Comprehension
The Companies Act, 2013 does not deal with insolvency and bankruptcy when the companies are unable to pay their debts or the aspects relating to the revival and rehabilitation of the companies and their winding up if revival and rehabilitation is not possible. In principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act, 2013. The two situations are not identical. Under Section 271 of the Companies Act, 2013, even a running and financially sound company can also be wound up for the reasons in clauses (a) to (e). The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envisaged under the IBC. The two enactments deal with two distinct situations and in our opinion, they cannot be equated when we examine whether there is discrimination or violation of Article 14 of the Constitution of India. For the revival and rehabilitation of the companies, certain sacrifices are required from all quarters, including the workmen. In case of insolvent companies, for the sake of survival and regeneration, everyone, including the secured creditors and the Central and State Government, are required to make sacrifices. The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation,solely on the ground that some or marginal sacrifice is to be made by the workers. We would also reject the argument that to find out whether there was a violation of Article 14 of the Constitution of India or whether the right to life under Article 21 Constitution of India was infringed, we must word by word examine the waterfall mechanism envisaged under the Companies Act, 2013, where the company is wound up in terms of grounds (a) to (e) of Section 271 of the Companies Act, 2013; and the rights of the workmen when the insolvent company is sought to be revived, rehabilitated or wound up under the Code. The grounds and situations in the context of the objective and purpose of the two enactments are entirely different.
(Extracted, with edits and revision, from the judgement in Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma v. Union of India and Ors, 2023 SCC Online SC 547)
Question: 1

In which of the following cases, it was held by the Supreme Court addressed shareholders rights, RB's role and judicial Intervention?

Updated On: Sep 10, 2025
  • Life Insurance Corporation of India v. Escorts Ltd
  • R. K. Dalmia v. Delhi Administration
  • Dale And Carrington Invt. Ltd. v. P.K. Prathapan
  • Rohtas Industries Ltd v. S.D. Agarwal & Anr
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The Correct Option is A

Solution and Explanation

The Supreme Court case "Life Insurance Corporation of India v. Escorts Ltd" addresses shareholders' rights, the role of the Reserve Bank of India (RBI), and judicial intervention. This landmark case highlights the relationship between corporate governance, shareholder relations, and regulatory oversight. It is significant in the context of legal studies as it elucidated the boundaries of shareholder rights in company management, the discretionary powers of the RBI, and the extent of judicial intervention in corporate matters. The case arose when Life Insurance Corporation of India, a major shareholder in Escorts Ltd, faced issues related to its voting on resolutions proposed by the management of Escorts Ltd. The Supreme Court dealt with questions regarding the rights of shareholders to vote in general meetings, the regulatory powers of the RBI concerning financial institutions, and the scope of judicial review in corporate affairs. The court's decision helped clarify the legal framework governing the interplay between statutory bodies, corporate entities, and shareholders, reinforcing the principles of corporate democracy while balancing regulatory and judicial oversight.
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Question: 2

The extent to which a corporation as a legal person can be held criminally liable for its acts and omissions and for those of the natural persons employed by it is called

Updated On: Sep 10, 2025
  • Corporate manslaughter
  • Lifting the corporate veil
  • Corporate criminal liability
  • Corporate social responsibility
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The Correct Option is C

Solution and Explanation

The concept addressing the extent to which a corporation can be held responsible for criminal activities, either directly through its actions or through those of its employees, is known as corporate criminal liability. This legal principle is vital in the realm of business law as it holds corporations accountable for unlawful activities, ensuring they cannot evade responsibility simply because they are non-human entities. Understanding the options provided:
  • Corporate manslaughter: This involves a corporation being charged with causing death by gross negligence, usually concerning workplace safety failings.
  • Lifting the corporate veil: This is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.
  • Corporate social responsibility: This pertains to ethical practices businesses commit to, reflecting their responsibility for social and environmental impacts.
  • Corporate criminal liability: This is the correct term that refers to a corporation's legal responsibility for criminal actions, whether direct or vicarious, through its employees.
In the comprehension passage, the focus is on company insolvency and liquidation laws, highlighting differences between Indian legislative frameworks. However, the crux of this question centers on defining the corporation's legal accountability distinct from insolvency contexts, thus clarifying the meaning and significance of corporate criminal liability.
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Question: 3

In which of the following cases, the constitutionality of the Insolvency and Bankruptcy Code, 2016 was upheld by the Supreme Court?

