Downloaded From [Link].

com
Mock Test Paper - Series I: April, 2024
Date of Paper: 30th April, 2024
Time of Paper: 2 P.M. to 5 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)

1. (a) Kashish was running a business of artificial jewellery since long. He sold
his business to Naman and promises, not to carry on the business of
artificial jewellery and real diamond jewellery in that area for a period of
next one year. After two months, Kashish opened a show room for real
diamond jewellery. Naman filed a suit against Kashish for closing the
business of real diamond jewellery business as it was against the
agreement. Whether Kashish is liable to close his business of real diamond
jewellery following the provisions of Indian Contract Act, 1872? (7 Marks)
(b) The paid-up capital of Darshan Photographs Private Limited is ` 1 Crores
in the form of 50,000 Equity Shares of ` 100 each and 50,000 Preference
Shares (not carrying any voting rights) of ` 100 each. Shadow Evening
Private Limited is holding 25,000 Equity Shares in Darshan Photographs
Private Limited. State with reason,
(a) Whether Darshan Photographs Private Limited is subsidiary of
Shadow Evening Private Limited?
(b) Whether your answer would be different in case Shadow Evening
Private Limited is holding 25,000 Equity Shares and 5,000
Preference Shares in Darshan Photographs Private Limited?
(7 Marks)
(c) Define partnership and name the essential elements for the existence of
a partnership as per the Indian Partnership Act, 1932. (3+3 = 6 Marks)
2. (a) Kapil entered in a contract with Rahul to purchase 1000 litres of mustard oil
at the price which should be fixed by Akhilesh. Rahul already delivered 600
litres out of 1000 litres to Kapil but when remaining 400 litres was ready to
deliver, Akhilesh denied fixing the price of mustard oil. Rahul asked Kapil
to return the oil already delivered and avoid the delivery of 400 litres. Kapil
sued Rahul for non-delivery of remaining 400 litres mustard oil. Advise in
the light of the Sale of Goods Act, 1930. (7 Marks)

1
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) Explain the 'Doctrine of ultra vires’ under the Companies Act, 2013. What
are the consequences of 'ultra vires' acts of the company? (7 Marks)
(c) “LLP is an alternative corporate business form that gives the benefits of
limited liability of a company and the flexibility of a partnership”. Explain.
(6 Marks)
3. (a) A and B are partners in M/s Aee Bee & Company. Firm is doing business
of trading of plastic bottles. A is authorised to sell the stock of plastic bottles.
It was decided between them that A should sell the plastic bottles at the
minimum price which they have decided and if A sells at a price less than
minimum price, he should first take the permission of B. Due to sudden
change in government policy, the price of plastic bottles were continuously
declining. To save the loss of firm, A sold the stock at lower price.
Meanwhile, A tried to contact B but could not do so as B was on foreign
trip. Afterwards when B came, he filed the suit to recover the difference of
sale price and minimum price to the firm. Whether B can do so under the
provisions of Indian Partnership Act, 1932? (7 Marks)
(b) (i) Tycoon Private Limited is the holding company of Glassware Private
Limited. As per the last profit and loss account for the year ending
31st March, 2023 of Glassware Private Limited, its turnover was ` 1.80
crore and paid up share capital was ` 80 lakh. The Board of Directors
wants to avail the status of a small company. The Company Secretary
of the company advised the directors that Glassware Private Limited
cannot be categorized as a small company. In the light of the above
facts and in accordance with the provisions of the Companies Act,
2013, you are required to examine whether the contention of
Company Secretary is correct, explaining the relevant provisions of
the Act. (4 Marks)
(ii) In the Flower Fans Private Limited, there are only 5 members. All
of them go in a boat on a pleasure trip into an open sea. The boat
capsizes and all of them died being drowned. Explain with
reference to the provisions of Companies Act, 2013:
(A) Is Flower Fans Private Limited no longer in existence?
(B) Further is it correct to say that a company being an artificial
person cannot own property and cannot sue or be sued?
(3 Marks)
(c) “An anticipatory breach of contract is a breach of contract occurring
before the time fixed for performance has arrived”. Discuss stating also
the effect of anticipatory breach on contracts. (6 Marks)
4. (a) (i) Nitesh Gupta is constructing his house. For this purpose, he entered
in a contract with M/s Baba Brick House to supply of 10,000 bricks on
12th August 2023. M/s Baba Brick House has two Lorries of 5,000
2
Join Us on Telegram [Link]
 Downloaded From [Link]
brick capacity. On 12th August 2023, one of the Lorries was not in
working condition so M/s Baba Brick House supplied only 5,000 bricks
and promised Nitesh Gupta to supply rest 5,000 bricks on next day.
Nitesh Gupta wants to cancel the contract, as M/s Baba Brick House
did not supply the bricks as per the contract. M/s Baba Brick House
gave the plea that no fault has been made from its part, hence
contract should not be cancelled. In this situation, whether Nitesh
Gupta can avoid the contract under Indian Contract Act, 1872?
(4 Marks)
(ii) Rahul, a transporter was entrusted with the duty of transporting
tomatoes from a rural farm to a city by Aswin. Due to heavy rains,
Rahul was stranded for more than two days. Rahul sold the
tomatoes below the market rate in the nearby market where he was
stranded fearing that the tomatoes may perish. Can Aswin recover
the loss from Rahul on the ground that Rahul had acted beyond his
authority taking into account the provisions of the Indian Contract
Act, 1872? (3 Marks)
(b) What are Negotiable Instruments? Explain its essential characteristics
under the Negotiable Instruments Act, 1881. (7 Marks)
(c) Explain in brief the various types of laws in the Indian Legal System.
(6 Marks)
5. (a) (i) A agrees to sell certain goods to B on a certain date on 10 days credit.
The period of 10 days expired and goods were still in the possession
of A. B has also not paid the price of the goods. B becomes insolvent.
A refuses to deliver the goods to exercise his right of lien on the
goods. Can he do so under the Sale of Goods Act, 1930? (4 Marks)
(ii) AB sold 500 bags of wheat to CD. Each bag contains 50 Kilograms
of wheat. AB sent 450 bags by road transport and CD himself took
remaining 50 bags. Before CD receives delivery of 450 bags sent
by road transport, he becomes bankrupt. AB being still unpaid,
stops the bags in transit. The official receiver, on CD's insolvency
claims the bags. Decide the case with reference to the provisions
of the Sale of Goods Act, 1930. (3 Marks)
(b) (i) When the continuing guarantee can be revoked under the Indian
Partnership Act, 1932? (4 Marks)
(ii) What do you mean by Goodwill as per the provisions of Indian
Partnership Act, 1932? (3 Marks)
(c) Explain any five circumstances under which contracts need not be
performed with the consent of both the parties. (6 Marks)

3
Join Us on Telegram [Link]
 Downloaded From [Link]
6. (a) Priyansh purchased some goods from Sumit. He issued a cheque to Sumit
for the sale price on 14th June, 2023. Sumit presented the cheque in his
bank and his bank informed him on 19 th June, 2023 that cheque was
returned unpaid due to insufficiency of funds in the account of Priyansh.
Sumit sued against Priyansh under section 138 of the Negotiable
Instruments Act, 1881. State with reasons, whether this suit is
maintainable? (7 Marks)
(b) State the essential elements of a contract of bailment. (6 Marks)
(c) State the various essential elements involved in the sale of
unascertained goods and its appropriation as per the Sale of Goods Act,
1930. (7 Marks)

4
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series I: April, 2024
Date of Paper: 30th April, 2024
Time of Paper: 2 P.M. to 5 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
ANSWERS
1. (a) According to Section 27 of Indian Contract Act, 1872, an agreement by
which any person is restrained from exercising a lawful profession, trade
or business of any kind, is to that extent void. But this rule is subject to
the following exceptions, namely, where a person sells the goodwill of a
business and agrees with the buyer to refrain from carrying on a similar
business, within specified local limits, so long as the buyer or his
successor in interest carries on a like business therein, such an
agreement is valid. The local limits within which the seller of the goodwill
agrees not to carry on similar business must be reasonable.
In the instant case, Kashish sold his running business of artificial
jewellery to Naman and promises, not to carry on the business of artificial
jewellery and real diamond jewellery in that area and for a period of next
one year but just after two months, Kashish opened a show room of real
diamond jewellery. Naman sued Kashish for closing the business of real
diamond business as it was against the agreement.
As exceptions to section 27 is applicable to similar business only,
agreement between Naman and Kashish will not be applicable on
business of real diamond jewellery. Hence, Kashish can continue his
business of real diamond jewellery.
(b) According to Section 2(87) of Companies Act, 2013 “subsidiary
company” in relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies:
For the purposes of this section —
(I) the composition of a company’s Board of Directors shall be deemed
to be controlled by another company if that other company by
exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the directors;
(II) the expression “company” includes any body corporate;
It is to be noted that Preference share capital will also be
considered if preference shareholders have same voting rights as
equity shareholders.
1
Join Us on Telegram [Link]
 Downloaded From [Link]
In the instant case, Darshan Photographs Private Limited is having
paid-up capital of ` 1 Crores in the form of 50,000 Equity Shares of
` 100 each and 50,000 Preference Shares of ` 100 each. Shadow
Evening Private Limited is holding 25,000 Equity Shares in Darshan
Photographs Private Limited.
(a) On the basis of provisions of Section 2(87) and facts of the
given problem, Shadow Evening Private Limited is holding
one – half of total equity paid up share capital of Darshan
Photographs Private Limited. Therefore, Darshan
Photographs Private Limited cannot be considered as
subsidiary company of Shadow Evening Private Limited as for
being subsidiary company other company should control more
than one – half of the total voting power.
(b) Answer would remain same even if Shadow Evening Private
Limited is also holding 5,000 preference shares as they do not
have voting rights.
(c) Definition of Partnership: 'Partnership' is the relation between persons
who have agreed to share the profits of a business carried on by all or
any of them acting for all. (Section 4 of the Indian Partnership Act, 1932)
The definition of the partnership contains the following five elements
which must co-exist before a partnership can come into existence:
1. Association of two or more persons
2. Agreement
3. Business
4. Agreement to Share Profits
5. Business Carried on by all or any of them acting for all
ELEMENTS OF PARTNERSHIP
The definition of the partnership contains the following five elements
which must co-exist before a partnership can come into existence:
1. Association of two or more persons: Partnership is an
association of 2 or more persons. Again, only persons recognized
by law can enter into an agreement of partnership. Therefore, a
firm, since it is not a person recognized in the eyes of law cannot
be a partner. Again, a minor cannot be a partner in a firm, but with
the consent of all the partners, may be admitted to the benefits of
partnership.
2. Agreement: It may be observed that partnership must be the result
of an agreement between two or more persons. There must be an
agreement entered into by all the persons concerned. This element
relates to voluntary contractual nature of partnership. Thus, the
nature of the partnership is voluntary and contractual. An
agreement from which relationship of Partnership arises may be
express. It may also be implied from the act done by partners and
2
Join Us on Telegram [Link]
 Downloaded From [Link]
from a consistent course of conduct being followed, showing mutual
understanding between them. It may be oral or in writing.
3. Business: Firstly, there must exist a business. For the purpose,
the term 'business' includes every trade, occupation and
profession. The existence of business is essential. Secondly, the
motive of the business is the "acquisition of gains" which leads to
the formation of partnership. Therefore, there can be no partnership
where there is no intention to carry on the business and to share
the profit thereof.
4. Agreement to share profits: The sharing of profits is an essential
feature of partnership. There can be no partnership where only one
of the partners is entitled to the whole of the profits of the business.
Partners must agree to share the profits in any manner they
choose. But an agreement to share losses is not an essential
element. It is open to one or more partners to agree to share all the
losses. However, in the event of losses, unless agreed otherwise,
these must be borne in the profit-sharing ratio.
5. Business carried on by all or any of them acting for all: The
business must be carried on by all the partners or by anyone or
more of the partners acting for all. This is the cardinal principle of
the partnership Law. In other words, there should be a binding
contract of mutual agency between the partners. An act of one
partner in the course of the business of the firm is in fact an act of
all partners. Each partner carrying on the business is the principal
as well as the agent for all the other partners. He is an agent in so
far as he can bind the other partners by his acts and he is a principal
to the extent that he is bound by the act of other partners. It may
be noted that the true test of partnership is mutual agency rather
than sharing of profits. If the element of mutual agency is absent,
then there will be no partnership.
2. (a) By virtue of Section 9 of the Sale of Goods Act, 1930, the price in the
contract of sale may be fixed by the contract, or agreed to be fixed in a
manner provided by the contract, e.g., by a valuer, or determined by the
course of dealings between the parties.
Further, section 10 provides for the determination of price by a third party
in the following manner:
(a) Where there is an agreement to sell goods on the terms that price
has to be fixed by the third party and he either does not or cannot
make such valuation, the agreement will be void.
(b) In case the third party is prevented by the default of either party
from fixing the price, the party at fault will be liable to the damages
to the other party who is not at fault.
(c) However, a buyer who has received and appropriated the goods
must pay a reasonable price for them in any eventuality.

3
Join Us on Telegram [Link]
 Downloaded From [Link]
In the instant case, Kapil contracted Rahul to purchase 1000 litres of
mustard oil at the price fixed by Akhilesh. After, Rahul delivered 600 litres
Akhilesh denied fixing the price of mustard oil. Rahul demanded back
the oil already delivered and cancel the delivery of 400 litres. Kapil sued
Rahul for non-delivery of remaining 400 litres mustard oil.
On the basis of above provisions and facts, Kapil is liable to pay a
reasonable price of 600 litres while for remaining 400 litres, contract may
be avoided.
(b) Doctrine of ultra vires:
The meaning of the term ultra vires is simply “beyond (their) powers”.
The legal phrase “ultra vires” is applicable only to acts done in excess of
the legal powers of the doers. This presupposes that the powers in their
nature are limited. To an ordinary citizen, the law permits whatever does
the law not expressly forbid. It is a fundamental rule of Company Law
that the objects of a company as stated in its memorandum can be
departed from only to the extent permitted by the Act, thus far and no
further [Ashbury Railway Company Ltd. vs. Riche].
In consequence, any act done or a contract made by the company which
travels beyond the powers not only of the directors but also of the
company is wholly void and inoperative in law and is therefore not
binding on the company. On this account, a company can be restrained
from employing its fund for purposes other than those sanctioned by the
memorandum. Likewise, it can be restrained from carrying on a trade
different from the one it is authorised to carry on.
Consequences of ‘ultra vires’ acts of the company:
The impact of the doctrine of ultra vires is that a company can neither be
sued on an ultra vires transaction, nor can it sue on it. Since the
memorandum is a “public document”, it is open to public inspection.
Therefore, when one deals with a company one is deemed to know about
the powers of the company. If in spite of this one enters into a transaction
which is ultra vires the company, he/she cannot enforce it against the
company.
An act which is ultra vires the company being void, cannot be ratified by
the shareholders of the company.
However, some ultra vires act can be regularised by ratifying them
subsequently. For instance, if the act is ultra vires the power of the
directors, the shareholders can ratify it; if it is ultra vires the articles of
the company, the company can alter the articles; if the act is within the
power of the company but is done irregularly, shareholders can validate
such acts.

4
Join Us on Telegram [Link]
 Downloaded From [Link]
(c) LLP is an alternative corporate business form that gives the
benefits of limited liability of a company and the flexibility of a
partnership
Limited Liability: Every partner of a LLP is, for the purpose of the
business of LLP, the agent of the LLP, but not of other partners. The
liability of the partners will be limited to their agreed contribution in the
LLP, while the LLP itself will be liable for the full extent of its assets.
Flexibility of a partnership: The LLP allows its members the flexibility
of organizing their internal structure as a partnership based on a mutually
arrived agreement. The LLP form enables entrepreneurs, professionals
and enterprises providing services of any kind or engaged in scientific
and technical disciplines, to form commercially efficient vehicles suited
to their requirements. Owing to flexibility in its structure and operation,
the LLP is a suitable vehicle for small enterprises and for investment by
venture capital.
3. (a) According to Section 13(e) of Indian Partnership Act, 1932, every partner
has the right to be indemnified by the firm in respect of payments made
and liabilities incurred by him in the ordinary and proper conduct of the
business of the firm as well as in the performance of an act in an
emergency for protecting the firm from any loss, if the payments, liability
and act are such as a prudent man would make, incur or perform in his
own case, under similar circumstances.
In the instant case, M/s Aee Bee & Company is doing business of trading
of plastic bottles. A and B, partners of the firm, authorised A to sell the
stock of plastic bottles on the condition to sale at the minimum price. In
case A has to sell at a price less than minimum price, he should first take
the permission of B. Due to some emergency, A sold the stock at lower
price to save the firm from loss.
On the basis of above provisions and facts of the problem given, selling
by A at a lower price was to save the firm from loss. As the act of A was
in favour of firm, he was not liable to bear the loss.
(b) (i) As per section 2(85) of the Companies Act, 2013, Small Company
means a company, other than a public company:
(i) paid-up share capital of which does not exceed four crore
rupees, and
(ii) turnover of which as per profit and loss account for the
immediately preceding financial year does not exceed forty
crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.

5
Join Us on Telegram [Link]
 Downloaded From [Link]
In the instant case, as per the last profit and loss account for the
year ending 31st March, 2023 of Glassware Private Limited, its
turnover was to the extent of ` 1.80 crore, and paid-up share capital
was ` 80 lakh. Though Glassware Private Limited, as per the
turnover and paid-up share capital norms, qualifies for the status of
a ‘small company’ but it cannot be categorized as a ‘small company’
because it is the subsidiary of another company (Tycoon Private
Limited).
Hence, the contention of the Company Secretary is correct.
(ii) (A) Perpetual Succession – A company on incorporation
becomes a separate legal entity. It is an artificial legal person
and have perpetual succession which means even if all the
members of a company die, the company still continues to
exist. It has permanent existence.
The existence of a company is independent of the lives of its
members. It has a perpetual succession. In this problem, the
company will continue as a legal entity. The company's
existence is in no way affected by the death of all its members.
(B) The statement given is incorrect. A company is an artificial
person as it is created by a process other than natural birth. It
is legal or judicial as it is created by law. It is a person since it
is clothed with all the rights of an individual. Further, the
company being a separate legal entity can own property, have
banking account, raise loans, incur liabilities and enter into
contracts. Even members can contract with company, acquire
right against it or incur liability to it. It can sue and be sued in
its own name. It can do everything which any natural person
can do except be sent to jail, take an oath, marry or practice a
learned profession. Hence, it is a legal person in its own
sense.
(c) An anticipatory breach of contract is a breach of contract occurring
before the time fixed for performance has arrived. When the promisor
refuses altogether to perform his promise and signifies his unwillingness
even before the time for performance has arrived, it is called Anticipatory
Breach. The law in this regard has very well summed up in Frost v.
Knight and Hochster v. DelaTour.
Section 39 of the Indian Contract Act, 1872 deals with anticipatory
breach of contract and provides as follows: “When a party to a contract
has refused to perform or disable himself from performing, his promise
in its entirety, the promisee may put an end to the contract, unless he
has signified, but words or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from
performance or from further performance. Further he gets an option:

