section 7(3) requires a Corporate Identity Number to be allotted.
The effect, and it is the whole point of the exercise. Section 9 provides that from the date of incorporation the subscribers and other members become a body corporate with perpetual succession, with power to hold property, to contract, and to sue and be sued. Salomon v. A. Salomon and Co. Ltd., [1897] AC 22, is what that means in practice: the company is a person distinct from those who formed it, and the motives of the incorporators are irrelevant so long as the Act is complied with.
The two obligations that follow within fixed periods. Section 12(1) requires a registered office capable of receiving communications within thirty days of incorporation, with verification under section 12(2), and section 12(9), inserted by the Companies (Amendment) Act, 2019, permits the Registrar to carry out a physical verification and, if the office is not found capable of receiving communications, to initiate removal of the name.
Section 10A requires the declaration of commencement of business within one hundred and eighty days, a declaration by a director that every subscriber has paid the value of the shares agreed to be taken, and forbids the company to commence business or exercise borrowing powers until that and the section 12(2) verification are filed; default carries a penalty of fifty thousand rupees on the company and one thousand rupees a day on each officer up to one lakh, and permits removal of the name.
Two provisions guard against abuse of the process. Section 7(6) makes the promoters, first directors and the persons making the declaration liable for fraud under section 447 where incorporation was obtained by false or incorrect information or by suppression of a material fact. Section 7(7) empowers the Tribunal, in the same case, to regulate the management of the company, to direct that the liability of the members shall be unlimited, to order removal of the name from the register, to order winding up, or to pass any other order it thinks fit, after hearing the company and taking into account the transactions it has entered into.
Section 3A: when members become severally liable
The section is short and every word in it is a condition. If at any time the number of members of a company is reduced, in the case of a public company below seven, in the case of a private company below two, and the company carries on business for more than six months while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.
Four conditions must all be satisfied, and an answer that lists them is answering the question.
One, the number must have fallen below the statutory minimum. Seven for a public company, two for a private company. A One Person Company is outside the section, because its statutory minimum is one and it cannot fall below it.
Two, the company must carry on business for more than six months in that state. The first six months are a period of grace: a company whose membership falls on a death or a transfer has half a year to restore the number, and if it does, or if it ceases to carry on business within that period, no liability arises at all.
Three, the person sought to be charged must be a member during the period after those six months. A member who leaves before the six months expire is not caught; a person who becomes a member after the period has begun is.
Four, he must be cognisant of the fact. Knowledge is an express ingredient. A member who genuinely does not know that the membership has fallen below the minimum is not liable, and the burden of showing knowledge rests on the person asserting it.
What follows when all four are satisfied is severe. The liability is for the whole debts of the company contracted during that time, not merely for the amount unpaid on the shares, and it is several, so each qualifying member may be sued alone for the whole, and the creditor need not join the others. The liability is confined to debts contracted during that time, so debts contracted before the six month period expired, and debts contracted after the number has been restored, are outside it.
The provenance and the reason. Section 3A was inserted by the Companies (Amendment) Act, 2017 with effect from 9 February 2018, and reproduces section 45 of the Companies Act, 1956. It had been omitted from the 2013 Act as originally enacted, and the omission was corrected because the section is the price of the statutory minimum: the privilege of limited liability is given to an association of a certain size, and a company that trades on knowing it has fallen below that size is trading on a privilege it no longer qualifies for.
Where section 3A sits among the other exceptions to limited liability is worth a closing sentence. It is one of a small group: section 7(7)(b), where the Tribunal may make the members' liability unlimited because incorporation was procured by fraud; section 339, under which a person knowingly party to the carrying on of business with intent to defraud creditors is personally responsible without any limitation of liability; section 75, which does the same for officers responsible for deposits accepted with intent to defraud depositors; and the judicial lifting of the veil in cases such as Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622, where the corporate form was used to collect money for space the company did not own and the personal properties of the directors were made available to the claimants.
Conclusion. The essentials of formation are the requisite number of persons, a lawful purpose, subscription to a memorandum that satisfies section 4, and compliance with section 7. The process runs from name reservation valid for twenty days, through the documents and declarations of section 7(1), to the certificate of incorporation under section 7(2) and the corporate personality that section 9 confers, and is not complete until the registered office is verified within thirty days under section 12 and the declaration of commencement is filed within one hundred and eighty days under section 10A. Section 3A is the price of falling below the minimum: a member who knows the company is trading with fewer than seven or two members, and lets it do so for more than six months, is severally liable for the whole of the debts contracted in that period.
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