Updated On: Sep 10, 2025
  • RPS Infrastructure Ltd. v. Union of India
  • Paschimanchal Vidyut Vitran Nigam Ltd. v. Union of India
  • Union Bank of India v. Financial Creditors of M/s Amtek Auto Limited
  • Swiss Ribbons v. Union of India
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The Correct Option is D

Solution and Explanation

The Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016, in the case of Swiss Ribbons v. Union of India. This landmark decision established the legal framework under which the IBC operates, ensuring that the revival, rehabilitation, and winding up of companies are handled separately and distinctively from the proceedings under the Companies Act, 2013. The court emphasized that the IBC and the Companies Act serve different purposes and should not be confused, highlighting the unique requirements and sacrifices needed to address insolvency, including contributions from secured creditors, governments, and workmen. This judgment underscores the importance of treating the two legal frameworks distinctly, avoiding confusion and discriminatory practices concerning Article 14 of the Indian Constitution.
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Question: 4

A Director other than a managing Director or a whole-time Director or a nominee Director who does not have any material or pecuniary relationship with the company/ Directors other than the remuneration is called

Updated On: Sep 10, 2025
  • Impartial Director
  • Promoter
  • Independent Director
  • Associate Director
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The Correct Option is C

Solution and Explanation

The question pertains to a specific type of company director, defined under legal frameworks such as the Companies Act. Let's break down the options provided:
  1. Impartial Director
    This is not a standard term used in corporate governance. Therefore, this option is likely incorrect.
  2. Promoter
    A Promoter is someone who has been instrumental in setting up a company. They often have significant influence but do not fit the criteria of having no material or pecuniary relationship.
  3. Independent Director
    An Independent Director is defined under the Companies Act, 2013 as someone who does not have any material or pecuniary relationship with the company, its directors, or its promoters, aside from remuneration as a director. This matches the description given.
  4. Associate Director
    An Associate Director may have roles and responsibilities but does not specifically align with the definition of having no material ties aside from director remuneration.
After evaluating the options, the correct answer is Independent Director as it corresponds precisely with the requirement of having no material or pecuniary relationship with the company or other directors aside from remuneration.
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Question: 5

Which among the following is not a duty of a Director of the company?

Updated On: Sep 10, 2025
  • To file return of allotments
  • To disclose interest
  • Duty to call upon the shareholders to attend the Board meetings
  • To convene General meeting
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The Correct Option is C

Solution and Explanation

The question requires us to identify which among the given options is not a duty of a Director of a company. To address this, it's essential to recognize common duties typically expected of a Director under corporate governance principles, as often outlined in jurisdictions like the Companies Act. A Director's duties generally include managing the company's affairs responsibly, disclosing conflicts of interest to ensure transparency, and participating in board meetings to contribute to strategic decisions. Here's an evaluation of the provided options:
  1. To file return of allotments: Directors are required to oversee various compliance matters, including ensuring proper filing of returns related to share allotments.
  2. To disclose interest: Directors have a fiduciary duty to disclose any personal interest in transactions to avoid conflicts of interest, aligning with governance practices.
  3. Duty to call upon the shareholders to attend the Board meetings: This action involves inviting shareholders to board meetings, which is mainly a board or corporate secretary's task rather than a direct duty of Directors. Directors call for board or general meetings, not shareholders individually.
  4. To convene General meeting: Organizing general meetings of shareholders is a typical responsibility of the board, where directors play a crucial role.
Therefore, the correct answer is the option not typically associated as a Director's duty: Duty to call upon the shareholders to attend the Board meetings.
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