6
Join Us on Telegram [Link]
 Downloaded From [Link]
(1) To either treat the contract as “rescinded and sue the other party
for damages from breach of contract immediately without waiting
until the due date of performance; or
(2) He may elect not to rescind but to treat the contract as still
operative, and wait for the time of performance and then hold the
other party responsible for the consequences of non-performance.
But in this case, he will keep the contract alive for the benefit of the
other party as well as his own, and the guilty party, if he so decides
on re-consideration, may still perform his part of the contract and
can also take advantage of any supervening impossibility which
may have the effect of discharging the contract.
4. (a) (i) “Performance of Contract” means fulfilment of obligations to the
contract. According to Section 37 of Indian Contract Act, 1872, the
parties to a contract must either perform, or offer to perform, their
respective promises unless such performance is dispensed with or
excused under the provisions of the Contract Act or of any other
law. Further, the performance should be for whole obligations. Part
delivery cannot be considered as valid performance.
In the instant case, Nitesh Gupta contracted with M/s Baba Brick
House to supply of 10,000 bricks on 12th August 2023. M/s Baba
Brick House had only two Lorries of 5,000 brick capacity. But on
the agreed date one lorry was not in working condition so only
5,000 bricks were supplied on 12 th August 2023 and promised to
supply rest 5,000 bricks on next day.
After taking into account the above provisions and facts, Plea of
M/s Baba Brick House cannot be considered. Performance should
be for whole obligation. Hence, part performance by M/s Baba Brick
House cannot be taken as valid performance. Nitesh Gupta is right
in avoiding the contract.
(ii) Agent's authority in an emergency (Section 189 of the Indian
Contract Act, 1872): An agent has authority, in an emergency, to
do all such acts for the purpose of protecting his principal from loss
as would be done by a person of ordinary prudence, in his own
case, under similar circumstances.
In the instant case, Rahul, the agent, was handling perishable
goods like ‘tomatoes’ and can decide the time, date and place of
sale, not necessarily as per instructions of the Aswin, the principal,
with the intention of protecting Aswin from losses.
Here, Rahul acts in an emergency as a man of ordinary prudence,
so Aswin will not succeed against him for recovering the loss.
(b) Meaning of Negotiable Instruments: Negotiable Instruments is an
instrument (the word instrument means a document) which is freely
transferable (by customs of trade) from one person to another by mere
delivery or by indorsement and delivery. The property in such an
instrument passes to a bonafide transferee for value.
7
Join Us on Telegram [Link]
 Downloaded From [Link]
The Act does not define the term ‘Negotiable Instruments’. However,
Section 13 of the Act provides for only three kinds of negotiable
instruments namely bills of exchange, promissory notes and cheques,
payable either to order or bearer.
Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional promise
or order to pay money. The promise or order to pay must consist of
money only.
7. The sum payable, the time of payment, the payee, must be certain.
8. The instrument should be delivered. Mere drawing of instrument
does not create liability.
(c) The laws in the Indian legal system could be broadly classified as
follows:
Criminal Law: Criminal law is concerned with laws pertaining to
violations of the rule of law or public wrongs and punishment of the same.
Criminal Law is governed under the Indian Penal Code, 1860, and the
Code of Criminal Procedure, 1973 (Crpc). The Indian Penal Code, 1860,
defines the crime, its nature, and punishments whereas the Criminal
Procedure Code, 1973, defines exhaustive procedure for executing the
punishments of the crimes. Murder, rape, theft, fraud, cheating and
assault are some examples of criminal offences under the law.
Civil Law: Matters of disputes between individuals or organisations are
dealt with under Civil Law. Civil courts enforce the violation of certain
rights and obligations through the institution of a civil suit. Civil law
primarily focuses on dispute resolution rather than punishment. The act
of process and the administration of civil law are governed by the Code
of Civil Procedure, 1908 (CPC). Civil law can be further classified into
Law of Contract, Family Law, Property Law, and Law of Tort. Some
examples of civil offences are breach of contract, non-delivery of goods,
non-payment of dues to lender or seller defamation, breach of contract,
and disputes between landlord and tenant.
Common Law: A judicial precedent or a case law is common law. A
judgment delivered by the Supreme Court will be binding upon the courts
within the territory of India under Article 141 of the Indian Constitution.
The doctrine of Stare Decisis is the principle supporting common law. It
is a Latin phrase that means “to stand by that which is decided.” The
doctrine of Stare Decisis reinforces the obligation of courts to follow the
same principle or judgement established by previous decisions while
8
Join Us on Telegram [Link]
 Downloaded From [Link]
ruling a case where the facts are similar or “on all four legs” with the
earlier decision.
Principles of Natural Justice: Natural justice, often known as Jus
Natural deals with certain fundamental principles of justice going beyond
written law. Nemo judex in causa sua (Literally meaning “No one should
be made a judge in his own cause, and it’s a Rule against Prejudice),
audi alteram partem (Literally meaning “hear the other party or give the
other party a fair hearing), and reasoned decision are the rules of Natural
Justice. A judgement can override or alter a common law, but it cannot
override or change the statute.
5. (a) (i) Lien is the right of a person to retain possession of the goods
belonging to another until claim of the person in possession is
satisfied. The unpaid seller has also right of lien over the goods for
the price of the goods sold.
Section 47(1) of the Sale of Goods Act, 1930 provides that the
unpaid seller who is in the possession of the goods is entitled to
exercise right of lien in the following cases:-
1. Where the goods have been sold without any stipulation as to
credit
2. Where the goods have been sold on credit but the term of
credit has expired
3. Where the buyer has become insolvent even though the
period of credit has not yet expired.
In the given case, A has agreed to sell certain goods to B on a
credit of 10 days. The period of 10 days has expired. B has neither
paid the price of goods nor taken the possession of the goods. That
means the goods are still physically in the possession of A, the
seller. In the meantime, B, the buyer has become insolvent.
In this case, A is entitled to exercise the right of lien on the goods
because the buyer has become insolvent and the term of credit has
expired without any payment of price by the buyer.
(ii) Right of stoppage in transit (Section 50 of the Sale of Goods
Act, 1930): Subject to the provisions of this Act, when the buyer of
goods becomes insolvent, the unpaid seller who has parted with
the possession of the goods has the right of stopping them in
transit, that is to say, he may resume possession of the goods as
long as they are in the course of transit, and may retain them until
paid or tendered price of the goods.
When the unpaid seller has parted with the goods to a carrier and
the buyer has become insolvent, he can exercise this right of asking
the carrier to return the goods back, or not to deliver the goods to
the buyer.
In the instant case, CD, the buyer becomes insolvent and 450 bags
are in transit. AB, the seller, can stop the goods in transit by giving
9
Join Us on Telegram [Link]
 Downloaded From [Link]
a notice of it to CD. The official receiver, on CD’s insolvency cannot
claim the bags.
(b) (i) Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932): According to section 38, a continuing
guarantee given to a firm or to third party in respect of the
transaction of a firm is, in the absence of an agreement to the
contrary, revoked as to future transactions from the date of any
change in the constitution of the firm. Such change may occur by
the death, or retirement of a partner, or by introduction of a new
partner.
(ii) Goodwill: The term “Goodwill” has not been defined under the
Indian Partnership Act, 1932. Section 14 of the Act lays down that
goodwill of a business is to be regarded as a property of the firm.
Goodwill may be defined as the value of the reputation of a
business house in respect of profits expected in future over and
above the normal level of profits earned by undertaking belonging
to the same class of business.
(c) Under following circumstances, the contracts need not be performed
with the consent of both the parties:
(i) Novation: Where the parties to a contract substitute a new contract
for the old it is called novation. A contract in existence may be
substituted by a new contract either between the same parties or
between different parties the consideration mutually being the
discharge of old contract. Novation can take place only by mutual
agreement between the parties. On novation, the old contract is
discharged and consequently it need not be performed. (Section 62
of the Indian Contract Act, 1872)
(ii) Rescission: A contract is also discharged by recission. When the
parties to a contract agree to rescind it, the contract need not be
performed. (Section 62)
(iii) Alteration: Where the parties to a contract agree to alter it, the
original contract is rescinded, with the result that it need not be
performed. In other words, a contract is also discharged by
alteration. (Section 62)
(iv) Remission: Every promisee may dispense with or remit, wholly or
in part, the performance of the promise made to him, or may extend
the time for such performance or may accept instead of it any
satisfaction which he thinks fit. In other words, a contract is
discharged by remission. (Section 63)
(v) Rescinds voidable contract: When a person at whose option a
contract is voidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is the promisor.
(vi) Neglect of promisee: If any promisee neglects or refuses to afford
the promisor reasonable facilities for the performance of his
10
Join Us on Telegram [Link]
 Downloaded From [Link]
promise, the promisor is excused by such neglect or refusal as to
any non-performance caused thereby. (Section 67)
6. (a) By virtue of provisions of Section 138 of the Negotiable Instruments Act,
1881, where cheque was issued by a person to discharge a legally
enforceable debt was dishonoured by bank due to insufficiency of funds,
such person shall be deemed to have committed an offence and shall,
without prejudice to any other provision of this Act, be punished with
imprisonment for a term which may extend to two years or with fine which
may extend to twice the amount of the cheque, or with both.
However,
(a) the cheque has been presented to the bank within three months or
validity period of the cheque, whichever is earlier;
(b) the holder makes a demand for the payment of the said amount of
money by giving a notice in writing, to the drawer of the cheque
within 30 days of the receipt of information from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said
amount of money within fifteen days of the receipt of the said
notice.
In the instant case, Priyansh issued a cheque to Sumit for payment of
the price of goods purchased from him. When Sumit presented the
cheque in bank, it was returned unpaid due to insufficiency of funds in
the account of Priyansh. Sumit sued against Priyansh under section 138
of the Negotiable Instruments Act, 1881.
For filing the suit under section 138, Sumit should have to make a
demand of payment by giving a notice in writing to Priyansh upto 18 th
July, 2023. In case, Priyansh failed in making the payment within fifteen
days of the receipt of the said notice, Sumit could sue under section 138.
(b) Essential elements of a contract of bailment: Section 148 of the
Indian Contract Act, 1872 defines the term ‘Bailment’. A ‘bailment’ is the
delivery of goods by one person to another for some purpose upon a
contract that they shall, when the purpose is accomplished, be returned
or otherwise disposed of according to the directions of the person
delivering them. The essential elements of the contract of the bailment
are:
(i) Delivery of goods—The essence of bailment is delivery of goods by
one person to another.
(ii) Bailment is a contract—In bailment, the delivery of goods is upon a
contract that when the purpose is accomplished, the goods shall be
returned to the bailor.
(iii) Return of goods in specific—The goods are delivered for some
purpose and it is agreed that the specific goods shall be returned.

11
Join Us on Telegram [Link]
 Downloaded From [Link]
(iv) Ownership of goods—In a bailment, it is only the possession of
goods which is transferred, and the bailor continues to be the owner
of the goods.
(v) Property must be movable—Bailment is only for movable goods
and never for immovable goods or money.
(c) Sale of unascertained goods and Appropriation (Section 23 of the
Sale of Goods Act, 1930): Appropriation of goods involves selection of
goods with the intention of using them in performance of the contract and
with the mutual consent of the seller and the buyer.
The essentials are:
(a) There is a contract for the sale of unascertained or future goods.
(b) The goods should conform to the description and quality stated in
the contract.
(c) The goods must be in a deliverable state.
(d) The goods must be unconditionally appropriated to the contract
either by delivery to the buyer or his agent or the carrier.
(e) The appropriation must be made by:
(i) the seller with the assent of the buyer; or
(ii) the buyer with the assent of the seller.
(f) The assent may be express or implied.
(g) The assent may be given either before or after appropriation.

12
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series II: May, 2024
Date of Paper: 24th May, 2024
Time of Paper: 2 P.M. to 5 P.M.

MOCK TEST PAPER II

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.

(Time allowed: 3 Hours) (100 Marks)

1. (a) In light of provisions of the Indian Contract Act, 1872 answer the following:
(i) Mr. S and Mr. R made contract wherein Mr. S agreed to deliver paper
cup manufacture machine to Mr. R and to receive payment on delivery.
On the delivery date, Mr. R did not pay the agreed price. Decide
whether Mr. S is bound to fulfil his promise at the time of delivery?
(ii) Mr. Y has given loan to Mr. G of ` 30,00,000. Mr. G defaulted the loan
on due date and debt became time barred. After the time barred debt,
Mr. G agreed to settle the full amount to Mr. Y. Whether acceptance of
time barred debt Contract is enforceable as per the Indian Contract Act,
1872?
(iii) A & B entered into a contract to supply unique item, alternate of which
is not available in the market. A refused to supply the agreed unique
item to B. What directions could be given by the court for breach of
such contract? (7 Marks)
(b) (i) Nolimit Private Company is incorporated as unlimited company having
share capital of ` 10,00,000. One of its creditors, Mr. Samuel filed a suit
against a shareholder Mr. Innocent for recovery of his debt against Nolimit
Private Company. Mr. Innocent has given his plea in the court that he is
not liable as he is just a shareholder. Explain whether Mr. Samuel will be
successful in recovering his dues from Mr. Innocent? (4 Marks)
(ii) A Company registered under Section 8 of the Companies Act, 2013,
has been consistently making profits for the past 5 years after a major
change in the management structure. Few members contented that
they are entitled to receive dividends. Can the company distribute
dividend? If yes, what is the maximum percentage of dividend that can
be distributed as per provisions of the Companies Act, 2013? Also, to

1
Join Us on Telegram [Link]
 Downloaded From [Link]
discuss this along with other regular matters, the company held a
general meeting by giving only 14 days’ notice. Is this valid?
(3 Marks)
(c) (i) "Whether a group of persons is or is not a firm, or whether a person is or
is not a partner in a firm." Explain the mode of determining existence of
partnership as per the Indian Partnership Act, 1932? (4 Marks)
(ii) Discuss the provisions regarding personal profits earned by a partner
under the Indian Partnership Act, 1932? (2 Marks)
2. (a) Mr. G sold some goods to Mr. H for a certain price by issue of an invoice, but
payment in respect of the same was not received on that day. The goods were
packed and lying in the godown of Mr. G. The goods were inspected by H's
agent and were found to be in order. Later on, the dues of the goods were
settled in cash. Just after receiving cash, Mr. G asked Mr. H that goods should
be taken away from his godown to enable him to store other goods purchased
by him. After one day, since Mr. H did not take delivery of the goods, Mr. G
kept the goods out of the godown in an open space. Due to rain, some goods
were damaged.
Referring to the provisions of the Sale of Goods Act, 1930, analyse the
above situation and decide who will be held responsible for the above
damage. Will your answer be different if the dues were not settled in cash
and are still pending? (7 Marks)
(b) Define OPC (One Person Company) and state the rules regarding its
membership. Can it be converted into a non-profit company under Section
8 or a private company? (7 Marks)
(c) List the differences between the Limited Liability Partnership (LLP) and the
Limited Liability Company. (6 Marks)
3. (a) P, Q, R and S are the partners in M/S PQRS & Co., a partnership firm which
deals in trading of Washing Machines of various brands.
Due to the conflict of views between partners, P & Q decided to leave the
partnership firm and started competitive business on 31st July, 2023, in the
name of M/S PQ & Co. Meanwhile, R & S have continued using the property
in the name of M/S PQRS & Co. in which P & Q also has a share.
Based on the above facts, explain in detail the rights of outgoing partners
as per the Indian Partnership Act, 1932 and comment on the following:
(i) Rights of P & Q to start a competitive business.
(ii) Rights of P & Q regarding their share in property of M/S PQRS & Co.
(7 Marks)
(b) MNP Private Ltd. is a company registered under the Companies Act, 2013
with Paid Up Share Capital of ` 5 crores and turnover of ` 35 crores. Explain
the meaning of the "Small Company" and examine the following in
accordance with the provisions of the Companies Act, 2013:
(i) Whether the MNP Private Ltd. can avail the status of small company?

2
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) What will be your answer if the turnover of the company is ` 45 crores?
(7 Marks)
(c) Define Misrepresentation and Fraud. Explain the difference between Fraud
and Misrepresentation as per the Indian Contract Act, 1872. (6 Marks)
4. (a) M Ltd. contract with Shanti Traders to make and deliver certain machinery
to them by 30th June 2023 for ` 11.50 lakhs. Due to labour strike, M Ltd.
could not manufacture and deliver the machinery to Shanti Traders. Later,
Shanti Traders procured the machinery from another manufacturer for
` 12.75 lakhs. Due to this, Shanti Traders was also prevented from
performing a contract which it had made with Zenith Traders at the time of
their contract with M Ltd. and were compelled to pay compensation for
breach of contract. Advise Shanti Traders the amount of compensation
which it can claim from M Ltd., referring to the legal provisions of the Indian
Contract Act, 1872. (7 Marks)
(b) What are Inchoate and Ambiguous Instruments under the Negotiable
Instruments Act, 1881? (7 Marks)
(c) What is the significance of the Supreme Court and High Court in the Indian
judiciary? (6 Marks)
5. (a) (i) Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry and
100 bales by Railway. Shyam receives delivery of 100 bales sent by lorry,
but before he receives the delivery of the bales sent by railway, he
becomes bankrupt. Ram being still unpaid, stops the goods in transit. The
official receiver, on Shyam’s insolvency claims the goods. Decide the
case with reference to the provisions of the Sale of Goods Act, 1930.
(4 Marks)
(ii) Classify the following transactions according to the types of goods they
are:
(A) A wholesaler of cotton has 100 bales in his godown. He agrees to sell
50 bales and these bales were selected and set aside.
(B) A agrees to sell to B one packet of sugar out of the lot of one hundred
packets lying in his shop.
(C) T agrees to sell to S all the apples which will be produced in his garden
this year. (3 Marks)
(b) State the grounds on which a firm may be dissolved by the Court under the
Indian Partnership Act, 1932? (7 Marks)
(c) Explain whether the agency shall be terminated in the following cases
under the provisions of the Indian Contract Act, 1872:
(i) A gives authority to B to sell A's land, and to pay himself, out of the
proceeds, the debts due to him from A. Afterwards, A becomes insane.
(ii) A appoints B as A's agent to sell A's land. B, under the authority of A,
appoints C as agent of B. Afterwards, A revokes the authority of B but
not of C. What is the status of agency of C? (6 Marks)

3
Join Us on Telegram [Link]
 Downloaded From [Link]
6. (a) (i) Advik purchased a mobile from Bhanu. He issued a promissory note to
Bhanu which was payable on demand but no specific place for payment
was mentioned on it. On maturity, Bhanu did not present the promissory
note for payment. As the promissory note was not duly presented for
payment, whether Advik would be discharged from liability under the
provisions of the Negotiable Instruments Act, 1881? (4 Marks)
(ii) Shiva gave a gift of ` 21,000 to his sister through a cheque issued in
her favour on the occasion of Raksha Bandhan. Afterwards, Shiva
informed his sister not to present the cheque for payment and also
informed the bank to stop the payment. Examining the provisions of the
Negotiable Instruments Act, 1881, decide whether Shiva’s acts
constitute an offence under section 138 of the Act? (3 Marks)
(b) What do you mean by Quantum Meruit and state the cases where the claim
for Quantum Meruit arises? (6 Marks)
(c) Write the exceptions to the doctrine of Caveat Emptor as per the Sale of
Goods Act, 1930. (7 Marks)

4
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series II: May, 2024
Date of Paper: 24th May, 2024
Time of Paper: 2 P.M. to 5 P.M.

MOCK TEST PAPER II

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
ANSWERS
1. (a) (i) As per Section 51 of the Indian Contract Act, 1872, when a contract
consists of reciprocal promises to be simultaneously performed, no
promisor needs to perform his promise unless the promisee is ready and
willing to perform his reciprocal promise. Such promises constitute
concurrent conditions and the performance of one of the promise is
conditional on the performance of the other. If one of the promises is not
performed, the other too need not be performed.
Referring to the above provisions, in the given case, Mr. S is not bound
to deliver goods to Mr. R since payment was not made by him at the
time of delivery of goods.
(ii) Promise to pay time-barred debts - Section 25 (3): Where a promise
in writing signed by the person making it or by his authorised agent, is
made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
In the given case, the loan given by Mr. Y to Mr. G has become time
barred. Thereafter, Mr. G agreed to make payment of full amount to
Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract
entered between parties post time barred debt is valid so, Mr. G is
bound to pay the agreed amount to Mr. Y provided the above
mentioned conditions of section 25 (3) are fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere
monetary damages may not be an adequate remedy for the other party.
In such a case, the court may give order for specific performance and
direct the party in breach to carry out his promise according to the terms
of contract. Here, in this case, the court may direct A to supply the item
to B because the refusal to supply the agreed unique item cannot be
compensated through money.
(b) (i) Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its
members. The liability of each member extends to the whole amount of
the company’s debts and liabilities, but he will be entitled to claim
contribution from other members. In case the company has share capital,
the Articles of Association must state the amount of share capital and the
amount of each share. So long as the company is a going concern the

1
Join Us on Telegram [Link]
 Downloaded From [Link]
liability on the shares is the only liability which can be enforced by the
company. The creditors can institute proceedings for winding up of the
company for their claims. The official liquidator may call the members for
their contribution towards the liabilities and debts of the company, which
can be unlimited.
On the basis of above, it can be said that Mr. Samuel cannot directly
claim his dues against the company from Mr. Innocent, the shareholder
of the company even the company is an unlimited company.
Mr. Innocent is liable upto his share capital. His unlimited liability will
arise when official liquidator calls the members for their contribution
towards the liabilities and debts of the company at the time of winding
up of company.
(ii) A company registered under Section 8 of the Companies Act, 2013 is
prohibited from the payment of any dividends to its members.
Hence in the given case, the contention of the members to distribute
dividend from the profits earned is wrong.
Also, Section 8 company is allowed to call a general meeting by giving
14 days instead of 21 days.
(c) (i) Mode of determining existence of partnership (Section 6 of the
Indian Partnership Act, 1932): In determining whether a group of
persons is or is not a firm, or whether a person is or not a partner in a firm,
regard shall be had to the real relation between the parties, as shown by
all relevant facts taken together.
For determining the existence of partnership, it must be proved.
1. There was an agreement between all the persons concerned
2. The agreement was to share the profits of a business and
3. the business was carried on by all or any of them acting for all.
1. Agreement: Partnership is created by agreement and not by status
(Section 5). The relation of partnership arises from contract and not
from status; and in particular, the members of a Hindu Undivided
family carrying on a family business as such are not partners in such
business.
2. Sharing of Profit: Sharing of profit is an essential element to
constitute a partnership. But, it is only a prima facie evidence and not
conclusive evidence, in that regard. The sharing of profits or of gross
returns accruing from property by persons holding joint or common
interest in the property would not by itself make such persons
partners. Although the right to participate in profits is a strong test of
partnership, and there may be cases where, upon a simple
participation in profits, there is a partnership, yet whether the relation
does or does not exist must depend upon the whole contract between
the parties.
3. Agency: Existence of Mutual Agency which is the cardinal principle
of partnership law, is very much helpful in reaching a conclusion in
this regard. Each partner carrying on the business is the principal as
2
Join Us on Telegram [Link]
 Downloaded From [Link]
well as an agent of other partners. So, the act of one partner done on
behalf of firm, binds all the partners. If the elements of mutual agency
relationship exist between the parties constituting a group formed with
a view to earn profits by running a business, a partnership may be
deemed to exist.
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction of the
firm, or from the use of the property or business connection of the firm
or the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and competing
with that of the firm, he shall account for and pay to the firm all profits
made by him in that business.
2. (a) 1. According to section 44 of the Sale of Goods Act, 1930, when the seller
is ready and willing to deliver the goods and requests the buyer to take
delivery, and the buyer does not within a reasonable time after such
request take delivery of the goods, he is liable to the seller for any loss
occasioned by his neglect or refusal to take delivery and also for a
reasonable charge for the care and custody of the goods.
Risk of loss of goods prima facie follows the passing of property in
goods. Goods remain at the seller's risk unless the property there in is
transferred to the buyer, but after transfer of property therein to the
buyer, the goods are at the buyer's risk whether delivery has been
made or not.
In the given case, since Mr. G has already intimated Mr. H, that he
wanted to store some other goods and thus Mr. H should take the
delivery of goods kept in the godown of Mr. G, the loss of goods
damaged should be borne by Mr. H.
2. If the price of the goods would not have settled in cash and some
amount would have been pending then Mr. G will be treated as an
unpaid seller and he can enforce the following rights against the goods
as well as against the buyer personally:
(a) Where under a contract of sale, the property in the goods has passed
to the buyer and the buyer wrongfully neglects or refuses to pay for
the goods according to the terms of the contract, the seller may sue
him for the price of the goods. [Section 55(1) of the Sales of Goods
Act, 1930]
(b) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses
to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been
appropriated to the contract. [Section 55(2) of the Sales of Goods Act,
1930].

3
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) One Person Company (OPC) [Section 2(62) of the Companies Act,
2013]: The Act defines one person company (OPC) as a company which
has only one person as a member.
Rules regarding its membership:
 Only one person as member.
 The memorandum of OPC shall indicate the name of the other person,
who shall, in the event of the subscriber’s death or his incapacity to
contract, become the member of the company.
 The other person whose name is given in the memorandum shall give
his prior written consent in prescribed form and the same shall be filed
with Registrar of companies at the time of incorporation of the
company along with its e-memorandum and e-articles.
 Such other person may be given the right to withdraw his consent.
 The member of OPC may at any time change the name of such other
person by giving notice to the company and the company shall intimate
the same to the Registrar.
 Any such change in the name of the person shall not be deemed to be
an alteration of the memorandum.
 Only a natural person who is an Indian citizen whether resident in India
or otherwise and has stayed in India for a period of not less than 120
days during the immediately preceding financial year-
➢ shall be eligible to incorporate a OPC;
➢ shall be a nominee for the sole member of a OPC.
 No person shall be eligible to incorporate more than one OPC or
become nominee in more than one such company.
 No minor shall become member or nominee of the OPC or can hold
share with beneficial interest.
OPC cannot be incorporated or converted into a company under section 8
of the Act. Though it may be converted to private or public companies in
certain cases.
(c) Distinction between LLP and Limited Liability Company: The points of
distinction between a LLP and Limited Liability Company are tabulated as
follows:
Basis LLP Limited Liability
Company
1. Regulating Act The LLP Act, 2008. The Companies Act,
2013.
2. Members/Partners The persons who The persons who invest
contribute to LLP the money in the shares
are known as are known as members
partners of the LLP. of the company.

4
Join Us on Telegram [Link]
 Downloaded From [Link]
3. Internal The internal The internal governance
governance governance structure of a company
structure structure of a LLP is is regulated by statute
governed by (i.e., Companies Act,
contract agreement 2013).
between the
partners.
4. Name Name of the LLP to Name of the public
contain the word company to contain the
“Limited Liability word “limited” and Pvt.
partnership” or Co. to contain the word
“LLP” as suffix. “Private limited” as
suffix.
5. No. of members/ Minimum – 2 Private company:
partners members Minimum – 2 members
Maximum – No such Maximum 200 members
limit on the Public company:
members in the Act. Minimum – 7 members
The members of the
LLP can be Maximum – No such
individuals/or body limit on the members.
corporate through Members can be
the nominees. organizations, trusts,
another business form
or individuals.
6. Liability of Liability of the Liability of a member is
members/partners partners is limited to limited to the amount
the extent of agreed unpaid on the shares
contribution except held by them.
in case of willful
fraud.
7. Management The business of the The affairs of the
company is company are managed
managed by the by board of directors
partners including elected by the
the designated shareholders.
partners authorized
in the agreement.
8. Minimum number Minimum 2 Pvt. Co. – 2 directors
of directors/ designated Public co. – 3 directors
designated partners.
partners
3. (a) (i) Rights of outgoing partner to carry on competing business (Section
36 of the Indian Partnership Act, 1932)
(1) An outgoing partner may carry on business competing with that of
the firm and he may advertise such business, but subject to
contract to the contrary, he may not,-
5
Join Us on Telegram [Link]
 Downloaded From [Link]
(a) use the firm name,
(b) represent himself as carrying on the business of the firm or
(c) solicit the custom of persons who were dealing with the firm
before he ceased to be a partner.
(2) Although this provision has imposed some restrictions on an
outgoing partner, it effectively permits him to carry on a business
competing with that of the firm. However, the partner may agree
with his partners that on his ceasing to be so, he will not carry on a
business similar to that of the firm within a specified period or within
specified local limits. Such an agreement will not be in restraint of
trade if the restraint is reasonable [Section 36 (2)]
From the above, we can infer that P & Q can start competitive
business in the name of M/S PQ & Co. after following above
conditions in the absence of any agreement.
(ii) Right of outgoing partner in certain cases to share subsequent
profits (Section 37 of the Indian Partnership Act, 1932)
According to Section 37, where any member of a firm has died or
otherwise ceased to be partner, and the surviving or continuing
partners carry on the business of the firm with the property of the firm
without any final settlement of accounts as between them and the
outgoing partner or his estate, then, in the absence of a contract to the
contrary, the outgoing partner or his estate is entitled at the option of
himself or his representatives to such share of the profits made since
he ceased to be a partner as may be attributable to the use of his share
of the property of the firm or to interest at the rate of six per cent per
annum on the amount of his share in the property of the firm.
In the instant case, P & Q can share in property of M/s PQRS & Co.
keeping in view of the above provisions.
(b) Small Company: According to Section 2(85) of the Companies Act, 2013,
Small Company means a company, other than a public company,—
(1) paid-up share capital of which does not exceed fifty lakh rupees or such
higher amount as may be prescribed which shall not be more than four
crore rupees; and
(2) turnover of which as per its last profit and loss account does not exceed
two crore rupees or such higher amount as may be prescribed which
shall not be more than forty crore rupees.
Nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
(i) In the present case, MNP Private Ltd., a company registered under
the Companies Act, 2013 with a paid up share capital of ` 5 crores
and having turnover of ` 35 crore. Since only one criteria of share
6
Join Us on Telegram [Link]
 Downloaded From [Link]
capital of ` 4 crores is met, but the second criteria of turnover of
` 40 crores is not met and the provisions require both the criteria to
be met in order to avail the status of a small company, MNP Ltd.
cannot avail the status of small company.
(ii) If the turnover of the company is ` 45 crore, then both the criteria
will be fulfilled and MNP Ltd. can avail the status of small company.
(c) Definition of Fraud under Section 17 of the Indian Contract Act, 1872:
'Fraud' means and includes any of the following acts committed by a party
to a contract, or with his connivance, or by his agent, with an intent to
deceive another party thereto or his agent, or to induce him to enter into
the contract:
(1) the suggestion, as a fact, of that which is not true, by one who does not
believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of
the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
According to Section 18, there is misrepresentation:
(1) Statement of fact, which of false, would constitute misrepresentation if
the maker believes it to be true but which is not justified by the
information he possesses;
(2) When there is a breach of duty by a person without any intention to
deceive which brings an advantage to him;
(3) When a party causes, even though done innocently, the other party to
the agreement to make a mistake as to the subject matter.
Distinction between fraud and misrepresentation:
Basis of Fraud Misrepresentation
difference
Intention To deceive the other There is no such intention
party by hiding the to deceive the other party.
truth.
Knowledge of The person making the The person making the
truth suggestion believes statement believes it to be
that the statement as true, although it is not true.
untrue.
Rescission of the The injured party can The injured party is entitled
contract and repudiate the contract to repudiate the contract or
claim for and claim damages. sue for restitution but
damages cannot claim the damages.

7
Join Us on Telegram [Link]
 Downloaded From [Link]
Means to The party using the Party can always plead
discover the truth fraudulent act cannot that the injured party had
secure or protect the means to discover the
himself by saying that truth.
the injured party had
means to discover the
truth.

4. (a) Section 73 of the Indian Contract Act, 1872 provides for consequences
of breach of contract. According to it, when a contract has been broken, the
party who suffers by such breach is entitled to receive from the party who
has broken the contract, compensation for any loss or damage caused to
him there by which naturally arose in the usual course of things from such
breach or which the parties knew when they made the contract, to be likely
to result from the breach of it. Such compensation is not given for any remote
and indirect loss or damage sustained by reason of the breach. It is further
provided in the explanation to the section that in estimating the loss or
damage from a breach of contract, the means which existed of remedying
the inconvenience caused by the non - performance of the contract must
be taken into account.
Applying the above principle of law to the given case, M Ltd. is obliged to
compensate for the loss of ` 1.25 lakh (i.e. ` 12.75 minus ` 11.50 =
` 1.25 lakh) which had naturally arisen due to default in performing the
contract by the specified date.
Regarding the amount of compensation which Shanti Traders were
compelled to make to Zenith Traders, it depends upon the fact whether
M Ltd., knew about the contract of Shanti Traders for supply of the
contracted machinery to Zenith Traders on the specified date. If so, M Ltd
is also obliged to reimburse the compensation which Shanti Traders had
to pay to Zenith Traders for breach of contract. Otherwise, M Ltd is not
liable.
(b) Inchoate Instrument: It means an instrument that is incomplete in certain
respects. The drawer/ maker/ acceptor/ indorser of a negotiable instrument
may sign and deliver the instrument to another person in his capacity
leaving the instrument, either wholly blank or having written on it the word
incomplete. Such an instrument is called an inchoate instrument and this
gives the power to its holder to make it complete by writing any amount
either within limits specified therein or within the limits specified by the
stamp’s affixed on it. The principle of this rule of an inchoate instrument is
based on the principle of estoppel.
Ambiguous Instrument: According to Section 17 of the Negotiable
Instruments Act, 1881, where an instrument may be construed either as a
promissory note or bill of exchange, the holder may at his election treat it
as either, and the instrument shall be thenceforward treated accordingly.
Thus, an instrument which is vague and cannot be clearly identified either
as a bill of exchange, or as a promissory note, is an ambiguous instrument.
In other words, such an instrument may be construed either as a

8
Join Us on Telegram [Link]
 Downloaded From [Link]
promissory note, or as a bill of exchange. Section 17 provides that the
holder may, at his discretion, treat it as either and the instrument shall
thereafter be treated accordingly.
(c) (i) Supreme Court
The Supreme Court is the apex body of the judiciary. It was established
on 26th January 1950. The Chief Justice of India is the highest authority
appointed under Article 126. The principal bench of the Supreme Court
consists of seven members including the Chief Justice of India.
Presently, the number has increased to 34 including the Chief Justice
of India due to the rise in the number of cases and workload. An
individual can seek relief in the Supreme Court by filing a writ petition
under Article 32.
(ii) High Court
The highest court of appeal in each state and union territory is the High
Court. Article 214 of the Indian Constitution states that there must be a
High Court in each state. The High Court has appellant, original
jurisdiction, and Supervisory jurisdiction. However, Article 227 of the
Indian Constitution limits a High Court’s supervisory power. In India,
there are twenty-five High Courts, one for each state and union
territory, and one for each state and union territory. Six states share a
single High Court. An individual can seek remedies against violation of
fundamental rights in High Court by filing a writ under Article 226.
5. (a) (i) Right of stoppage of goods in transit: The problem is based on section
50 of the Sale of Goods Act,1930 dealing with the right of stoppage of the
goods in transit available to an unpaid seller. The section states that the
right is exercisable by the seller only if the following conditions are fulfilled.
(A) The seller must be unpaid
(B) He must have parted with the possession of goods
(C) The goods must be in transit
(D) The buyer must have become insolvent
(E) The right is subject to the provisions of the Act.
Applying the provisions to the given case, Ram being still unpaid, can
stop the 100 bales of cloth sent by railway as these goods are still in
transit.
(ii) (A) A wholesaler of cotton has 100 bales in his godown. So, the goods
are existing goods. He agrees to sell 50 bales and these bales were
selected and set aside. On selection, the goods become ascertained.
In this case, the contract is for the sale of ascertained goods, as the
cotton bales to be sold are identified and agreed after the formation
of the contract.
(B) If A agrees to sell to B one packet of sugar out of the lot of one
hundred packets lying in his shop, it is a sale of existing but
unascertained goods because it is not known which packet is to be
delivered.

9
Join Us on Telegram [Link]
 Downloaded From [Link]
(C) T agrees to sell to S all the apples which will be produced in his garden
this year. It is a contract of sale of future goods, amounting to 'an
agreement to sell.'
(b) DISSOLUTION BY THE COURT (SECTION 44): Court may, at the suit of
the partner, dissolve a firm on any of the following ground:
(a) Insanity/unsound mind: Where a partner (not a sleeping partner) has
become of unsound mind, the court may dissolve the firm on a suit of
the other partners or by the next friend of the insane partner. Temporary
sickness is no ground for dissolution of firm.
(b) Permanent incapacity: When a partner, other than the partner suing,
has become in any way permanently incapable of performing his duties
as partner, then the court may dissolve the firm. Such permanent
incapacity may result from physical disability or illness etc.
(c) Misconduct: Where a partner, other than the partner suing, is guilty of
conduct which is likely to affect prejudicially the carrying on of business,
the court may order for dissolution of the firm, by giving regard to the
nature of business. It is not necessary that misconduct must relate to
the conduct of the business. The important point is the adverse effect
of misconduct on the business. In each case nature of business will
decide whether an act is misconduct or not.
(d) Persistent breach of agreement: Where a partner other than the
partner suing, wilfully or persistently commits breach of agreements
relating to the management of the affairs of the firm or the conduct of
its business, or otherwise so conduct himself in matters relating to the
business that it is not reasonably practicable for other partners to carry
on the business in partnership with him, then the court may dissolve
the firm at the instance of any of the partners. Following comes in to
category of breach of contract:
• Embezzlement,
• Keeping erroneous accounts
• Holding more cash than allowed
• Refusal to show accounts despite repeated request etc.
(e) Transfer of interest: Where a partner other than the partner suing, has
transferred the whole of his interest in the firm to a third party or has
allowed his share to be charged or sold by the court, in the recovery of
arrears of land revenue, the court may dissolve the firm at the instance
of any other partner.
(f) Continuous/Perpetual losses: Where the business of the firm cannot
be carried on except at a loss in future also, the court may order for its
dissolution.
(g) Just and equitable grounds: Where the court considers any other
ground to be just and equitable for the dissolution of the firm, it may
dissolve a firm. The following are the cases for the just and equitable
grounds-

10
Join Us on Telegram [Link]
 Downloaded From [Link]
(i) Deadlock in the management.
(ii) Where the partners are not in talking terms between them.
(iii) Loss of substratum.
(iv) Gambling by a partner on a stock exchange.
(c) (i) According to section 202 of the Indian Contract Act, 1872, where the agent
has himself an interest in the property which forms the subject matter of
the agency, the agency cannot, in the absence of an express contract, be
terminated to the prejudice of such interest.
In other words, when the agent is personally interested in the subject
matter of agency, the agency becomes irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay
himself, out of the proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke
this authority, nor it can be terminated by his insanity.
(ii) According to section 191 of the Indian Contract Act, 1872, a “Sub-
agent” is a person employed by, and acting under the control of, the
original agent in the business of the agency.
Section 210 provides that, the termination of the authority of an agent
causes the termination (subject to the rules regarding the termination
of an agent’s authority) of the authority of all sub-agents appointed by
him.
In the given question, B is the agent of A, and C is the agent of B.
Hence, C becomes a sub- agent.
Thus, when A revokes the authority of B (agent), it results in termination
of authority of sub-agent appointed by B i.e. C (sub-agent).
6. (a) (i) Section 64 of the Negotiable Instruments Act, 1881 provides, Promissory
notes, bill of exchange and cheques must be presented for payment to
the maker, acceptor or drawee thereof respectively, by or on behalf of the
holder as hereinafter provided. In default of such presentment, the other
parties thereto are not liable thereon to such holder. However, where a
promissory note is payable on demand and is not payable at a specified
place, no presentment is necessary in order to charge the maker thereof.
In the instant case, Advik issued a promissory note to Bhanu payable
on demand without mentioning any specific place for payment. On
maturity, the promissory note was not presented by Bhanu for payment.
On the basis of the above provisions and facts of the case, although
non-presentment of promissory note for payment results in discharge
of maker from liability but the given case is covered under the exception
to section 64. Hence, Advik would not be discharged from liability even
the non-presentment by Bhanu as the promissory note was payable on
demand and no specific place for payment was mentioned.
(ii) Section 138 of the Negotiable Instruments Act, 1881 provides where
any cheque drawn by a person for the discharge, in whole or in part, of
any debt or other liability, is returned by the bank unpaid due to
11
Join Us on Telegram [Link]
 Downloaded From [Link]
insufficiency of fund, the drawer is punishable with imprisonment upto
2 years or fine upto 2 times the amount of cheque or Both. In other
words, the liability under section 138 arises only if the drawer had
issued the cheque to discharge a legally enforceable debt or other
liability. Thus, where the drawer issues a cheque as a gift or charity, he
is not liable under section 138 even if cheque is dishonoured.
In the instant case, Shiva gifted a cheque of Rs. 21,000 to his sister.
Afterwards, Shiva informed his sister not to present the cheque for
payment and also informed the bank to stop the payment.
On the basis of above, as the cheque was given as gift, provisions of
section 138 will not be applicable on Shiva.
(b) Quantum Meruit: Where one person has rendered service to another in
circumstances which indicate an understanding between them that it is to
be paid for although no particular remuneration has been fixed, the law will
infer a promise to pay. Quantum Meruit i.e. as much as the party doing the
service has deserved. It covers a case where the party injured by the
breach had at the time of breach done part but not all of the work which he
is bound to do under the contract and seeks to be compensated for the
value of the work done. For the application of this doctrine, two conditions
must be fulfilled:
(1) It is only available if the original contract has been discharged.
(2) The claim must be brought by a party not in default.
The object of allowing a claim on quantum meruit is to recompensate the
party or person for value of work which he has done. Damages are
compensatory in nature while quantum meruit is restitutory. It is but
reasonable compensation awarded on implication of a contract to
remunerate.
The claim for quantum meruit arises in the following cases:
(a) When an agreement is discovered to be void or when a contract
becomes void.
(b) When something is done without any intention to do so gratuitously.
(c) Where there is an express or implied contract to render services but
there is no agreement as to remuneration.
(d) When one party abandons or refuses to perform the contract.
(e) Where a contract is divisible and the party not in default has enjoyed
the benefit of part performance.
(f) When an indivisible contract for a lump sum is completely performed
but badly the person who has performed the contract can claim the
lump sum, but the other party can make a deduction for bad work.
(c) The doctrine of Caveat Emptor given under the Sale of Goods Act, 1930 is
subject to the following exceptions:
1. Fitness as to quality or use: Where the buyer makes known to the
seller the particular purpose for which the goods are required, it is the

12
Join Us on Telegram [Link]
 Downloaded From [Link]
duty of the seller to supply such goods as are reasonably fit for that
purpose [Section 16 (1)].
2. Goods purchased under patent or brand name: In case where the
goods are purchased under its patent name or brand name, there is
no implied condition that the goods shall be fit for any particular purpose
[Section 16(1)].
3. Goods sold by description: Where the goods are sold by description
there is an implied condition that the goods shall correspond with the
description [Section 15]. If it is not so, then seller is responsible.
4. Goods of Merchantable Quality: Where the goods are bought by
description from a seller who deals in goods of that description there
is an implied condition that the goods shall be of merchantable quality.
The rule of Caveat Emptor is not applicable. [Section 16(2)].
5. Sale by sample: Where the goods are bought by sample, this rule of
Caveat Emptor does not apply if the bulk does not correspond with the
sample [Section 17].
6. Goods by sample as well as description: Where the goods are
bought by sample as well as description, the rule of Caveat Emptor is
not applicable in case the goods do not correspond with both the
sample and description or either of the condition [Section 15].
7. Trade Usage: An implied warranty or condition as to quality or fitness
for a particular purpose may be annexed by the usage of trade and if the
seller deviates from that, this rule of Caveat Emptor is not applicable
[Section 16(3)].
8. Seller actively conceals a defect or is guilty of fraud: Where the
seller sells the goods by making some misrepresentation or fraud and
the buyer relies on it or when the seller actively conceals some defect
in the goods so that the same could not be discovered by the buyer on
a reasonable examination, then the rule of Caveat Emptor will not apply.

13
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series III: June, 2024
Date of Paper: 7th June, 2024
Time of Paper: 2 P.M. to 5 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
(Time allowed: 3 Hours) (100 Marks)

1. (a) (i) Rahul found a smart watch in a restaurant. He enquired about all
the customers present there but the true owner could not be found.
He handed over the same to the manager of the restaurant to keep
till the true owner is found. After a week he went back to the
restaurant to enquire about the smart watch. The manager refused
to return it to Rahul, saying that it did not belong to Rahul. In the
light of the Indian Contract Act, 1872, can Rahul recover it from the
Manager? (4 Marks)
(ii) Mr. Vikas a businessman has been fighting a long-drawn litigation
with Mr. Neeraj an industrialist. To support his legal campaign, he
enlists the services of Mr. Manoj a Judicial officer stating that the
amount of `10 lakhs would be paid to him if he does not take up
the brief of Mr. Neeraj.
Mr. Manoj agrees but, at the end of the litigation Mr. Vikas refuses
to pay to Mr. Manoj. Decide whether Mr. Manoj can recover the
amount promised by Mr. Vikas under the provisions of the Indian
Contract Act, 1872? (3 Marks)
(b) (i) Mr. Samyak was appointed as an employee of Moonlight Timber
Private Limited on the condition that if he was to leave his
employment, he will not solicit customers of the company. After
some time, he was fired from the company. He set up his own
business under proprietorship and undercut Moonlight Timber
Private Limited’s prices. On the legal advice from his legal
consultant and to refrain from the provisions of breach of contract,
he formed a new company under the name Nine Stars Timbers
Private Limited. In this company, his wife and a friend of
Mr. Samyak were the sole shareholders and directors. They took
over Samyak’s business and continued it. Moonlight Timber Private
Limited files a suit against Nine Stars Timbers Private Limited for
violation of contract. Nine Stars Timbers Private Limited argued
1
Join Us on Telegram [Link]
 Downloaded From [Link]
that the contract was entered into between Mr. Samyak and
Moonlight Timber Private Limited and as the company has separate
legal entity, Nine Stars Timbers Private Limited has not violated the
terms of agreement. Explain with reasons, whether separate legal
entity between Mr. Samyak and Nine Stars Timbers Private Limited
will be disregarded? (4 Marks)
(ii) Pacific Motors Limited is a government company. Rama Auto
Private Limited is a private company having share capital of ten
crores in the form of ten lacs shares of ` 100 each. Pacific Motors
Limited is holding five lacs five thousand shares in Rama Auto
Private Limited. Rama Auto Private Limited claimed the status of
Government Company. Advise as legal advisor, whether Rama
Auto Private Limited is government company under the provisions
of Companies Act, 2013? (3 Marks)
(c) (i) When the continuing guarantee can be revoked under the Indian
Partnership Act, 1932? (2 Marks)
(ii) With reference to the provisions of Indian partnership Act, 1932
explain the various effects of insolvency of a partner. (4 Marks)
2. (a) Mrs. Seema went to the local rice and wheat wholesale shop and asked
for 100 kgs of Basmati rice. The Shopkeeper quoted the price of the
same as ` 125 per kg to which she agreed. Mrs. Seema insisted that
she would like to see the sample of what would be provided to her by the
shopkeeper before she agreed upon such a purchase.
The shopkeeper showed her a bowl of rice as a sample. The sample
exactly corresponded to the entire lot.
The buyer examined the sample casually without noticing the fact that
even though the sample was that of Basmati Rice, it contained a mix of
long and short grains.
The cook on opening the bags complained that the dish, if prepared with
the rice would not taste the same as the quality of rice was not as per
requirement of the dish.
Now Mrs. Seema wants to file a suit of fraud against the seller alleging
him of selling a mix of good and cheap quality rice. Will she be
successful?
Explain the basic law on sale by sample under Sale of Goods Act, 1930?
What would be your answer in case Mrs. Seema specified her exact
requirement as to length of rice? (7 Marks)
(b) (i) Explain listed company and unlisted company as per the provisions
of the Companies Act, 2013. (2 Marks)

2
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) Explain the classification of the companies on the basis of control
as per the Companies Act, 2013. (5 Marks)
(c) (i) Who are the individuals which shall not be capable of becoming a
partner of a Limited Liability Partnership? (3 Marks)
(ii) What are the effects of registration of Limited Liability Partnership?
(3 Marks)
3. (a) (i) Mr. Ram and Mr. Raheem are working as teachers in Ishwarchand
Vidhyasagar Higher Secondary School and also are very good
friends. They jointly purchased a flat which was given on rent to Mr.
John. It was decided between landlords and tenant that the rent
would be ` 10,000 per month inclusive of electricity bill. It means
electricity bill will be paid by landlords. The landlords, by mistake,
did not pay the electricity bill for the month of March 2023. Due to
this, the electricity department cut the connection. Mr. John has to
pay the electricity bill of ` 2800 and ` 200 as penalty to resume the
electricity connection. Mr. John claimed ` 3000 from Mr. Ram but
Mr. Ram replied that he is liable only for ` 1500.
Mr. John said that Mr. Ram and Mr. Raheem are partners therefore
he can claim the full amount from any of the partners. Explain,
whether under the provision of Indian Partnership Act, 1932,
Mr. Ram is liable to pay whole amount of ` 3000 to Mr. John?
(4 Marks)
(ii) Explain in detail the circumstances which lead to liability of firm for
misapplication by partners as per provisions of the Indian
Partnership Act, 1932. (3 Marks)
(b) Mr. R, a manufacturer of toys approached MNO Private Limited for
supply of raw material worth ` 1,50,000/-. Mr. R was offered a credit
period of one month. Mr. R went to the company prior to the due date
and met Mr. C, an employee at the billing counter, who convinced the
former that the payment can be made to him as the billing-cashier is on
leave.
Mr. R paid the money and was issued a signed and sealed receipt by
Mr. C. After the lapse of due date, Mr. R received a recovery notice from
the company for the payment of ` 1,50,000/-.
Mr. R informed the company that he had already paid the above amount
and being an outsider had genuine reasons to trust Mr. C who claimed
to be an employee and had issued him a receipt.

3
Join Us on Telegram [Link]
 Downloaded From [Link]
The Company filed a suit against Mr. R for non-payment of dues. Discuss
the fate of the suit and the liability of Mr. R towards company as on
current date in consonance with the provision of the Companies Act,
2013? Would your answer be different if a receipt under the company
seal was not issued by Mr. C after receiving payment? (7 Marks)
(c) Define consideration. What are the legal rules regarding consideration
under the Indian Contract Act, 1872? (6 Marks)
4. (a) (i) Mr. A, the employer induced his employee Mr. B to sell his one
room flat to him at less than the market value to secure promotion.
Mr. B sold the flat to Mr. A. Later on, Mr. B changed his mind and
decided to sue Mr. A. Examine the validity of the contract as per
the provisions of the Indian Contract Act, 1872. (3 Marks)
(ii) Mr. S promises Mr. M to paint a family picture for ` 20,000 and
assures to complete his assignment by 15th March, 2023.
Unfortunately, Mr. S died in a road accident on 1st March, 2023 and
his assignment remains undone. Can Mr. M bind the legal
representative of Mr. S for the promise made by Mr. S? Suppose
Mr. S had promised to deliver some photographs to Mr. M on
15th March, 2023 against a payment of ` 10,000 but he dies before
that day. Will his representative be bound to deliver the
photographs in this situation?
Decide as per the provisions of the Indian Contract Act, 1872.
(4 Marks)
(b) Explain the Rules as to compensation payable in case of dishonour of
promissory note, bill of exchange or cheque, by any party liable to the
holder or any endorsee covered under the Negotiable Instruments Act,
1881. (7 Marks)
(c) Write a short note on the following:
(i) Ministry of Corporate Affairs (MCA)
(ii) Ministry of Home Affairs (6 Marks)
5. (a) (i) Rachit arranges an auction to sale an antic wall clock. Deepa, being
one of the bidders, gives the highest bid. For announcing the
completion of sale, the auctioneer falls the hammer on table but
suddenly hammer brakes and damages the watch. Deepa wants to
avoid the contract. Can she do so under the provisions of the Sale
of Goods Act, 1930? (4 Marks)
(ii) X contracted to sell his car to Y. They did not discuss the price of
the car at all. X later refused to sell his car to Y on the ground that
the agreement was void being uncertain about price. Can Y
demand the car under the Sale of Goods Act, 1930? (3 Marks)

4
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) “Partner indeed virtually embraces the character of both a principal and
an agent”. Describe the said statement keeping in view of the provisions
of the Indian Partnership Act, 1932. (7 Marks)
(c) State the essential elements of a contract of bailment. (6 Marks)
6. (a) Shankar drew a cheque in favour of Surendar. After having issued the
cheque, Shankar requested Surendar not to present the cheque for
payment and gave a stop payment request to the bank in respect of the
cheque issued to Surendar. Decide, under the provisions of the
Negotiable Instruments Act, 1881 whether the said acts of Shankar
constitute an offence? (7 Marks)
(b) Define contract of indemnity and contract of guarantee and state the
conditions when guarantee is considered invalid? (6 Marks)
(c) (i) State the various essential elements involved in the sale of
unascertained goods and their appropriation as per the Sale of
Goods Act, 1930. (4 Marks)
(ii) What are the consequences of the destruction of specified goods,
before making of contract and after the agreement to sell under the
Sale of Goods Act, 1930. (3 Marks)

5
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series III: June, 2024
Date of Paper: 7th June, 2024
Time of Paper: 2 P.M. to 5 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
ANSWERS
1. (a) (i) Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to
another and takes them into his custody is subject to same
responsibility as if he were a bailee.
Thus, a finder of lost goods has:
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the
smart watch to Rahul, since Rahul is entitled to retain the smart
watch found against everybody except the true owner.
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i) It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to
evade legal obligations, though this is only in limited and discrete
circumstances, courts can pierce the corporate veil. In other words,
1
Join Us on Telegram [Link]
 Downloaded From [Link]
if the company is a mere sham or cloak, the separate legal entity
can be disregarded.
On considering the decision taken in Gilford Motor Co. Vs. Horne
and facts of the problem given, it is very much clear that Nine Stars
Timbers Private Limited was formed just to evade legal obligations
of the agreement between Mr. Samyak and Moonlight Timber
Private Limited. Hence, Nine Stars Timbers Private Limited is just
a sham or cloak and the separate legal entity between Mr. Samyak
and Nine Stars Timbers Private Limited should be disregarded.
(ii) According to the provisions of Section 2(45) of Companies Act,
2013, Government Company means any company in which not less
than 51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more
State Governments, and the section includes a company
which is a subsidiary company of such a Government
company.
According to Section 2(87), “subsidiary company” in relation to any
other company (that is to say the holding company), means a
company in which the holding exercises or controls more than one-
half of the total voting power either at its own or together with one
or more of its subsidiary companies.
By virtue of provisions of Section 2(87) of Companies Act, 2013,
Rama Auto Private Limited is a subsidiary company of Pacific
Motors Limited because Pacific Motors Limited is holding more than
one-half of the total voting power in Rama Auto Private Limited.
Further as per Section 2(45), a subsidiary company of Government
Company is also termed as Government Company. Hence, Rama
Auto Private Limited, being a subsidiary of Pacific Motors Limited
will also be considered as Government Company.
(c) (i) Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932)
According to section 38, a continuing guarantee given to a firm or
to third party in respect of the transaction of a firm is, in the absence
of an agreement to the contrary, revoked as to future transactions
from the date of any change in the constitution of the firm. Such
change may occur by the death, or retirement of a partner, or by
introduction of a new partner.
(ii) Effects of insolvency of a partner (Section 34 of the Indian
Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.

2
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) He will be ceased to be a partner from the very date on which
the order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of
the firm done after the date of order of adjudication.
(iv) The firm is also not liable for any act of the insolvent partner
after the date of the order of adjudication,
(v) Ordinarily, the insolvency of a partner results in dissolution of
a firm; but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent
will not give rise to dissolution of the firm.
2. (a) (i) As per the provisions of Sub-Section (2) of Section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In the instant case, in the light of the provisions of Sub-Clause (b)
of Sub-Section (2) of Section 17 of the Act, Mrs. Seema will not be
successful as she casually examined the sample of rice (which
exactly corresponded to the entire lot) without noticing the fact that
even though the sample was that of Basmati Rice but it contained
a mix of long and short grains.
(ii) Sale by Sample (Section 17 of the Sale of Goods Act, 1930): As
per the provisions of Sub-Section (1) of section 17 of the Sale of
Goods Act, 1930, a contract of sale is a contract for sale by sample
where there is a term in the contract, express or implied, to that
effect.
As per the provisions of Sub-Section (2) of section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(c) that the goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.
(iii) In case Mrs. Seema specified her exact requirement as to length of
rice, then there is an implied condition that the goods shall
correspond with the description. If it is not so, the seller will be held
liable.

3
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) (i) Listed company: As per the definition given in the section 2(52) of
the Companies Act, 2013, it is a company which has any of its
securities listed on any recognised stock exchange.
Provided that such class of companies, which have listed or intend
to list such class of securities, as may be prescribed in consultation
with the Securities and Exchange Board, shall not be considered
as listed companies.
Whereas the word securities as per section 2(81) of the Companies
Act, 2013 has been assigned the same meaning as defined in
clause (h) of section 2 of the Securities Contracts (Regulation) Act,
1956.
Unlisted company means company other than listed company.
(ii) In line with the Companies Act, 2013, following are the
classification of the Companies on the basis of control:
(a) Holding and subsidiary companies: ‘Holding and
subsidiary’ companies are relative terms.
A company is a holding company in relation to one or more
other companies, means a company of which such companies
are subsidiary companies. [Section 2(46)]
For the purposes of this clause, the expression “company"
includes any body corporate.
Whereas section 2(87) defines “subsidiary company” in
relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total
voting power either at its own or together with one or
more of its subsidiary companies:
Provided that such class or classes of holding
companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be
prescribed.
(b) Associate company [Section 2(6)]: In relation to another
company, means a company in which that other company has
a significant influence, but which is not a subsidiary company
of the company having such influence and includes a joint
venture company.
Explanation. — For the purpose of this clause —
(i) the expression “significant influence” means control of at
least twenty per cent of total voting power, or control of
or participation in business decisions under an
agreement;

4
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) the expression “joint venture’’ means a joint
arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the
arrangement.
(c) (i) Partners (Section 5 of Limited Liability Partnership Act, 2008):
Any individual or body corporate may be a partner in a LLP.
However, an individual shall not be capable of becoming a partner
of a LLP, if—
(a) he has been found to be of unsound mind by a Court of
competent jurisdiction and the finding is in force;
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his
application is pending.
(ii) Effect of registration (Section 14 of Limited Liability
Partnership Act, 2008):
On registration, a LLP shall, by its name, be capable of—
(a) suing and being sued;
(b) acquiring, owning, holding and developing or disposing of
property, whether movable or immovable, tangible or
intangible;
(c) having a common seal, if it decides to have one; and
(d) doing and suffering such other acts and things as bodies
corporate may lawfully do and suffer.
3. (a) (i) According to Section 4 of the Indian Partnership Act, 1932,
"Partnership" is the relation between persons who have agreed to
share the profits of a business carried on by all or any of them
acting for all. Therefore, for determining the existence of
partnership, it must be proved that:
1. There must be an agreement between all the persons
concerned;
2. The agreement must be to carry on some business;
3. The agreement must be to share the profits of a business and
4. The business was carried on by all or any of them acting for
all.
On the basis of above provisions and facts provided in the question,
Mr. Ram and Mr. Raheem cannot be said under partnership as they
are teachers in a school and just purchased a flat jointly.
By merely giving the flat on rent, they are not doing business. They
are just earning the income from the property under their
co-ownership. Hence, there is no partnership between them.

5
Join Us on Telegram [Link]
 Downloaded From [Link]
Therefore, Mr. Ram is liable to pay his share only i.e. ` 1500.
Mr. John has to claim the rest of ` 1500 from Mr. Raheem.
(ii) Liability of Firm for Misapplication by Partners (Section 27 of
Indian Partnership Act, 1932):
The two clauses of Section 27 bring out an important point of
distinction between the two categories of cases of misapplication
of money by partners.
Clause (a) covers the case where a partner acts within his authority
and due to his authority as a partner, he receives money or property
belonging to a third party and misapplies that money or property.
For this provision to be attracted, it is not necessary that the money
should have actually come into the custody of the firm.
On the other hand, the provision of clause (b) would be attracted
when such money or property has come into the custody of the firm,
and it is misapplied by any of the partners.
The firm would be liable in both cases.
(b) (i) Fate of the suit and the liability of Mr. R towards the company:
Doctrine of the Indoor Management
According to the Doctrine of Indoor Management, the outsiders are
not deemed to have notice of the internal affairs of the company.
They are entitled to assume that the acts of the directors or other
officers of the company are validly performed, if they are within the
scope of their apparent authority. So long as an act is valid under
the articles, if done in a particular manner, an outsider dealing with
the company is entitled to assume that it has been done in the
manner required. This is the indoor management rule, that the
company’s indoor affairs are the company’s problem. This rule has
been laid down in the landmark case-the Royal British Bank vs.
Turquand. (Known as “Turquand Rule”)
In the instant case, Mr. R is not liable to pay the amount of
` 1,50,000 to MNO Private Limited as he had genuine reasons to
trust Mr. C, an employee of the company who had issued him a
signed and sealed receipt.
(ii) Liability of Mr. R in case no receipt is issued by Mr. C:
Exceptions to doctrine of indoor management: Suspicion of
irregularity is an exception to the doctrine of indoor management.
The doctrine of indoor management in no way rewards those who
behave negligently. It is the duty of the outsider to make the
necessary enquiry, if the transaction is not in the ordinary course
of business.
If a receipt under the company seal was not issued by Mr. C after
receiving payment, Mr. R is liable to pay the said amount as this
will be deemed to be a negligence on the part of Mr. R and it is his
6
Join Us on Telegram [Link]
 Downloaded From [Link]
duty to make the necessary enquiry to check that whether Mr. C is
eligible to take the payment or not.
(c) Consideration [Section 2(d) of the Indian Contract Act, 1872]: When
at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing or promises to
do or abstain from doing something, such an act or abstinence or
promise is called consideration for the promise.
Legal Rules Regarding Consideration
(i) Consideration must move at the desire of the promisor:
Consideration must be offered by the promisee or the third party at
the desire or request of the promisor. This implies “return” element
of consideration.
(ii) Consideration may move from promisee or any other person:
In India, consideration may proceed from the promisee or any other
person who is not a party to the contract. In other words, there can
be a stranger to a consideration but not stranger to a contract.
(iii) Executed and executory consideration: A consideration which
consists in the performance of an act is said to be executed. When
it consists in a promise, it is said to be executory. The promise by
one party may be the consideration for an act by some other party,
and vice versa.
(iv) Consideration may be past, present or future: It is a general
principle that consideration is given and accepted in exchange for
the promise. The consideration, if past, may be the motive but
cannot be the real consideration of a subsequent promise. But in
the event of the services being rendered in the past at the request
or the desire of the promisor, the subsequent promise is regarded
as an admission that the past consideration was not gratuitous.
(v) Consideration need not be adequate: Consideration need not to
be of any particular value. It need not be approximately of equal
value with the promise for which it is exchanged but it must be
something which the law would regard as having some value.
(vi) Performance of what one is legally bound to perform: The
performance of an act by a person who is legally bound to perform
the same cannot be consideration for a contract. Hence, a promise
to pay money to a witness is void, for it is without consideration.
Hence, such a contract is void for want of consideration.
(vii) Consideration must be real and not illusory: Consideration must
be real and must not be illusory. It must be something to which the
law attaches some value. If it is legally or physically impossible it is
not considered valid consideration.
(viii) Consideration must not be unlawful, immoral, or opposed to
public policy: Only presence of consideration is not sufficient it

7
Join Us on Telegram [Link]
 Downloaded From [Link]
must be lawful. Anything which is immoral or opposed to public
policy also cannot be valued as valid consideration.
4. (a) (i) According to section 16 of the Indian Contract Act, 1872, a contract
is said to be induced by ‘undue influence’ where the relations
subsisting between the parties are such that one of the parties is in
a position to dominate the will of the other and he uses that position
to obtain an unfair advantage over the other.
When consent to an agreement is caused by undue influence, the
contract is voidable at the option of the party, whose consent was
so caused.
Hence, the contract between Mr. A and Mr. B is voidable at the
option of Mr. B as it was induced by undue influence by Mr. A and
therefore Mr. B can sue Mr. A.
(ii) The parties to a contract must either perform, or offer to perform,
their respective promises, unless such performance is dispensed
with or excused under the provisions of this Act, or of any other law.
Promises to bind the representatives of the promisors in case of the
death of such promisors before performance, unless a contrary intention
appears from the contract. (Section 37 of the Indian Contract Act, 1872).
As per the provisions of Section 40 of the Indian Contract Act, 1872, if it
appears from the nature of the case that it was the intention of the parties
to any contract that any promise contained in it should be performed by
the promisor himself, such promise must be performed by the promisor.
In other cases, the promisor or his representative may employ a
competent person to perform it.
In terms of the provisions of Section 40 stated above, in case where
Mr. S has to paint a family picture for Mr. M, Mr. M cannot ask the legal
representative of Mr. S to complete the painting work on Mr. S’s death,
since painting involves the use of personal skill.
In terms of the provisions of Section 37 stated above, in case where
Mr. S had promised to deliver some photographs to Mr. M, the legal
representatives of Mr. S shall be bound to deliver the photographs in this
situation.
(b) As per section 117 of the Negotiable Instruments Act, 1881, the
compensation payable in case of dishonour of promissory note, bill of
exchange or cheque, by any party liable to the holder or any endorsee,
shall be determined by the following rules:
(i) the holder is entitled to the amount due upon the instrument,
together with the expenses properly incurred in presenting, noting
and protesting it;
(ii) when the person charged resides at a place different from that at
which the instrument was payable, the holder is entitled to receive
such sum at the current rate of exchange between the two places;

8
Join Us on Telegram [Link]
 Downloaded From [Link]
(iii) an endorser who, being liable, has paid the amount due on the
same is entitled to the amount so paid with interest at 18% per
annum from the date of payment until tender or realisation thereof,
together with all expenses caused by the dishonour and payment;
(iv) when the person charged and such endorser reside at different
places, the endorser is entitled to receive such sum at the current
rate of exchange between the two places;
(v) the party entitled to compensation may draw a bill upon the party
liable to compensate him, payable at sight or on demand, for the
amount due to him, together with all expenses properly incurred by
him. Such bill must be accompanied by the instrument dishonoured
and the protest thereof (if any). If such bill is dishonoured, the party
dishonouring the same is liable to make compensation thereof in
the same manner as in the case of the original bill.
(c) (i) Ministry of Corporate Affairs (MCA): MCA is an Indian
Government Ministry which primarily concerned with administration
of the Companies Act, 2013, the Companies Act, 1956, the Limited
Liability Partnership Act, 2008, and the Insolvency and Bankruptcy
Code, 2016. It is responsible mainly for the regulation of Indian
enterprises in the industrial and services sector.
The Ministry is mostly run by civil servants of the ICLS cadre.
These officers are elected through the Civil Services Examination
conducted by Union Public Service Commission.
The highest post, Director General of Corporate Affairs (DGCoA),
is fixed at Apex Scale for the ICLS.
(ii) Ministry of Home Affairs: It is a ministry of the Government of
India. As an interior ministry of India, it is mainly responsible for the
maintenance of internal security and domestic policy. The Home
Ministry is headed by Union Minister of Home Affairs.
5. (a) (i) By virtue of provisions of Section 64 of the Sale of Goods Act, 1930,
in case of auction sale, the sale is complete when the auctioneer
announces its completion by the fall of the hammer or in some other
customary manner.
In the instant case, Deepa gives the highest bid in the auction for
the sale of an antic wall clock arranged by Rachit. While
announcing the completion of sale by fall of hammer on the table,
hammer brakes and damages the clock.
On the basis of the above provisions, it can be concluded that the
sale by auction cannot be completed until hammer comes in its
normal position after falling on table. Hence, in the given problem,
sale is not completed. Deepa will not be liable for loss and can
avoid the contract.
(ii) Payment of the price by the buyer is an important ingredient of a
contract of sale. If the parties totally ignore the question of price
9
Join Us on Telegram [Link]
 Downloaded From [Link]
while making the contract, it will not become an uncertain and
invalid agreement. It will rather be a valid contract and the buyer
shall pay a reasonable price. (Section 9 and section 10 of the Sale
of Goods Act, 1930)
In the given case, X and Y have entered into a contract for sale of
car but they did not fix the price of the car. X refused to sell the car
to Y on this ground. Y can legally demand the car from X and X can
recover a reasonable price of the car from Y.
(b) “Partner indeed virtually embraces the character of both a principal
and an agent”: Subject to the provisions of section 18 of the Indian
Partnership Act, 1932, a partner is the agent of the firm for the purposes
of the business of the firm.
A partnership is the relationship between the partners who have agreed
to share the profits of the business carried on by all or any of them acting
for all (Section 4). This definition suggests that any of the partners can
be the agent of the others.
Section 18 clarifies this position by providing that, subject to the
provisions of the Act, a partner is the agent of the firm for the purpose of
the business of the firm. The partner indeed virtually embraces the
character of both a principal and an agent. So far as he acts for himself
and in his own interest in the common concern of the partnership, he
may properly be deemed as a principal and so far as he acts for his
partners, he may properly be deemed as an agent.
The principal distinction between him and a mere agent is that he has a
community of interest with other partners in the whole property and
business and liabilities of partnership, whereas an agent as such has no
interest in either.
The rule that a partner is the agent of the firm for the purpose of the
business of the firm cannot be applied to all transactions and dealings
between the partners themselves. It is applicable only to the act done by
partners for the purpose of the business of the firm.
(c) Essential elements of a contract of bailment: Section 148 of the
Indian Contract Act, 1872 defines the term ‘Bailment’. A ‘bailment’ is the
delivery of goods by one person to another for some purpose upon a
contract that they shall, when the purpose is accomplished, be returned
or otherwise disposed of according to the directions of the person
delivering them. The essential elements of the contract of the bailment
are:
(i) Contract: Bailment is based upon a contract. The contract may be
express or implied. No consideration is necessary to create a valid
contract of bailment.
(ii) Delivery of goods: It involves the delivery of goods from one person
to another for some purposes. Bailment is only for moveable goods
and never for immovable goods or money.

10
Join Us on Telegram [Link]
 Downloaded From [Link]
(iii) Purpose: The goods are delivered for some purpose. The purpose
may be express or implied.
(iv) Possession: In bailment, possession of goods changes. Change of
possession can happen by physical delivery or by any action which
has the effect of placing the goods in the possession of bailee. The
change of possession does not lead to change of ownership. In
bailment, bailor continues to be the owner of goods.
(v) Return of goods: Bailee is obliged to return the goods physically to
the bailor. The goods should be returned in the same form as given
or may be altered as per bailor’s direction.
6. (a) As per the facts stated in the question, Shankar (drawer) after having
issued the cheque, informs Surendar (drawee) not to present the cheque
for payment and also gave a stop payment request to the bank in respect
of the cheque issued to Surendar.
Section 138 of the Negotiable Instruments Act, 1881, is a penal provision
in the sense that once a cheque is drawn on an account maintained by
the drawer with his banker for payment of any amount of money to
another person out of that account for the discharge in whole or in part
of any debt or liability, is informed by the bank unpaid either because of
insufficiency of funds to honour the cheques or the amount exceeding
the arrangement made with the bank, such a person shall be deemed to
have committed an offence.
Once a cheque is issued by the drawer, a presumption under Section
139 of the Negotiable Instruments Act, 1881 follows and merely because
the drawer issues a notice thereafter to the drawee or to the bank for
stoppage of payment, it will not preclude an action under Section 138.
Also, Section 140 of the Negotiable Instruments Act, 1881, specifies
absolute liability of the drawer of the cheque for commission of an
offence under section 138 of the Act. Section 140 states that it shall not
be a defence in a prosecution for an offence under section 138 that the
drawer had no reason to believe when he issued the cheque that the
cheque may be dishonoured on presentment for the reasons stated in
that section.
Accordingly, the act of Shankar, i.e., his request to stop payment
constitutes an offence under the provisions of the Negotiable
Instruments Act, 1881.
(b) Section 124 of the Indian Contract Act, 1872 states that “A contract by
which one party promises to save the other from loss caused to him by
the conduct of the promisor himself, or the conduct of any person”, is
called a “contract of indemnity”.
Section 126 of the Indian Contract Act, 1872 states that “A contract to
perform the promise made or discharge liability incurred by a third
person in case of his default” is called a “contract of guarantee”.

11
Join Us on Telegram [Link]
 Downloaded From [Link]
The conditions under which the guarantee is invalid, or void is provided
in section 142, 143 and 144 of the Indian Contract Act, 1872. These
include:
(i) Guarantee obtained by means of misrepresentation.
(ii) Guarantee obtained by means of keeping silence as to material
circumstances.
(iii) When a contract of guarantee is entered into on the condition that
the creditor shall not act upon it until another person has joined in
it as co-surety and that other party fails to join as such.
(c) (i) Sale of unascertained goods and Appropriation (Section 23 of
the Sale of Goods Act, 1930): Appropriation of goods involves
selection of goods with the intention of using them in performance of
the contract and with the mutual consent of the seller and the buyer.
The essentials are:
(a) There is a contract for the sale of unascertained or future
goods.
(b) The goods should conform to the description and quality
stated in the contract.
(c) The goods must be in a deliverable state.
(d) The goods must be unconditionally appropriated to the
contract either by delivery to the buyer or his agent or the
carrier.
(e) The appropriation must be made by:
(i) the seller with the assent of the buyer; or
(ii) the buyer with the assent of the seller.
(f) The assent may be express or implied.
(g) The assent may be given either before or after appropriation.
(ii) (A) Goods perishing before making of Contract (Section 7 of
the Sale of Goods Act, 1930): In accordance with the
provisions of the Sale of Goods Act, 1930 as contained in
Section 7, a contract for the sale of specific goods is void, if at
the time when the contract was made; the goods without the
knowledge of the seller, perished or become so damaged as
no longer to answer to their description in the contract, then the
contract is void ab initio.
(B) Goods perishing before sale but after agreement to sell
(Section 8 of the Sale of Goods Act, 1930): Where there is
an agreement to sell specific goods, and subsequently the
goods without any fault on the part of the seller or buyer perish
or become so damaged as no longer to answer to their
description in the agreement before the risk passes to the
buyer, the agreement is thereby avoided or becomes void.
12
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series I: July, 2024
Date of Paper: 31st July, 2024
Time of Paper: 10.30. A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
(Time allowed: 3 Hours) (100 Marks)
1. (a) (i) Mr. Chetan was travelling to Manali with his wife by bus of
Himalayan Travels Pvt. Ltd. Due to some technical default in the
bus, the driver has to stop the bus in a mid-way in cold night. The
driver advised the passengers to get to the shelter in the nearest
hotel which was at a distance of only one kilometer from that place.
The wife of Mr. Chetan caught cold and fell ill due to being asked
to get down and she had to walk in cold night to reach hotel.
Mr. Chetan filed the suit against Himalayan Travels Pvt. Ltd. for
damages for the personal inconvenience, hotel charges and
medical treatment for his wife. Explain, whether Mr. Chetan would
get compensation for which he filed the suit under the Indian
Contract Act, 1872? (4 Marks)
(ii) Sahil sells by auction to Rohan a horse which Sahil knows to be
unsound. The horse appears to be sound, but Sahil knows about
the unsoundness of the horse. Is this contract valid in the following
circumstances under the Indian Contract Act, 1872:
(A) If Sahil says nothing about the unsoundness of the horse to
Rohan.
(B) If Sahil says nothing about it to Rohan who is Sahil’s son.
(C) If Rohan says to Sahil “If you do not deny it, I shall assume
that the horse is sound.” Sahil says nothing. (3 Marks)
(b) (i) ABC Limited has allotted equity shares with voting rights to XYZ
Limited worth ` 15 Crores during the Financial Year 2023-24. After
that the total Paid-up Equity Share Capital of ABC Limited is ` 100
Crores.
Define the Meaning of Associate Company and comment on
whether ABC Limited and XYZ Limited would be called Associate
Company as per the provisions of the Companies Act, 2013?
(4 Marks)

1
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) MTK Private Limited is a company registered under the Companies
Act, 2013 on 5th January 2022. The company did not start its
business till 31s July 2024. Identify under which category MTK
Private Limited company is classified. Explain the definition of the
category of the company in detail. (3 Marks)
(c) (i) What is the difference between partnership and co-ownership as
per the Indian Partnership Act, 1932? (4 Marks)
(ii) Discuss the provisions regarding personal profits earned by a
partner under the Indian Partnership Act, 1932? (2 Marks)
2. (a) Mr. Manoj was running a shop selling good quality washing machines.
Mr. Vivek came to his shop and asked for washing machine which is
suitable for washing woollen clothes. Mr. Manoj showed him a particular
machine which Mr. Vivek liked and paid for it. Later on, when the
machine was delivered to Mr. Vivek’s house, it was found that it was the
wrong machine and also unfit for washing woollen clothes. He
immediately informed Mr. Manoj about the delivery of the wrong
machine. Mr. Manoj refused to exchange the same, saying that the
contract was complete after the delivery of the washing machine and
payment of price. With reference to the provisions of the Sale of Goods
Act, 1930, discuss whether Mr. Manoj is right in refusing to exchange the
washing machine. (7 Marks)
(b) (i) Mr. Sooraj sold his business of cotton production to a cotton
production company, CPL Private Limited, in which he held all the
shares except one which was held by his wife. He is also the
creditor in the company for a certain amount. He also got the
insurance of the stock of cotton of CPL Private Limited in his own
name and not in the name of the company. After one month, all the
stocks of the cotton of CPL Private Limited were destroyed by fire.
Mr. Sooraj filed the claim for such loss with the Insurance company.
State with reasons that whether the insurance company is liable to
pay the claim? (4 Marks)
(ii) Alfa school is a section 8 company which started imparting
education on 1.4.2015, with the sole objective of providing
education to children of weaker society either free of cost or at a
very nominal fee depending upon the financial condition of their
parents. However, on 31st March 2023, it came to the knowledge of
the Central Government that the said school was operating by
violating the objects of its objective clause due to which it was
granted the status of a section 8 company under the Companies
Act, 2013. Describe what powers can be exercised by the Central
Government against the Alfa School, in such a case? (3 Marks)
(c) What do you mean by Designated Partner? Whether it is mandatory to
appoint Designated partner in a LLP? (6 Marks)

2
Join Us on Telegram [Link]
 Downloaded From [Link]
3. (a) M/s ABC & Associates, a partnership firm with A, B and C as senior
partners engaged in the business of curtain manufacturing and exporting
to foreign countries. On 25 th August, 2022, they inducted Mr. P, an
expert in the field of curtain manufacturing as their partner. On 10 th
January 2024, Mr. P was blamed for unauthorized activities and thus
expelled from the partnership by approval of all of the remaining
partners.
(i) Examine whether action by the partners was justified or not?
(ii) What should have the factors to be kept in mind prior expelling a
partner from the firm by other partners according to the provisions
of the Indian Partnership Act, 1932? (7 Marks)
(b) (i) Powertech Limited was registered as a public company. There are
230 members in the company as noted below:
(a) Directors and their relatives 190
(b) Employees 15
(c) Ex-Employees (Shares were allotted when
they were employees) 10
(d) 5 couples holding shares jointly in the name of
husband and wife (5*2) 10
(e) Others 5
The Board of Directors of Powertech Limited proposes to convert it
into a private company. Also advise whether a reduction in the
number of members is necessary. (4 Marks)
(ii) Popular Products Ltd. is company incorporated in India, having a
total Share Capital of ` 20 Crores. The Share capital comprises of
20 Lakh equity shares of ` 100 each. Delight Products Ltd. and
Happy Products Ltd. hold 2,50,000 and 3,50,000 shares
respectively in Popular Products Ltd. Another company, Cheerful
Products Ltd. holds 2,50,000 shares in Popular Products Ltd. Jovial
Ltd. is the holding company for all the above three companies
namely Delight Products Ltd.; Happy Products Ltd. and Cheerful
Products Ltd. Can Jovial Ltd. be termed as a subsidiary company
of Popular Products Ltd.
State the related provision in favour of your answer, if Jovial Ltd.
controls the composition of directors of Popular Products Ltd.
(3 Marks)
(c) Who is considered as an agent under the Indian Contract Act, 1872, and
what are the duties and obligations associated with this role? (6 Marks)
4. (a) (i) Mr. Om Kashyap was a big businessman of Pune City having two
sons and one married daughter. He decided to gift his house to his
daughter. For this purpose, he called his lawyer at his house and
made a written document for such gift. The lawyer advised him to

3
Join Us on Telegram [Link]
 Downloaded From [Link]
get the transfer document properly registered. When they both
were going for registration of document, they met with an accident,
and both of them died. Later, the daughter found the document and
claimed the house on the basis of that document. Explain, whether
she can get the house as gift under the Indian Contract Act, 1872?
(4 Marks)
(ii) Due to urgent need of money amounting to ` 3,00,000, Pawan
approached Raman and asked him for the money. Raman lent the
money on the guarantee of Suraj and Tarun. Pawan makes default
in payment and Suraj pays full amount to Raman. Suraj, afterwards,
claimed contribution from Tarun but Tarun refused to contribute on
the basis that there is no contract between Suraj and him. Examine
referring to the provisions of the Indian Contract Act, 1872, whether
Tarun can escape from his liability. (3 Marks)
(b) State the Difference between promissory note and bill of exchange.”
(7 Marks)
(c) What do you understand by Law? Also, elaborate the procedure for
making a law. (6 Marks)
5. (a) Simran went to a Jewellery shop and asked the salesgirl to show her
diamond bangles with Ruby stones. The Jeweller told her that we have
a lot of designs of diamond bangles but with red stones if she chooses
for herself any special design of diamond bangle with red stones, they
will replace red stones with Ruby stones. But for the Ruby stones they
will charge some extra cost. Simran selected a beautiful set of designer
bangles and paid for them. She also paid the extra cost of Ruby stones.
The Jeweller requested her to come back a week later for delivery of
those bangles. When she came after a week to take delivery of bangles,
she noticed that due to Ruby stones, the design of bangles has been
completely disturbed. Now, she wants to terminate the contract and thus,
asked the Jeweller to give her money back, but he refused for the same.
Answer the following questions as per the Sale of Goods Act, 1930.
(i) State with reasons whether Simran can recover the amount from
the Jeweller.
(ii) What would be your answer if Jeweller says that he can change the
design, but he will charge extra cost for the same? (7 Marks)
(b) (i) Subject to agreement by partners, state the rules that should be
observed by the partners in settling the accounts of the firm after
dissolution under the provisions of the Indian Partnership Act,
1932. (4 Marks)
(ii) State the legal position of a minor partner under the Indian
Partnership Act, 1932 after attaining majority:
(A) When he opts to become a partner of the same firm.
(B) When he decides not to become a partner. (3 Marks)

4
Join Us on Telegram [Link]
 Downloaded From [Link]
(c) How is a contract is discharged under the Indian Contract Act, 1872 and
what are the different ways in which the obligations created by a contract
can come to an end? (6 Marks)
6. (a) (i) M owes money to N. Therefore, he makes a promissory note for
the amount in favor of N, for safety of transmission he cuts the note
in half and posts one half to N. He then changes his mind and calls
upon N to return half of the note which he had sent. N requires M
to send the other half of the promissory note. Decide how rights of
the parties are to be adjusted. (4 Marks)
(ii) Rama executes a promissory note in the following form, 'I promise
to pay a sum of `10,000 after three months'. Decide whether the
promissory note is a valid promissory note. (3 Marks)
(b) What constitutes a contingent contract under the Indian Contract Act,
1872, and what are its essential elements? (6 Marks)
(c) Describe in brief the rights of the buyer against the seller in case of
breach of contract of Sale under the Sale of Goods Act, 1930.
(7 Marks)

5
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series I: July, 2024
Date of Paper: 31 st July, 2024
Time of Paper: 10.30. A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
ANSWERS
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a
contract has been broken, the party who suffers by such breach is
entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which
naturally arose in the usual course of things from such breach, or
which the parties knew, when they made the contract, to be likely
to result from the breach of it. But such compensation is not to be
given for any remote and indirect loss or damage sustained by
reason of the breach.
In the instant case, Mr. Chetan filed the suit against Himalayan
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel
charges and medical treatment for his wife.
On the basis of above provisions and facts of the case, it can be
said that Mr. Chetan can claim damages for the personal
inconvenience and hotel charges but not for medical treatment for
his wife because it is a remote or indirect loss.
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.

1
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate
Company in relation to another company, means a company in
which that other company has a significant influence, but which is
not a subsidiary company of the company having such influence
and includes a joint venture company.
The term “significant influence” means control of at least 20% of
total voting power, or control of or participation in business
decisions under an agreement.
In the given case, ABC Ltd. has allotted equity shares with voting
rights to XYZ Limited of ` 15 crore, which is less than requisite
control of 20% of total share capital (i.e. ` 100 crore) to have a
significant influence of XYZ Ltd. Since the said requirement is not
complied therefore ABC Ltd. and XYZ Ltd. are not associate
companies as per the Companies Act, 2013.
(ii) “Inactive company” means a company which has not been
carrying on any business or operation or has not made any
significant accounting transaction during the last two financial
years or has not filed financial statements and annual returns
during the last two financial years. [Explanation (i) to Section 455
of the Companies Act, 2013]
“Significant accounting transaction” means any transaction other
than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or
any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
[Explanation (ii) to Section 455 of the Companies Act, 2013]
In the instant case, MTK Private Limited was registered on
5th January 2022 and did not start its business till 31st July 2024.
Since the Company has not started its business and a period of
more than two years has already elapsed, it will be treated as an
inactive company.
(c) (i) Partnership Vs. Co-Ownership or joint ownership i.e. the relation
which subsists between persons who own property jointly or in
common.
Basis of difference Partnership Co-ownership
1. Formation Partnership Co-ownership
always arises out may arise either
of a contract, from agreement or

2
Join Us on Telegram [Link]
 Downloaded From [Link]
express or by the operation of
implied. law, such as by
inheritance.
2. Implied agency A partner is the A co-owner is not
agent of the other the agent of other
partners. co-owners.
3. Nature of There is Co-ownership
interest community of does not
interest which necessarily
means that profits involve sharing of
and losses must profits and losses.
have to be shared.
4. Transfer of A share in the A co-owner may
interest partnership is transfer his
transferred only by interest or rights in
the consent of the property
other partners. without the
consent of other
co-owners.

(ii) Personal Profit earned by Partners (Section 16 of the Indian

Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction
of the firm, or from the use of the property or business
connection of the firm or the firm name, he shall account for
that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and
competing with that of the firm, he shall account for and pay
to the firm all profits made by him in that business.
2. (a) According to Section 15 of the Sale of Goods Act, 1930, whenever the
goods are sold as per sample as well as by description, the implied
condition is that the goods must correspond to both sample as well as
description. In case the goods do not correspond to a sample or
description, the buyer has the right to repudiate the contract.
Further under Sale of Goods Act, 1930, when the buyer makes known to
the seller, the particular purpose for which the goods are required and
he relies on his judgment and skill of the seller, it is the duty of the seller
to supply such goods which are fit for that purpose.
In the given case, Mr. Vivek informed Mr. Manoj that he wanted the
washing machine for washing woollen clothes. However, the machine
which was delivered by Mr. Manoj was unfit for the purpose for which Mr.
Vivek wanted the machine.
Based on the above provision and facts of case, there is breach of
implied condition as to sample as well as description, therefore Mr. Vivek
3
Join Us on Telegram [Link]
 Downloaded From [Link]
can either repudiate the contract or claim the refund of the price paid by
him or he may require Mr. Manoj to replace the washing machine with
desired one.
(b) (i) According to the decision taken in the case of Salomon Vs.
Salomon & Co. Ltd., a company has a separate legal entity. A
company is different from its members. Further, according to the
decision taken in the case of Macaura Vs. Northern Assurance Co.
Ltd., a member or creditor does not have any insurable interest in
the property of the company. Members or creditors of the company
cannot claim ownership in the property of company.
On the basis of the above provisions and facts, it can be said that
Mr. Sooraj and CPL Private Limited are separate entities. Mr.
Sooraj cannot have any insurable interest in the property of CPL
Private Limited neither as member nor as creditor. Hence, the
insurance company is not liable to pay to Mr. Sooraj for the claim
for the loss of stock by fire.
(ii) Section 8 of the Companies Act, 2013 deals with the formation of
companies which are formed to promote the charitable objects of
commerce, art, science, education, sports etc. Such company
intends to apply its profit in promoting its objects. Section 8
companies are registered by the Registrar only when a license is
issued by the Central Government to them. Since, Alfa School was
a Section 8 company and it had started violating the objects of its
objective clause, hence in such a situation the following powers can
be exercised by the Central Government:
(i) The Central Government may by order revoke the licence of
the company where the company contravenes any of the
requirements or the conditions of this sections subject to
which a licence is issued or where the affairs of the company
are conducted fraudulently, or violative of the objects of the
company or prejudicial to public interest, and on revocation
the Registrar shall put ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. But before such revocation,
the Central Government must give it a written notice of its
intention to revoke the licence and opportunity to be heard in
the matter.
(ii) Where a licence is revoked, the Central Government may, by
order, if it is satisfied that it is essential in the public interest,
direct that the company be wound up under this Act or
amalgamated with another company registered under this
section.
However, no such order shall be made unless the company is
given a reasonable opportunity of being heard.
(iii) Where a licence is revoked and where the Central
Government is satisfied that it is essential in the public interest

4
Join Us on Telegram [Link]
 Downloaded From [Link]
that the company registered under this section should be
amalgamated with another company registered under this
section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central
Government may, by order, provide for such amalgamation to
form a single company with such constitution, properties,
powers, rights, interest, authorities and privileges and with
such liabilities, duties and obligations as may be specified in
the order.
(c) Designated Partner [Section 2(1)(j) of the LLP Act, 2008]:
“Designated partner” means any partner designated as such pursuant to
section 7.
According to section 7 of the LLP Act, 2008:
(i) Every LLP shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or
more partners are individuals and bodies corporate, at least two
individuals who are partners of such LLP or nominees of such
bodies corporate shall act as designated partners.
(iii) Resident in India: For the purposes of this section, the term
“resident in India” means a person who has stayed in India for a
period of not less than 120 days during the financial year.
3. (a) Expulsion of a Partner (Section 33 of the Indian Partnership Act, 1932):
A partner may not be expelled from a firm by a majority of partners
except in exercise, in good faith, of powers conferred by contract
between the partners.
The test of good faith as required under Section 33(1) includes three
things:
• The expulsion must be in the interest of the partnership.
• The partner to be expelled is served with a notice.
• He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
(a) Action by the partners of M/s ABC & Associates, a partnership firm
to expel Mr. P from the partnership was justified as he was expelled
by approval of the other partners exercised in good faith to protect
the interest of the partnership against the unauthorized activities
charged against Mr. P. A proper notice and opportunity of being
heard has to be given to Mr. P.
(b) The following are the factors to be kept in mind prior expelling a
partner from the firm by other partners:
• the power of expulsion must have existed in a contract
between the partners;
5
Join Us on Telegram [Link]
 Downloaded From [Link]
• the power has been exercised by a majority of the partners;
and
• it has been exercised in good faith.
(b) (i) According to section 2(68) of the Companies Act, 2013, "Private
company" means a company having a minimum paid-up share
capital as may be prescribed, and which by its articles, except in
case of One Person Company, limits the number of its members to
two hundred.
However, where two or more persons hold one or more shares in a
company jointly, they shall, for the purposes of this clause, be
treated as a single member.
It is further provided that -
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the
company, were members of the company while in that
employment and have continued to be members after the
employment ceased,
shall not be included in the number of members.
In the instant case, Powertech Limited may be converted into a
private company only if the total members of the company are
limited to 200.
Total Number of members
(i) Directors and their relatives 190
(ii) 5 Couples (5*1) 5
(iii) Others 5
Total 200
Therefore, there is no need for reduction in the number of members
since existing number of members are 200 which does not exceed
maximum limit of 200.
(ii) According to Section 2(87) of the Companies Act, 2013 “subsidiary
company” in relation to any other company (that is to say the
holding company), means a company in which the holding
company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting
power either at its own or together with one or more of its
subsidiary companies.
In the present case, the total share capital of Popular Products Ltd.
is ` 20 crores comprised of 20 Lakh equity shares.

6
Join Us on Telegram [Link]
 Downloaded From [Link]
Delight Products Ltd., Happy Products Ltd. and Cheerful Products
Ltd together hold 8,50,000 shares (2,50,000+3,50,000+2,50,000)
in Popular Products Ltd. Jovial Ltd. is the holding company of all
above three companies. So, Jovial Ltd. along with its subsidiaries
hold 8,50,000 shares in Popular Products Ltd., which amounts to
less than one-half of its total voting power. Hence, Jovial Ltd. by
virtue of shareholding is not a holding company of Popular Products
Ltd.
Secondly, it is given that Jovial Ltd. controls the composition of
directors of Popular Products Ltd., hence, Jovial Ltd. is a holding
company of Popular Products Ltd. and not a subsidiary company.
(c) The Indian Contract Act, 1872 does not define the word ‘Agency’.
However, section 182 of the Indian Contract Act, 1872 defines Agent and
Principal as:
Agent means a person employed to do any act for another or to
represent another in dealing with the third persons and
The principal means a person for whom such act is done or who is so
represented.
Duties and obligations of an Agent
(i) Duty to follow instructions or customs: According to Section 211,
an agent is bound to conduct the business of his principal according
to the direction given by the principal, or, in the absence of any
such directions, according to the customs which prevails in doing
business of the same kind at the place where the agent conducts
such business. When the agent acts otherwise and any loss is
sustained by the Principal, he must indemnify him, and, if any profit
accrues, he must account for it.
(ii) Duty of reasonable care and skill: According to section 212, an
agent is bound to conduct the business of the principal with as
much skill as is generally possessed by persons engaged in similar
business, unless the principal has notice of his want of skill.
The agent is always bound to act with reasonable diligence, and to
use such skill as he possesses; and to make compensation to his
principal in respect of the direct consequences of his own neglect,
want of skill or misconduct, but not in respect of loss of damage
which are indirectly or remotely caused by such neglect, want of
skill or misconduct.
(iii) Duty to render proper accounts [Section 213]: An agent is
bound to render proper accounts to his principal on demand.
Rendering accounts does not mean showing the accounts but the
accounts supported by vouchers. (Anandprasad vs. Dwarkanath)
(iv) Agent’s duty to communicate with principal [Section 214]: It is
the duty of an agent, in cases of difficulty, to use all reasonable

7
Join Us on Telegram [Link]
 Downloaded From [Link]
diligence in communicating with his principal, and in seeking to
obtain his instructions.
(v) Duty not to deal on his own account: Agent should not deal on
his own account without first obtaining the consent of the principal,
otherwise the principal may—
(a) repudiate the transaction, (Section 215)
(b) claim from the agent any benefit which may have resulted to
him from the transaction. (Section 216)
(vi) Duty not to make secret profits: It is the duty of an agent not to
make any secret profit in the business of agency. His relationship with
the principal is of fiduciary nature and this requires absolute good faith
in the conduct of agency.
Secret Profit means any advantage obtained by the agent over
and above his agreed remuneration and which he would not have
been able to make but for his position as agent.
(vii) Duty not to delegate: According to section 190, an agent cannot
lawfully employ to perform acts which he has expressly or impliedly
undertaken to perform personally, unless by the ordinary custom of
trade a sub-agent may, or, from the nature of agency, a sub- agent,
must be employed.
(viii) Agent’s duty to pay sums received for principal [Section 218]:
Subject to such deductions, the agent is bound to pay to his
principal all sums received on his account.
(ix) Duty not to use any confidential information received in the course
of agency against the principal.
4. (a) (i) Section 25 of Indian Contract Act, 1872 provides that an agreement
made without consideration is valid if it is expressed in writing and
registered under the law for the time being in force for the
registration of documents and is made on account of natural love
and affection between parties standing in a near relation to each
other. In other words, a written and registered agreement based on
natural love and affection between the parties standing in near
relation to each other is enforceable even without consideration.
In the instant case, the transfer of house made by Mr. Om Kashyap
on account of natural love and affection between the parties
standing in near relation to each other is written but not registered.
Hence, this transfer is not enforceable.
(ii) Equality of burden is the basis of Co-suretyship. This is contained
in section 146 of the Indian Contract Act, 1872, which states that
“unless otherwise agreed, each surety is liable to contribute equally
for discharge of whole debt or part of the debt remains unpaid by
debtor.

8
Join Us on Telegram [Link]
 Downloaded From [Link]
Accordingly, on the default of Pawan in payment, Tarun cannot
escape from his liability. Both the sureties Suraj and Tarun are
liable to pay equally, in absence of any contract between them.
(b) Difference between promissory note and bill of exchange:
S. Basis Promissory Note Bill of Exchange
No.
1. Definition "A Promissory Note" is “A bill of exchange” is an
an instrument in instrument in writing
writing (not being a containing an
banknote or a unconditional order,
currency-note) signed by the maker,
containing an directing a certain
unconditional person to pay a certain
undertaking signed by sum of money only to, or
the maker, to pay a to the order of a certain
certain sum of money person or to the bearer
only to, or to the order of the instrument.
of, a certain person, or
to the bearer of the
instrument.
2. Nature of In a promissory note, In a bill of exchange,
Instrument there is a promise to there is an order for
pay money. making payment.
3. Parties In a promissory note, In a bill of exchange,
there are only 2 there are 3 parties
parties namely: which are as under:
i. the maker and i. the drawer
ii. the payee ii. the drawee
iii. the payee
4. Acceptance A promissory note A bill of exchange needs
does not require any acceptance from the
acceptance, as it is drawee.
signed by the person
who is liable to pay.
5. Payable to A promissory note On the other hand, a bill
bearer cannot be made of exchange can be
payable to bearer. drawn payable to
bearer. However, it
cannot be payable to
bearer on demand.
(c) Meaning of Law: Law is a set of obligations and duties imposed by the
government for securing welfare and providing justice to society. India’s
legal framework reflects the social, political, economic, and cultural
aspects of our vast and diversified country.

9
Join Us on Telegram [Link]
 Downloaded From [Link]
The Process of Making a Law
• When a law is proposed in parliament it is called a Bill.
• After discussion and debate, the law is passed in Lok Sabha.
• Thereafter, it has to be passed in Rajya Sabha.
• It then has to obtain the assent of the President of India.
• Finally, the law will be notified by the Government in the publication
called the Official Gazette of India.
• The law will become applicable from the date mentioned in the
notification as the effective date.
• Once it is notified and effective, it is called an Act of Parliament.
5. (a) As per Section 4(3) of the Sale of Goods Act, 1930, where under a
contract of sale, the property in the goods is transferred from the seller
to the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the contract is called an agreement to
sell and as per Section 4(4), an agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled subject to which the
property in the goods is to be transferred.
(i) On the basis of above provisions and facts given in the question, it
can be said that there is an agreement to sell between Simran and
Jeweller and not a sale. Even though the payment was made by
Simran, the property in goods can be transferred only after the
fulfilment of conditions fixed between the buyer and the seller. As
due to Ruby Stones, the original design is disturbed, bangles are
not in original position. Hence, Simran has right to avoid the
agreement to sell and can recover the price paid.
(ii) If Jeweller offers to bring the bangles in original position by
repairing, he cannot charge extra cost from Simran. Even though
he has to bear some expenses for repair; he cannot charge it from
Simran.
(b) (i) Mode of Settlement of partnership accounts: As per Section 48
of the Indian Partnership Act, 1932, in settling the accounts of a
firm after dissolution, the following rules shall, subject to agreement
by the partners, be observed:-
(i) Losses, including deficiencies of capital, shall be paid first out
of profits, next out of capital, and, lastly, if necessary, by the
partners individually in the proportions in which they were
entitled to share profits;
(ii) The assets of the firm, including any sums contributed by the
partners to make up deficiencies of capital, must be applied in
the following manner and order:
(a) in paying the debts of the firm to third parties;
10
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) in paying to each partner rateably what is due to him
from capital;
(c) in paying to each partner rateably what is due to him on
account of capital; and
(d) the residue, if any, shall be divided among the partners
in the proportions in which they were entitled to share
profits.
(ii) (A) When he becomes partner: If the minor becomes a partner
on his own willingness or by his failure to give the public notice
within specified time, his rights and liabilities as given in
Section 30(7) of the Indian Partnership Act, 1932, are as
follows:
(a) He becomes personally liable to third parties for all acts of
the firm done since he was admitted to the benefits of
partnership.
(b) His share in the property and the profits of the firm remains
the same to which he was entitled as a minor.
(B) When he elects not to become a partner:
(a) His rights and liabilities continue to be those of a minor up
to the date of giving public notice.
(b) His share shall not be liable for any acts of the firm done
after the date of the notice.
(c) He shall be entitled to sue the partners for his share of the
property and profits. It may be noted that such minor shall
give notice to the Registrar that he has or has not
become a partner.
(c) A contract is discharged when the obligations created by it come to an
end. A contract may be discharged in any one of the following ways:
(i) Discharge by performance: It takes place when the parties to the
contract fulfil their obligations arising under the contract within the
time and in the manner prescribed. Discharge by performance may
be
(1) Actual performance; or
(2) Attempted performance.
Actual performance is said to have taken place, when each of the
parties has done what he had agreed to do under the agreement.
When the promisor offers to perform his obligation, but the
promisee refuses to accept the performance, it amounts to
attempted performance or tender.
(ii) Discharge by mutual agreement: Section 62 of the Indian
Contract Act provides if the parties to a contract agree to substitute

11
Join Us on Telegram [Link]
 Downloaded From [Link]
a new contract for it, or to rescind or remit or alter it, the original
contract need not be performed.
(iii) Discharge by impossibility of performance: The impossibility
may exist from the very start. In that case, it would be impossibility
ab initio. Alternatively, it may supervene. Supervening impossibility
may take place owing to:
(a) an unforeseen change in law;
(b) the destruction of the subject-matter essential to that
performance;
(c) the non-existence or non-occurrence of particular state of
things, which was naturally contemplated for performing the
contract, as a result of some personal incapacity like
dangerous malady;
(d) the declaration of a war (Section 56).
(iv) Discharge by lapse of time: A contract should be performed
within a specified period as prescribed by the Limitation Act, 1963.
If it is not performed and if no action is taken by the promisee within
the specified period of limitation, he is deprived of remedy at law.
(v) Discharge by operation of law: A contract may be discharged by
operation of law which includes by death of the promisor, by
insolvency etc.
(vi) Discharge by breach of contract: Breach of contract may be
actual breach of contract or anticipatory breach of contract. If one
party defaults in performing his part of the contract on the due date,
he is said to have committed breach thereof. When on the other
hand, a person repudiates a contract before the stipulated time for
its performance has arrived, he is deemed to have committed
anticipatory breach. If one of the parties to a contract breaks the
promise the party injured thereby, has not only a right of action for
damages but he is also discharged from performing his part of the
contract.
(vii) Promisee may waive or remit performance of promise: Every
promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time
for such performance or may accept instead of it any satisfaction
which he thinks fit. In other words, a contract may be discharged
by remission. (Section 63)
(viii) Effects of neglect of promisee to afford promisor reasonable
facilities for performance: If any promisee neglects or refuses to
afford the promisor reasonable facilities for the performance of his
promise, the promisor is excused by such neglect or refusal as to
any non-performance caused thereby. (Section 67)
(ix) Merger of rights: Sometimes, the inferior rights and the superior
rights coincide and meet in one and the same person. In such
12
Join Us on Telegram [Link]
 Downloaded From [Link]
cases, the inferior rights merge into the superior rights. On merger,
the inferior rights vanish and are not required to be enforced.
6. (a) (i) The question arising in this problem is whether the making of
promissory note is complete when one half of the note was
delivered to N. Under Section 46 of the N.I. Act, 1881, the making
of a Promissory Note (P/N) is completed by delivery, actual or
constructive. Delivery refers to the whole of the instrument and not
merely a part of it. Delivery of half instrument cannot be treated as
constructive delivery of the whole. So, the claim of N to have the
other half of the P/N sent to him is not maintainable. M is justified
in demanding the return of the first half sent by him. He can change
his mind and refuse to send the other half of the P/N.
(ii) The promissory note is an unconditional promise in writing. In the
above question, the amount is certain but the date and name of the
payee is missing, thus making it a bearer instrument. As per
Reserve Bank of India Act, 1934, a promissory note cannot be
made payable to bearer - whether on demand or after certain days.
Hence, the instrument is illegal as per Reserve Bank of India Act,
1934 and cannot be legally enforced.
(b) Definition of ‘Contingent Contract’ (Section 31 of the Indian
Contract Act, 1872)
“A contract to do or not to do something, if some event, collateral to such
contract, does or does not happen”.
Contracts of Insurance, indemnity and guarantee fall under this category.
Meaning of collateral Event: Collateral event is “an event which is
neither a performance directly promised as part of the contract, nor the
whole of the consideration for a promise”.
Essentials of a contingent contract
(a) The performance of a contingent contract would depend upon
the happening or non-happening of some event or condition.
The condition may be precedent or subsequent.
(b) The event referred to as collateral to the contract. The event is
not part of the contract. The event should be neither performance
promised nor a consideration for a promise.
(c) The contingent event should not be a mere ‘will’ of the
promisor. The event should be contingent in addition to being the
will of the promisor.
(d) The event must be uncertain. Where the event is certain or bound
to happen, the contract is due to be performed, then it is a not
contingent contract.
(c) If the seller commits a breach of contract, the buyer gets the following
rights against the seller:

13
Join Us on Telegram [Link]
 Downloaded From [Link]
1. Damages for non-delivery [Section 57 of the Sale of Goods Act,
1930]: Where the seller wrongfully neglects or refuses to deliver
the goods to the buyer, the buyer may sue the seller for damages
for non-delivery.
2. Suit for specific performance (Section 58): Where the seller
commits breach of the contract of sale, the buyer can appeal to the
court for specific performance. The court can order for specific
performance only when the goods are ascertained or specific and
where damages would not be an adequate remedy.
3. Suit for breach of warranty (Section 59): Where there is breach
of warranty on the part of the seller, or where the buyer elects to or
is forced to treat breach of condition as breach of warranty, the
buyer is not by reason only of such breach of warranty entitled to
reject the goods on the basis of such breach of warranty; but the
buyer may –
(i) set up against the seller the breach of warranty in diminution
or extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60): Where
either party to a contract of sale repudiates the contract before the
date of delivery, the other may either treat the contract as:
• subsisting and wait till the date of delivery, or
• he may treat the contract as rescinded and sue for damages
for the breach.
5. Suit for interest:
(1) The buyer is entitled to recover interest or special damages,
or to recover the money paid where the consideration for the
payment of it has failed.
(2) In the absence of a contract to the contrary, the court may
award interest at such rate as it thinks fit on the amount of the
price to the buyer in a suit by him for the refund of the price in
a case of a breach of the contract on the part of the seller from
the date on which the payment was made.

14
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series II: August, 2024
Date of Paper: 20th August, 2024
Time of Paper: 10.30 A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
QUESTIONS
Time Allowed: 3 Hours Maximum Marks: 100

1. (a) (i) Ashok goes to super market to buy a Air Conditioner. He selects a
branded Air Conditioner having a price tag of ` 40,000 after a
discount of ` 3000. Ashok reaches at cash counter for making the
payment, but cashier says, “Sorry sir, the discount was upto
yesterday. There is no discount from today. Hence you have to pay
` 43,000.” Ashok got angry and insists for ` 40,000. State with
reasons whether under Indian Contract Act, 1872, Ashok can
enforce the cashier to sell at discounted price i.e. ` 40,000.
(4 Marks)
(ii) Rahul, a transporter was entrusted with the duty of transporting
tomatoes from a rural farm to a city by Aswin. Due to heavy rains,
Rahul was stranded for more than two days. Rahul sold the
tomatoes below the market rate in the nearby market where he
was stranded fearing that the tomatoes may perish. Can Aswin
recover the loss from Rahul on the ground that Rahul had acted
beyond his authority? (3 Marks)
(b) (i) Mr. Mohan had purchased some goods from Sunflower Limited on
credit. A credit period of one month was allowed to Mr. Mohan.
Before the due date, Mr. Mohan went to the company and wanted to
repay the amount due from him. He found only Mr. Ramesh there,
who was the factory supervisor of the company. Mr. Ramesh told
Mr. Mohan that the Accountant and the cashier are on leave, he is
in-charge of receiving money and he may pay the amount to him.
Mr. Ramesh issued a money receipt under his signature. After two
months, Sunflower limited issued a notice to Mr. Mohan for
non-payment of the dues within the stipulated period. Mr. Mohan
informed the company that he had already cleared the dues and he
is no more responsible for the same. He also contended that
Mr. Ramesh is an employee of the company whom he had made the
payment and being an outsider, he trusted the words of Mr. Ramesh
as duty distribution is a job of the internal management of the
company. Analyse the situation and decide whether Mr. Mohan is
free from his liability. (4 Marks)

1
Join Us on Telegram [Link]
 Downloaded From [Link]
(ii) Mike Limited is incorporated in India having Liaison office at
Singapore. Explain in detail meaning of Foreign Company and
analysis on whether Mike Limited would be called as Foreign
Company as it established a Liaison office at Singapore as per
the provisions of the Companies Act, 2013? (3 Marks)
(c) Whether a minor may be admitted in the business of a partnership
firm? Also, explain the rights of a minor in the partnership firm under
the Indian Partnership Act, 1932. (6 Marks)
2. (a) (i) An auction sale of the certain goods was held on 7th March, 2024 by
the fall of hammer in favour of the highest bidder X. The payment of
auction price was made on 8th March, 2024 followed by the delivery
of goods on 10th March, 2024. Based upon on the provisions of the
Sale of Goods Act, 1930, decide when the auction sale is complete.
(3 Marks)
(ii) Certain goods were sold by sample by J to K, who in turn sold the
same goods by sample to L and L by sample sold the same goods
to M. M found that the goods were not according to the sample
and rejected the goods and gave a notice to L. L sued K and K
sued J. Can M reject the goods? Also advise K and L as per the
provisions of the Sale of Goods Act, 1930. (4 Marks)
(b) Mr. Rajeev, an assessee, was a wealthy man earning huge income by
way of dividend and interest. He formed three Private Companies and
agreed with each to hold a bloc of investment as an agent for them.
The dividend and interest income received by the companies was
handed back to Mr. Rajeev as a pretended loan. This way, Mr. Rajeev
divided his income into three parts in a bid to reduce his tax liability.
Decide, for what purpose the three companies were established?
Whether the legal personality of all the three companies may be
disregarded. (7 Marks)
(c) “LLP is an alternative corporate business form that gives the benefits of
limited liability of a company and the flexibility of a partnership”.
Explain. (6 Marks)
3. (a) State giving reasons whether the following are partnerships as per the
provisions under the Indian Partnership Act, 1932.
(i) X, Y, and Z agree to divide the profits equally, but the loss, if any,
is to be borne by X alone. Is it case of partnership? (3 Marks)
(ii) X, a publisher, agrees to publish a book at his own expense
written by Y and to pay Y, half of the net profit. Does this create a
relationship of partnership between X and Y? Can paper dealer
i.e. third party make Y liable for paper supplied to X? (2 Marks)
(iii) A and B purchase a tea shop and incur additional expenses for
purchasing utensils etc. each contributing half of the total
2
Join Us on Telegram [Link]
 Downloaded From [Link]
expense. The shop is leased out on daily rent which is divided
between both. Does this arrangement constitute a partnership
between A and B? (2 Marks)
(b) The State Government of X, a state in the country is holding 48 lakh
shares of Y Limited. The paid up capital of Y Limited is ` 9.5 crore (95
lakh shares of ` 10 each). Y Limited directly holds 2,50,600 shares of Z
Private Limited which is having share capital of ` 5 crore in the form of
5 lakh shares of ` 100 each. Z Private Limited claimed the status of a
subsidiary company of Y Limited as well as a Government company.
Advise as a legal advisor, whether Z Private Limited is a subsidiary
company of Y Limited as well as a Government company under the
provisions of the Companies Act, 2013? (7 Marks)
(c) “An anticipatory breach of contract is a breach of contract occurring
before the time fixed for performance has arrived”. Also, discuss the
effect of anticipatory breach of contracts under the Indian Contract Act,
1872. (6 Marks)
4. (a) (i) Mr. Gaurav and Mr. Vikas entered into a contract on 1st July, 2024,
according to which Mr. Gaurav had to supply 100 tons of sugar to
Mr. Vikas at a certain price strictly within a period of 10 days of the
contract. Mr. Vikas also paid an amount of ` 70,000 towards
advance as per the terms of the above contract. The mode of
transportation available between their places is roadway only.
Severe flood came on 2nd July, 2024 and the only road connecting
their places was damaged and could not be repaired within fifteen
days. Mr. Gaurav offered to supply sugar on 20th July, 2024 for
which Mr. Vikas did not agree. On 1st August, 2024, Mr. Gaurav
claimed compensation of ` 20,000 from Mr. Vikas for refusing to
accept the supply of sugar, which was not there within the purview of
the contract. On the other hand, Mr. Vikas claimed for refund of
` 70,000, which he had paid as advance in terms of the contract.
Analyse the above situation in terms of the provisions of the Indian
Contract Act, 1872 and decide on Mr. Vikas contention. (4 Marks)
(ii) R gives his umbrella to M during raining season to be used for two
days during Examinations. M keeps the umbrella for a week.
While going to R’s house to return the umbrella, M accidently slips
and the umbrella is badly damaged. Who bear the loss and why
under the provisions of the Indian Contract Act, 1872? (3 Marks)
(b) What is a cheque under the Negotiable Instruments Act, 1881, and who
are the parties involved? What are the essential elements of a cheque?
(7 Marks)
(c) What is the structure of the Indian Judicial System, and what is the
hierarchy of courts in India? (6 Marks)
5. (a) (i) Avyukt purchased 100 Kgs of wheat from Bhaskar at `30 per kg.
Bhaskar says that wheat is in his warehouse in the custody of
Kishore, the warehouse keeper. Kishore confirmed Avyukt that he
3
Join Us on Telegram [Link]
 Downloaded From [Link]
can take the delivery of wheat from him and till then he is holding
wheat on Avyukt’s behalf. Before Avyukt picks the goods from
warehouse, the whole wheat in the warehouse has flowed in flood.
Now Avyukt wants his price on the contention that no delivery has
been done by seller. Whether Avyukt is right with his views under
the Sale of Goods Act, 1930. (4 Marks)
(ii) Classify the following transactions under the Sale of Goods Act,
1930 according to the types of goods they are:
(A) A wholesaler of cotton has 100 bales in his godown. He
agrees to sell 50 bales and these bales were selected and
set aside.
(B) A agrees to sell to B one packet of sugar out of the lot of one
hundred packets lying in his shop.
(C) T agrees to sell to S all the apples which will be produced in
his garden this year. (3 Marks)
(b) When does dissolution of a partnership firm take place under the
provisions of the Indian Partnership Act, 1932? Explain. (7 Marks)
(c) Define consideration. State the characteristics of a valid consideration
under the Indian Contract Act, 1872. (6 Marks)
6. (a) (i) ‘Nakul’ made promissory note in favour of ‘Sahdev’ of `10,000 and
delivered to him. ‘Sahdev’ indorsed the promissory note in favour of
‘Arjun’ but delivered to Arjun’s agent. Subsequently, Arjun’s agent
died, and promissory note was found by ‘Arjun’ in his agent’s table
drawer. ‘Arjun’ sued ‘Nakul’ for the recovery of promissory note.
Whether ‘Arjun’ can recover amount under the provisions of the
Negotiable Instrument Act 1881? (4 Marks)
(ii) Utkarsh purchased some goods from Saksham for ` 50,000 on
14th August. Saksham drawn a bill of exchange on Utkarsh and
sent to him for acceptance on the same day at 3:00 pm Utkarsh
requested Saksham to allow him some time for acceptance.
Saksham allowed him 48 hours for acceptance. Utkarsh could not
accept till 16th August (3:00 pm). Saksham treated the bill as
dishonoured for non-acceptance. Referring the provisions of the
Negotiable Instruments Act, 1881, whether bill of exchange was
dishonoured due to non-acceptance? (3 Marks)
(b) Explain the terms “Trafficking relating to public offices and titles” and
“Stifling prosecution” as per the Indian Contract Act, 1872. (6 Marks)
(c) Explain any six circumstances in detail in which a non-owner can
convey better title to the bona fide purchaser of goods for value under
the Sale of Goods Act, 1930. (7 Marks)

4
Join Us on Telegram [Link]
 Downloaded From [Link]
Mock Test Paper - Series II: August, 2024
Date of Paper: 20th August, 2024
Time of Paper: 10.30 A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER 2: BUSINESS LAWS
ANSWERS
1. (a) (i) An invitation to offer is different from offer. Quotations, menu
cards, price tags, advertisements in newspaper for sale are not offer.
These are merely invitations to public to make an offer. An invitation
to offer is an act precedent to making an offer. Acceptance of an
invitation to an offer does not result in the contract and only an offer
emerges in the process of negotiation.
In the instant case, Ashok reaches to super market and selects a
Air Conditioner with a discounted price tag of ` 40,000 but cashier
denied to sell at discounted price by saying that discount is closed
from today and request to make full payment. But Ashok insists to
purchase at discounted price.
On the basis of above provisions and facts, the price tag with Air
Conditioner was not offer. It is merely an invitation to offer. Hence,
it is the Ashok who is making the offer not the super market.
Cashier has right to reject the Ashok’s offer. Therefore, Ashok
cannot enforce cashier to sell at discounted price.
(ii) Agent's authority in an emergency (Section 189 of the Indian
Contract Act, 1872): An agent has authority, in an emergency, to
do all such acts for the purpose of protecting his principal from
loss as would be done by a person of ordinary prudence, in his
own case, under similar circumstances.
In the instant case, Rahul, the agent, was handling perishable
goods like ‘tomatoes’ and can decide the time, date and place of
sale, not necessarily as per instructions of the Aswin, the
principal, with the intention of protecting Aswin from losses.
Here, Rahul acts in an emergency as a man of ordinary prudence,
so Aswin will not succeed against him for recovering the loss.
(b) (i) Doctrine of Indoor Management: The Doctrine of Indoor
Management is the exception to the Doctrine of Constructive Notice.
The Doctrine of Constructive Notice does not mean that outsiders
are deemed to have notice of the internal affairs of the company. For
instance, if an act is authorised by the Articles or Memorandum, an
outsider is entitled to assume that all the detailed formalities for
doing that act have been observed.
The doctrine of Indoor Management is important to persons
dealing with a company through its directors or other persons.

1
Join Us on Telegram [Link]
 Downloaded From [Link]
They are entitled to assume that the acts of the directors or other
officers of the company are validly performed, if they are within
the scope of their apparent authority. So long as an act is valid
under the Articles, if done in a particular manner, an outsider
dealing with the company is entitled to assume that it has been
done in the manner required.
In the given question, Mr. Mohan has made payment to
Mr. Ramesh and he (Mr. Ramesh) gave to receipt of the same to
Mr. Mohan. Thus, it will be rightful on part of Mr. Mohan to
assume that Mr. Ramesh was also authorised to receive money
on behalf of the company. Hence, Mr. Mohan will be free from
liability for payment of goods purchased from Sunflower Limited,
as he has paid amount due to an employee of the company.
(ii) Foreign Company [Section 2(42) of the Companies Act, 2013]:
It means any company or body corporate incorporated outside
India which—
(i) has a place of business in India whether by itself or through
an agent, physically or through electronic mode; and
(ii) conducts any business activity in India in any other manner.
Since Mike Limited is a company incorporated in India, hence, it
cannot be called as a foreign company. Even though, Liaison
Office was officially established at Singapore, it would not be
called as a foreign company as per the provisions of the
Companies Act, 2013.
(c) A minor cannot be bound by a contract because a minor’s contract is
void and not merely voidable. Therefore, a minor cannot become a
partner in a firm because partnership is founded on a contract. Though
a minor cannot be a partner in a firm, he can nonetheless be admitted
to the benefits of partnership under Section 30 of the Indian
Partnership Act, 1932. In other words, he can be validly given a share
in the partnership profits. When this has been done and it can be done
with the consent of all the partners then the rights of such a partner will
be governed under Section 30 as follows:
Rights:
(i) A minor partner has a right to his agreed share of the profits and
of the firm.
(ii) He can have access to, inspect and copy the accounts of the firm.
(iii) He can sue the partners for accounts or for payment of his share
but only when severing his connection with the firm, and not
otherwise.
(iv) On attaining majority he may within 6 months elect to become a
partner or not to become a partner. If he elects to become a
partner, then he is entitled to the share to which he was entitled

2
Join Us on Telegram [Link]
 Downloaded From [Link]
as a minor. If he does not, then his share is not liable for any acts
of the firm after the date of the public notice served to that effect.
2. (a) (i) According to Section 64 of the Sale of Goods Act, 1930, the sale is
complete when the auctioneer announces its completion by the fall
of hammer or in any other customary manner.
In the given question, the auction sale is completed on 7th March,
2024.
(ii) As per the provisions of Sub-Section (2) of Section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In this case, M received the goods by sample from L but since the
goods were not according to the sample, M can reject the goods
and can sue L.
With regard to K and L, L can recover damages from K and K can
recover damages from J. But, for both K and L, it will not be
treated as a breach of implied condition as to sample as they
have accepted and sold the goods according to Section 13(2) of
the Sale of Goods Act, 1930.
(b) The House of Lords in Salomon Vs. Salomon & Co. Ltd. laid down that
a company is a person distinct and separate from its members, and
therefore, has an independent separate legal existence from its
members who have constituted the company. But under certain
circumstances the separate entity of the company may be ignored by
the courts. When that happens, the courts ignore the corporate entity of
the company and look behind the corporate facade and hold the
persons in control of the management of its affairs liable for the acts of
the company. Where a company is incorporated and formed by certain
persons only for the purpose of evading taxes, the courts have
discretion to disregard the corporate entity and tax the income in the
hands of the appropriate assessee.
1. The problem asked in the question is based upon the aforesaid
facts. The three companies were formed by the assessee purely
and simply as a means of avoiding tax and the companies were
nothing more than the facade of the assessee himself. Therefore,
the whole idea of Mr. Rajeev was simply to split his income into
three parts with a view to evade tax. No other business was done
by the company.
2. The legal personality of the three private companies may be
disregarded because the companies were formed only to avoid
tax liability. It carried on no other business, but was created
simply as a legal entity to ostensibly receive the dividend and
3
Join Us on Telegram [Link]
 Downloaded From [Link]
interest and to hand them over to the assessee as pretended
loans. The same was upheld in Re Sir Dinshaw Maneckjee Petit
and Juggilal vs. Commissioner of Income Tax.
(c) LLP is an alternative corporate business form that gives the
benefits of limited liability of a company and the flexibility of a
partnership
Limited Liability: Every partner of a LLP is, for the purpose of the
business of LLP, the agent of the LLP, but not of other partners. The
liability of the partners will be limited to their agreed contribution in the
LLP, while the LLP itself will be liable for the full extent of its assets.
Flexibility of a partnership: The LLP allows its members the flexibility
of organizing their internal structure as a partnership based on a
mutually arrived agreement. The LLP form enables entrepreneurs,
professionals and enterprises providing services of any kind or
engaged in scientific and technical disciplines, to form commercially
efficient vehicles suited to their requirements. Owing to flexibility in its
structure and operation, the LLP is a suitable vehicle for small
enterprises and for investment by venture capital.
3. (a) As per Section 4 of the Indian Partnership Act, 1932, "Partnership" is the
relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.
(i) Yes, it is a case of partnership.
Reason: The sharing of profits is an essential feature of
partnership. There can be no partnership where only one of the
partners is entitled to the whole of the profits of the business.
Partners must agree to share the profits in any manner they
choose. But an agreement to share losses is not an essential
requirement. It is open to one or more partners to agree to share
all the losses.
(ii) No, it is not a case of partnership
Reason: Sharing of profit, which is a prima facie evidence, exists
but mutual agency among X and Y, which is an essential element,
does not exist here. Since there is no partnership, the third party
i.e. paper dealer cannot make Y liable for the paper supplied by
him to X.
(iii) No, it is not a case of partnership
Reason: Persons who share amongst themselves the rent
derived from a piece of land are not partners, rather they are co-
owners. Because, neither there is existence of business, nor
mutual agency is there.

4
Join Us on Telegram [Link]
 Downloaded From [Link]
(b) According to Section 2(45) of the Companies Act, 2013,
Government Company means any company in which not less than
51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more State
Governments,
and the section includes a company which is a subsidiary company of
such a Government company.
As per Section 2(87) of the Companies Act, 2013, “subsidiary
company” in relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies.
In the instant case, the State Government of X, a state in the country is
holding 48 Lakh shares in Y Limited which is below 51% of the paid up
share capital of Y Limited i.e. 48.45 Lakh shares (51% of 95 Lakh
shares). Hence Y Limited is not a Government Company.
Further, Y Limited directly holds 2,50,600 shares in Z Private Limited,
which is more than one-half of the total shares of Z Limited i.e.
2,50,000 shares (50% of 5 Lakh shares). Thus, the company controls
more than one-half of the total voting power of Z Limited. Hence Z
Private Limited is a subsidiary of Y Limited.
Therefore, we can conclude that Z Private Limited is a subsidiary of Y
Limited but not a Government Company since Y Limited is not a
Government Company.
(c) An anticipatory breach of contract is a breach of contract occurring
before the time fixed for performance has arrived. When the promisor
refuses altogether to perform his promise and signifies his
unwillingness even before the time for performance has arrived, it is
called Anticipatory Breach.
Effect of Anticipatory Breach: The promisee is excused from
performance or from further performance. Further he gets an option:
(1) To either treat the contract as rescinded and sue the other party
for damages for breach of contract immediately without waiting
until the due date of performance; or
(2) He may elect not to rescind but to treat the contract as still
operative, and wait for the time of performance and then hold the
other party responsible for the consequences of non-performance.
But in this case, he will keep the contract alive for the benefit of

5
Join Us on Telegram [Link]
 Downloaded From [Link]
the other party as well as his own, and the guilty party, if he so
decides on re-consideration, may still perform his part of the
contract and can also take advantage of any supervening
impossibility which may have the effect of discharging the
contract.
4. (a) (i) Subsequent or Supervening impossibility (Becomes impossible
after entering into contract): When performance of promise
become impossible or illegal by occurrence of an unexpected event
or a change of circumstances beyond the contemplation of parties,
the contract becomes void e.g. change in law etc.
Also, according to section 65 of the Indian Contract Act, 1872,
when an agreement is discovered to be void or when a contract
becomes void, any person who has received any advantage
under such agreement or contract is bound to restore it, or to
make compensation for it to the person from whom he received it.
In the given question, after Mr. Gaurav and Mr. Vikas have
entered into the contract to supply 100 tons of sugar, the event of
flood occurred which made it impossible to deliver the sugar
within the stipulated time. Thus, the promise in question became
void. Further, Mr. Gaurav has to pay back the amount of ` 70,000
that he received from Mr. Vikas as an advance for the supply of
sugar within the stipulated time. Hence, the contention of Mr.
Vikas is correct.
(ii) Section 161 of the Indian Contract Act, 1872 clearly says that
where a bailee fails to return the goods within the agreed time, he
shall be responsible to the bailor for any loss, destruction or
deterioration of the goods from that time notwithstanding the
exercise of reasonable care on his part. Hence, in the instant
case, M shall have to bear the loss since he failed to return the
umbrella within the stipulated time.
(b) CHEQUE [Section 6 of the Negotiable Instruments Act, 1881]
A “cheque” is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the
electronic image of a truncated cheque and a cheque in the electronic
form.
Parties to Cheque
1. Drawer: The person who draws a cheque i.e., makes the cheque
(Debtor). His liability is primary and conditional.
2. Drawee: The specific bank on whom cheque is drawn. He makes
the payment of the cheque. In case of cheque, drawee is always
banker.
3. Payee: The person named in the instrument (i.e., the person in
whose favour cheque is issued), to whom or to whose order the

6
Join Us on Telegram [Link]
 Downloaded From [Link]
money is, by the instrument, directed to be paid, is called the
payee. The payee may be the drawer himself or a third party.
Essential Characteristics of a cheque
According to the definition of cheque under section 6, a cheque is a
species of bill of exchange. Thus, it should fulfil:
a. all the essential characteristics of a bill of exchange
b. Must be drawn on a specified banker.
c. It must be payable on demand.
(c) When there is a dispute between citizens or between citizens and the
Government, these disputes are resolved by the judiciary.
The functions of judiciary system of India are:
• Regulation of the interpretation of the Acts and Codes,
• Dispute Resolution,
• Promotion of fairness among the citizens of the land.
In the hierarchy of courts, the Supreme Court is at the top, followed by
the High Courts and District Courts. Decisions of a High Court are
binding in the respective state but are only persuasive in other states.
Decisions of the Supreme Court are binding on all High Courts under
Article 141 of the Indian Constitution. In fact, a Supreme Court decision
is the final word on the matter.
(i) Supreme Court
The Supreme Court is the apex body of the judiciary. The Chief
Justice of India is the highest authority appointed under Article
126. The principal bench of the Supreme Court consists of seven
members including the Chief Justice of India.
(ii) High Court
The highest court of appeal in each state and union territory is the
High Court. Article 214 of the Indian Constitution states that there
must be a High Court in each state. The High Court has appellant,
original jurisdiction, and Supervisory jurisdiction. However, Article
227 of the Indian Constitution limits a High Court’s supervisory
power.
(iii) District Court
Below the High Courts are the District Courts. The Courts of
District Judge deal with Civil law matters i.e. contractual disputes
and claims for damages etc., The Courts of Sessions deals with
Criminal matters.
Under pecuniary jurisdiction, a civil judge can try suits valuing not
more than Rupees two crore.

7
Join Us on Telegram [Link]
 Downloaded From [Link]
(iv) Metropolitan courts
Metropolitan courts are established in metropolitan cities in
consultation with the High Court where the population is ten lakh
or more. Chief Metropolitan Magistrate has powers as Chief
Judicial Magistrate and Metropolitan Magistrate has powers as
the Court of a Magistrate of the first class.
5. (a) (i) As per the provisions of the Sale of Goods Act, 1930 there are
three modes of delivery,
(i) Actual delivery,
(ii) Constructive delivery and
(iii) Symbolic delivery.
When delivery is affected without any change in the custody or
actual possession of the things, it is called constructive delivery or
delivery by acknowledgement. Constructive delivery takes place
when a person in possession of goods belonging to seller
acknowledges to the buyer that he is holding the goods on buyer’s
behalf.
On the basis of above provisions and facts, it is clear that
possession of the wheat has been transferred through
constructive delivery. Hence, Avyukt is not right. He cannot claim
the price back.
(ii) (A) A wholesaler of cotton has 100 bales in his godown. So, the
goods are existing goods. He agrees to sell 50 bales and these
bales were selected and set aside. On selection, the goods
become ascertained. In this case, the contract is for the sale of
ascertained goods, as the cotton bales to be sold are identified
and agreed after the formation of the contract.
(B) If A agrees to sell to B one packet of sugar out of the lot of
one hundred packets lying in his shop, it is a sale of existing
but unascertained goods because it is not known which
packet is to be delivered.
(C) T agrees to sell to S all the apples which will be produced in
his garden this year. It is contract of sale of future goods,
amounting to 'an agreement to sell.'
(b) Dissolution of Firm: The Dissolution of Firm means the
discontinuation of the jural relation existing between all the partners of
the Firm. But when only one of the partners retires or becomes
incapacitated from acting as a partner due to death, insolvency or
insanity, the partnership, i.e., the relationship between such a partner
and other is dissolved, but the rest may decide to continue. In such
cases, there is in practice, no dissolution of the firm. The particular
partner goes out, but the remaining partners carry on the business of
the Firm. In the case of dissolution of the firm, on the other hand, the

8
Join Us on Telegram [Link]
 Downloaded From [Link]
whole firm is dissolved. The partnership terminates as between each
and every partner of the firm.
Dissolution of a Firm may take place (Section 40 - 44)
(a) as a result of any agreement between all the partners (i.e.,
dissolution by agreement);
(b) by the business of the firm becoming unlawful (i.e., compulsory
dissolution);
(c) subject to agreement between the parties, on the happening of
certain contingencies, such as: (i) effluence of time; (ii) completion
of the venture for which it was entered into; (iii) death of a partner;
(iv) insolvency of a partner.
(d) by a partner giving notice of his intention to dissolve the firm, in
case of partnership at will and the firm being dissolved as from
the date mentioned in the notice, or if no date is mentioned, as
from the date of the communication of the notice; and
(e) by intervention of court in case of: (i) a partner becoming the
unsound mind; (ii) permanent incapacity of a partner to perform
his duties as such; (iii) Misconduct of a partner affecting the
business; (iv) willful or persistent breach of agreement by a
partner; (v) transfer or sale of the whole interest of a partner; (vi)
business being carried on at a loss; (vii) the court being satisfied
on other equitable grounds that the firm should be dissolved.
(c) Consideration [Section 2(d) of the Indian Contract Act, 1872]
“When at the desire of the promisor, the promise or any other person
has done, or does or abstains from doing of promises to do or abstain
from doing something, such an act or abstinence or promise is called
consideration for the promise”.
The essential characteristics of a valid consideration are as follows:
(1) Consideration must move at the desire of the promisor.
(2) It may proceed from the promisee or any other person on his
behalf.
(3) It may be executed or executory. It may be past, present or future.
(4) It must be real and have some value in the eyes of law.
(5) It must not be something which the promisor is already legally
bound to do.
(6) It must not be unlawful, immoral or opposed to public policy.
(7) Inadequacy of consideration does not invalidate the contract.
Thus, it need not be proportionate to the value of the promise of
the other.
6. (a) (i) According to Section 48 of the Negotiable Instrument Act 1881, a
promissory note, bill of exchange or cheque payable to order, is
9
Join Us on Telegram [Link]
 Downloaded From [Link]
negotiable by the holder by indorsement and delivery thereof.
Further, delivery of an instrument is essential whether the
instrument is payable to bearer or order for effecting the
negotiation. The delivery must be voluntary, and the object of
delivery should be to pass the property in the instrument to the
person to whom it is delivered. The delivery can be, actual or
constructive. Actual delivery takes place when the instrument
changes hand physically. Constructive delivery takes place when
the instrument is delivered to the agent, clerk or servant of the
indorsee on his behalf or when the indorser, after indorsement,
holds the instrument as an agent of the indorsee.
In the instant case, ‘Sahdev’ received a promissory note from
‘Nakul’ and indorsed the promissory note in favour of ‘Arjun’ and
delivered to Arjun’s agent. Subsequently, Arjun’s agent died, and
promissory note was found by ‘Arjun’ in his agent’s table drawer.
‘Arjun’ sued ‘Nakul’ for the recovery of promissory note.
An order negotiable instrument can be transferred by
endorsement and delivery. As delivery to Arjun’s agent is
sufficient delivery of promissory note to Arjun. Therefore, ‘Arjun’ is
eligible to claim the payment of promissory note.
(ii) According to Section 61 of the Negotiable Instruments Act, 1881,
a bill of exchange must be presented to the drawee thereof for
acceptance by a person entitled to demand acceptance, within a
reasonable time after it is drawn, and in business hours on a
business day. In default of such presentment, no party thereto is
liable thereon to the person making such default. Further, section
63 provides that the holder must, if so required by the drawee of a
bill of exchange presented to him for acceptance, allow the
drawee 48 hours (exclusive of public holidays) to consider
whether he will accept it.
In the instant case, Saksham drawn a bill of exchange on Utkarsh
and and on request of Utkarsh, he allowed 48 hours to accept the
bill. The bill was sent at 3:00 pm on 14th August. Bill was not
accepted till 3:00 pm of 16th August. Saksham treated the bill as
dishonoured for non-acceptance.
Here, As 15th August is a public holiday, his 48 hours would end
on 17th August not on 16th August. Hence, bill could not be treated
as dishonoured on 16th August.
(b) Trafficking relating to Public Offices and titles: An agreement to
trafficking in public office is opposed to public policy, as it interferes
with the appointment of a person best qualified for the service of the
public. Public policy requires that there should be no money
consideration for the appointment to an office in which the public is
interested. The following are the examples of agreements that are void
since they are tantamount to sale of public offices.

10
Join Us on Telegram [Link]
 Downloaded From [Link]
(1) An agreement to pay money to a public servant in order to induce
him to retire from his office so that another person may secure the
appointment is void.
(2) An agreement to procure a public recognition like Padma
Vibhushan for reward is void.
Stifling Prosecution: An agreement to stifle prosecution i.e. “an
agreement to present proceedings already instituted from running their
normal course using force” tends to be a perversion or an abuse of
justice, therefore, such an agreement is void. The principle is that one
should not make a trade of felony. The compromise of any public
offence is generally illegal.
For example, when a party agrees to pay some consideration to the
other party in exchange for the later promising to forgo criminal
charges against the former is an agreement to stifle prosecution and
therefore is void.
Under the Code of Criminal Procedure, there is however, a statutory
list of compoundable offences and an agreement to drop proceeding
relating to such offences with or without the permission of the Court, as
the case may be, in consideration the accused promising to do
something for the complainant, is not opposed to public policy.
(c) In the following cases, a non-owner can convey better title to the bona
fide purchaser of goods for value:
(1) Sale by a Mercantile Agent: A sale made by a mercantile agent
of the goods for document of title to goods would pass a good title
to the buyer in the following circumstances; namely;
(a) If he was in possession of the goods or documents with the
consent of the owner;
(b) If the sale was made by him when acting in the ordinary
course of business as a mercantile agent; and
(c) If the buyer had acted in good faith and has at the time of the
contract of sale, no notice of the fact that the seller had no
authority to sell (Proviso to Section 27).
Mercantile Agent means an agent having in the customary
course of business as such agent has authority either to sell
goods, or to consign goods for the purposes of sale, or to buy
goods, or to raise money on the security of goods [Section 2(9)].
(2) Sale by one of the joint owners (Section 28): If one of several
joint owners of goods has the sole possession of them by
permission of the co-owners, the property in the goods is
transferred to any person who buys them from such joint owner in
good faith and has not at the time of the contract of sale notice
that the seller has no authority to sell.

11
Join Us on Telegram [Link]
 Downloaded From [Link]
(3) Sale by a person in possession under voidable contract: A
buyer would acquire a good title to the goods sold to him by a
seller who had obtained possession of the goods under a contract
voidable on the ground of coercion, fraud, misrepresentation or
undue influence provided that the contract had not been
rescinded until the time of the sale (Section 29).
(4) Sale by one who has already sold the goods but continues in
possession thereof: If a person has sold goods but continues to
be in possession of them or of the documents of title to them, he
may sell them to a third person, and if such person obtains the
delivery thereof in good faith and without notice of the previous
sale, he would have good title to them, although the property in
the goods had passed to the first buyer earlier. A pledge or other
disposition of the goods or documents of title by the seller in
possession are equally valid [Section 30(1)].
(5) Sale by buyer obtaining possession before the property in
the goods has vested in him: Where a buyer with the consent of
the seller obtains possession of the goods before the property in
them has passed to him, he may sell, pledge or otherwise dispose
of the goods to a third person, and if such person obtains delivery
of the goods in good faith and without notice of the lien or other
right of the original seller in respect of the goods, he would get a
good title to them [Section 30(2)].
However, a person in possession of goods under a ‘hire-purchase’
agreement which gives him only an option to buy is not covered
within the section unless it amounts to a sale.
(6) Effect of Estoppel: Where the owner is estopped by the conduct
from denying the seller’s authority to sell, the transferee will get a
good title as against the true owner. But before a good title by
estoppel can be made, it must be shown that the true owner had
actively suffered or held out the other person in question as the
true owner or as a person authorized to sell the goods.
(7) Sale by an unpaid seller: Where an unpaid seller who had
exercised his right of lien or stoppage in transit resells the goods,
the buyer acquires a good title to the goods as against the original
buyer [Section 54 (3)].
(8) Sale under the provisions of other Acts:
(i) Sale by an Official Receiver or Liquidator of the Company
will give the purchaser a valid title.
(ii) Purchase of goods from a finder of goods will get a valid title
under circumstances [Section 169 of the Indian Contract Act,
1872]
(iii) A sale by pawnee can convey a good title to the buyer
[Section 176 of the Indian Contract Act, 1872]

12
Join Us on Telegram [Link]
 PAPER – 2:
BUSINESS LAWS

QUESTIONS

Indian Regulatory Framework

1. What do you understand by Indian Judicial System and what are its
various functions?
The Indian Contract Act, 1872
2. Mr. Parth applied for a job as principal of a school. The school
management decided to appoint him. One member of the school
management committee privately informed Mr. Parth that he was
appointed but official communication was not given by the school. Later,
the management of the school decided to appoint someone else as a
principal. Mr. Parth filed a suit against the school for cancellation of his
appointment and claimed damages for loss of salary. State with reasons,
will Mr. Parth be successful in suit filed against school under the Indian
Contract Act, 1872?
3. Sarthak is employed as a cashier on a monthly salary of ` 50,000 by ABC
bank for a period of three years. Mohit gave surety for Sarthak’s good
conduct. After nine months, the financial position of the bank
deteriorates. Then Sarthak agrees to accept a lower salary of ` 40,000
per month from the Bank. Two months later, it was found that Sarthak
had misappropriated cash from the time of his appointment. What is
the liability of Mohit taking into account the provisions of the Indian
Contract Act, 1872?
4. Rahul was a Disk Jockey at a five-star hotel. As per the contract, he is
supposed to perform every weekend. (i.e. twice a week). Rahul will be
paid ` 2,500 per day. However, after a month, Rahul willfully absents

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

himself from the performance. Taking into account the provisions of the
Indian Contract Act, 1872, answer the following:
(i) Does the hotel have the right to end the contract?
(ii) If the hotel sends out a mail to Rahul that they are interested to
continue the contract and Rahul accepts, can the hotel rescind the
contract after a month on this ground subsequently?
(iii) In which of the case – (termination of contract or continuance of
contract) can the hotel claim damages that it had suffered as a
result of this breach?
5. Examine whether the following constitute a contract of ‘Bailment’ under
the provisions of the Indian Contract Act, 1872:
(i) Vikas parks his car at a parking lot, locks it, and keeps the keys
with himself.
(ii) Seizure of goods by customs authorities.
6. Mr. Sanjay Kothari was a big businessman having two sons and one
married daughter. He decided to gift his house to his daughter. For this
purpose, he called his lawyer at his house and made a written document
for such gift. The lawyer advised him to get the transfer document
properly registered. When they both were going for registration of
document, they met an accident, and both died. Later, the daughter
found the document and claimed the house on the basis of that
document. Explain, whether she can get the house as gift under the
Indian Contract Act, 1872?
7. (i) Mr. Ayush, the employer induced his employee Mr. Bobby to sell
his one room flat to him at less than the market value to secure
promotion. Mr. Bobby sold the flat to Mr. Ayush. Later on, Mr. Bobby
changed his mind and decided to sue Mr. Ayush. Examine the
validity of the contract as per the provisions of the Indian
Contract Act, 1872.
(ii) Mr. Sooraj promises Mr. Manoj to paint a family picture for
` 20,000 and assures to complete his assignment by 15 th March,
2023. Unfortunately, Mr. Sooraj died in a road accident on
1st March, 2023 and his assignment remains undone. Can

2 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

Mr. Manoj bind the legal representative of Mr. Sooraj for the
promise made by Mr. Sooraj? Suppose Mr. Sooraj had promised to
deliver some photographs to Mr. Manoj on 15 th March, 2023
against a payment of ` 10,000 but he dies before that day. Will his
representative be bound to deliver the photographs in this
situation?
Decide as per the provisions of the Indian Contract Act, 1872.
8. Explain the term ‘Quasi Contracts’ and state their characteristics.
The Sale of Goods Act, 1930
9. Prakash reaches a sweet shop and asks for 1 Kg of ‘Burfi’ if the sweets
are fresh. Seller replies’ “Sir, my all sweets are fresh and of good quality.”
Prakash agrees to buy on the condition that first he tastes one piece of
‘Burfi’ to check the quality. The seller gives him one piece to taste.
Prakash, on finding the quality is good, ask the seller to pack. On
reaching the house, Prakash finds that ‘Burfi’ is stale not fresh while the
piece tasted was fresh. Now Prakash wants to avoid the contract and
return the ‘Burfi’ to the seller.
(a) State with reason whether Prakash can avoid the contract under
the Sale of Goods Act, 1930?
(b) Will your answer be different if Prakash does not taste the sweets?
10. Akansh purchased a Television set from Arvind, the owner of Gada
Electronics on the condition that first three days he check its quality and
if satisfied he will pay for that otherwise he will return the Television set.
On the second day, the Television set was spoiled due to an earthquake.
Arvind demands the price of a Television set from Akansh. Whether
Akansh is liable to pay the price under the Sale of Goods Act, 1930?
Who will ultimately bear the loss?
11. Mr. Arun contracted to sell his swift car to Mr. Nikhil. Both missed to
discuss the price of the said swift car. Later, Mr. Arun refused to sell his
swift car to Mr. Nikhil on the ground that the agreement was void, being
uncertain about the price. Does Mr. Nikhil have any right against
Mr. Arun under the Sale of Goods Act, 1930?

3 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

12. Mr. Shankar sold 1000 Kgs wheat to Mr. Ganesh on credit of 3 months.
Wheat was to be delivered after 10 days of contract. After 5 days of
contract, a friend of Mr. Shankar secretly informed him that Mr. Ganesh
may default in payment. On the information of friend, Mr. Shankar
applied the right to lien and withheld the delivery. With referring to the
provisions of the Sale of Goods Act, 1930:
(i) State, whether Mr. Shankar was right in his decision?
(ii) What would be your answer if Mr. Ganesh became insolvent within
five days of contract?
The Indian Partnership Act, 1932
13. Moni and Tony were partners in the firm M/s MOTO & Company. They
admitted Sony as partner in the firm and he is actively engaged in day-
to-day activities of the firm. There is a tradition in the firm that all active
partners will get a monthly remuneration of ` 20,000 but no express
agreement was there. After admission of Sony in the firm, Moni and
Tony continued getting salary from the firm but no salary was given to
Sony from the firm. Sony claimed his remuneration but denied by
existing partners by saying that there was no express agreement for
that. Whether under the Indian Partnership Act, 1932, Sony can claim
remuneration from the firm?
14. Mr. Ram and Mr. Raheem are working as teachers in Ishwarchand
Vidhyasagar Higher Secondary School and also are very good friends.
They jointly purchased a flat which was given on rent to Mr. John. It was
decided between landlords and tenant that the rent would be ` 10,000
per month inclusive of electricity bill. It means electricity bill will be paid
by landlords. The landlords, by mistake, did not pay the electricity bill for
the month of March 2021. Due to this, the electricity department cut the
connection. Mr. John has to pay the electricity bill of ` 2800 and ` 200 as
a penalty to resume the electricity connection. Mr. John claimed ` 3000
from Mr. Ram but Mr. Ram replied that he is liable only for ` 1500.
Mr. John said that Mr. Ram and Mr. Raheem are partners therefore he
can claim the full amount from any of the partners. Explain, whether
under the provision of the Indian Partnership Act, 1932, Mr. Ram is liable
to pay whole amount of ` 3000 to Mr. John?

4 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

15. X and Y were partners in a firm. The firm was dissolved on 12 th June,
2022 but no public notice was given. Thereafter, X purchased some
goods in the firm’s name from Z. Z was ignorant of the fact of
dissolution of firm. X became insolvent and Z filed a suit against Y for
recovery of his amount. State with reasons whether Y would be liable
under the provisions of the Indian Partnership Act, 1932?
16. A, B & C are partners of a partnership firm carrying on the business of
construction of apartments. B who himself was a wholesale dealer of
iron bars was entrusted with the work of selection of iron bars after
examining its quality. As a wholesaler, B is well aware of the market
conditions. Current market price of iron bar for construction is INR 350
per Kilogram. B already had 1000 kg of iron bars in stock which he had
purchased before price hike in the market for INR 200 per Kg. He
supplied iron bars to the firm without the firm realising the purchase
cost. Is B liable to pay the firm the extra money he made, or he doesn’t
have to inform the firm as it is his own business and he has not taken
any amount more than the current prevailing market price of INR 350?
Assume there is no contract between the partners regarding the above.
17. State the modes by which a partner may transfer his interest in the firm
in favour of another person under the Indian Partnership Act, 1932.
What are the rights of such a transferee?
The Limited Liability Partnership Act, 2008
18. A & B were friends. Now they have plans of setting up a supermarket in
their locality. They are confused as to whether to register as a traditional
partnership or as a Limited Liability Partnership. As an advisor,
enumerate the differences between the two forms of business
highlighting the compliances & other legal formalities.
The Companies Act, 2013
19. Mr. Dhruv was appointed as an employee of Sunmoon Timber Private
Limited on the condition that if he were to leave his employment, he will
not solicit customers of the company. After some time, he was fired from
company. He set up his own business under proprietorship and undercut
Sunmoon Timber Private Limited’s prices. On the legal advice from his
legal consultant and to refrain from the provisions of breach of contract,

5 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

he formed a new company under the name Seven Stars Timbers Private
Limited. In this company, his wife and a friend of Mr. Dhruv were the
sole shareholders and directors. They took over Dhruv’s business and
continued it. Sunmoon Timber Private Limited filed a suit against Seven
Stars Timbers Private Limited for violation of contract. Seven Stars
Timbers Private Limited argued that the contract was entered into
between Mr. Dhruv and Sunmoon Timber Private Limited and as
company has separate legal entity, Seven Stars Timbers Private Limited
has not violated the terms of agreement. Explain with reasons, whether
separate legal entity between Mr. Dhruv and Seven Stars Timbers Private
Limited will be disregarded?
20. AK Private Limited has borrowed ` 36 crore from BK Finance Limited.
However, as per memorandum of AK Private Limited, the maximum
borrowing power of the company is ` 30 crore. Examine whether
AK Private Limited is liable to pay this debt? State the remedy, if any
available to BK Finance Limited.
21. Mike LLC incorporated in Singapore having an office in Pune, India.
Analyze whether Mike LLC would be called a foreign company as per the
provisions of the Companies Act, 2013? Also explain the meaning of
foreign company.
The Negotiable Instruments Act, 1881
22. Sachin bought 1000 Kg rice from Saurabh for ` 1,50,000 on three
months credit. For this purpose, Sachin issued a promissory note to
Saurabh on the same date payable after 3 months. On the date of
maturity, the promissory note was dishonoured. Saurabh filed suit for
the recovery of the amount plus fees of advocate paid by him for
defending the suit. Referring to the provisions of the Negotiable
Instruments Act, 1881, what amount could be recovered by Saurabh
from Sachin?
23. A purchased a watch from B. He issued a promissory note to B which was
payable on demand but no specific place for payment was mentioned on it.
On maturity, B did not present the promissory note for payment. As the
promissory note was not duly presented for payment, whether A would be
discharged from liability under the provisions of the Negotiable
Instruments Act, 1881?

6 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

SUGGESTED ANSWERS/HINTS

1. Indian Judicial System is a branch which through the enforcement of

Law resolves dispute between citizens or between citizens and the
Government.
The functions of judiciary system of India are:
• Regulation of the interpretation of the Acts and Codes,
• Dispute Resolution,
• Promotion of fairness among the citizens of the land.
Indian Judicial System performs his functions through the hierarchy of
courts, the Supreme Court is at the top, followed by the High Courts,
District Courts and Metropolitan Courts. Decisions of a High Court are
binding in the respective state but are only persuasive in other states.
Decisions of the Supreme Court are binding on all High Courts under
Article 141 of the Indian Constitution. In fact, a Supreme Court decision
is the final word on the matter.
2. As per the rules of acceptance, the acceptance should be communicated
to offeror by offeree himself or by his authorized agent. Communication
of acceptance by third person cannot be concluded as valid acceptance.
In the instant case, Mr. Parth applied for a job as principal of a school
and one member of the school management committee privately
informed Mr. Parth that he was appointed. Later, the management of the
school appointed someone else as a principal.
On the basis of the above provisions and facts, communication of
appointment of Mr. Parth should be made by the school management
committee or by any authorised agent. Communication by third person
cannot be termed as communication of acceptance. Therefore, no valid
contract was formed between Mr. Parth and the school and Mr. Parth
cannot file a suit against the school for cancellation of his appointment.
3. According to section 133 of the Indian Contract Act, 1872, where there is
any variance in the terms of contract between the principal debtor and

7 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

creditor without surety’s consent, it would discharge the surety in

respect of all transactions taking place subsequent to such variance.
In the instant case, the creditor has made a variance (i.e. change in
terms) without the consent of surety. Thus, surety is discharged as to the
transactions subsequent to the change.
Hence, Mohit is liable as surety for the loss suffered by the bank due to
misappropriation of cash by Sarthak during the first nine months but not
for misappropriations committed after the reduction in salary.
4. By analysing Section 39 of the Indian Contract Act, 1872, it is understood
that when a party to a contract has refused to perform or disabled
himself from performing his promise entirely, the following two rights
accrue to the aggrieved party (promisee):
(a) To terminate the contract
(b) To indicate by words or by conduct that he is interested in its
continuance.
In either of the two cases, the promisee would be able to claim damages
that he suffers.
In the given case,
(i) Yes, the hotel has the right to end the contract with Rahul, the DJ.
(ii) The hotel has the right to continue the contract with Rahul. But
once this right is exercised, it cannot subsequently rescind the
contract on this ground subsequently.
(iii) In both the cases, the hotel (promisee) is entitled to claim
damages that has been suffered as a result of breach.
5. As per Section 148 of the Indian Contract Act, 1872, bailment is the
delivery of goods by one person to another for some purpose, upon a
contract, that the goods shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the
person delivering them.
For a bailment to exist, the bailor must give possession of the bailed
property and the bailee must accept it.

8 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

(i) No. Mere custody of goods does not mean possession. In the
given case, since the keys of the car are with Vikas, Section 148, of
the Indian Contract Act, 1872 shall not be applicable.
(ii) Yes, the possession of the goods is transferred to the custom
authorities. Therefore, bailment exists, and section 148 is
applicable.
6. Section 25 of the Indian Contract Act, 1872 provides that an agreement
made without consideration is valid if it is expressed in writing and
registered under the law for the time being in force for the registration
of documents and is made on account of natural love and affection
between parties standing in a near relation to each other.
In the instant case, the transfer of house made by Mr. Sanjay Kothari on
account of natural love and affection between the parties standing in
near relation to each other is written but not registered. Hence, this
transfer is not enforceable, and his daughter cannot get the house as
gift under the Indian Contract Act, 1872.
7. (i) According to section 16 of the Indian Contract Act, 1872, a contract is
said to be induced by ‘undue influence’ where the relations subsisting
between the parties are such that one of the parties is in a position to
dominate the will of the other and he uses that position to obtain an
unfair advantage over the other.
When consent to an agreement is caused by undue influence, the
contract is voidable at the option of the party, whose consent was
so caused.
Hence, the contract between Mr. Ayush and Mr. Bobby is voidable
at the option of Mr. Bobby as it was induced by undue influence
by Mr. Ayush and therefore Mr. Bobby can sue Mr. Ayush.
(ii) The parties to a contract must either perform, or offer to perform,
their respective promises, unless such performance is dispensed
with or excused under the provisions of this Act, or of any other
law.
Promises bind the representatives of the promisors in case of the
death of such promisors before performance, unless a contrary

9 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

intention appears from the contract. (Section 37 of the Indian

Contract Act, 1872).
As per the provisions of Section 40 of the Indian Contract Act,
1872, if it appears from the nature of the case that it was the
intention of the parties to any contract that any promise contained
in it should be performed by the promisor himself, such promise
must be performed by the promisor. In other cases, the promisor
or his representative may employ a competent person to perform
it.
In terms of the provisions of Section 40 stated above, in case
where Mr. Sooraj has to paint a family picture for Mr. Manoj, Mr.
Manoj cannot ask the legal representative of Mr. Sooraj to
complete the painting work on Mr. Sooraj’s death, since painting
involves the use of personal skill.
In terms of the provisions of Section 37 stated above, in case
where Mr. Sooraj had promised to deliver some photographs to
Mr. Manoj, the legal representatives of Mr. Sooraj shall be bound
to deliver the photographs in this situation.
8. Quasi Contracts: Under certain special circumstances, obligations
resembling those created by a contract are imposed by law although the
parties have never entered into a contract. Such obligations imposed by
law are referred to as ‘Quasi-contracts’. Such a contract resembles a
contract so far as result or effect is concerned but it has little or no
affinity with a contract in respect of mode of creation. These contracts
are based on the doctrine that a person shall not be allowed to enrich
himself unjustly at the expense of another. The salient features of a
quasi-contract are:
1. It does not arise from any agreement of the parties concerned but
is imposed by law.
2. Duty and not promise is the basis of such contract.
3. The right under it is always a right to money and generally though
not always to a liquidated sum of money.

10 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

4. Such a right is available against specific person(s) and not against

the whole world.
5. A suit for its breach may be filed in the same way as in case of a
complete contract.
9. By virtue of provisions of Section 17 of the Sale of Goods Act, 1930, in
the case of a contract for sale by sample there is an implied condition
that the bulk shall correspond with the sample in quality and the buyer
shall have a reasonable opportunity of comparing the bulk with the
sample. According to Section 15, where there is a contract for the sale of
goods by description, there is an implied condition that the goods shall
correspond with the description. If the goods do not correspond with
implied condition, the buyer can avoid the contract and reject the goods
purchased.
(a) In the instant case, the sale of sweet is sale by sample and the
quality of bulk does not correspond with quality of sample. Hence,
Prakash can return the sweets and avoid the contract.
(b) In the other case, the sale of sweet is the case of sale by
description and the quality of goods does not correspond with
description made by seller. Hence, answer will be same. Prakash
can return the sweets and avoid the contract.
10. According to Section 24 of the Sale of Goods Act, 1930, "When the
goods are delivered to the buyer on approval or on sale or return or
other similar terms the property passes to the buyer:
(i) when he signifies his approval or acceptance to the seller,
(ii) when he does any other act adopting the transaction, and
(iii) if he does not signify his approval or acceptance to the seller but
retains goods beyond a reasonable time".
Further, as per Section 8, where there is an agreement to sell specific
goods, and subsequently the goods without any fault on the part of the
seller or buyer perish or become so damaged as no longer to answer to
their description in the agreement before the risk passes to the buyer,
the agreement is thereby avoided.

11 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

According to the above provisions and fact, the property is not passed
to Akansh i.e. buyer as no condition of Section 24 is satisfied. Hence, risk
has not passed to buyer and the agreement is thereby avoided. Akansh
is not liable to pay the price. The loss finally should be borne by Seller,
Mr. Arvind.
11. As per the provisions of Section 2(10) of the Sale of Goods Act, 1930,
price is the consideration for sale of goods and therefore is a
requirement to make a contract of sale. Section 2(10) is to be read with
Section 9 of the Sale of Goods Act, 1930.
According to Section 9 of the Sale of Goods Act, 1930, the price in a
contract of sale may be fixed by the contract or may be left to be fixed
in a manner thereby agreed or may be determined by the course of
dealing between the parties.
Even though both the parties missed discussing the price of the car
while making the contract, it will be a valid contract, rather than being
uncertain and void; the buyer shall pay a reasonable price in this
situation.
In the given case, Mr. Arun and Mr. Nikhil have entered into a contract
for the sale of a swift car, but they did not fix the price of the same. Mr.
Arun refused to sell the car to Mr. Nikhil on this ground. Mr. Nikhil can
legally demand the car from Mr. Arun and Mr. Arun can recover a
reasonable price for the car from Mr. Nikhil.
12. According to Section 45(1) of the Sale of Goods Act, 1930 the seller of
goods is deemed to be an ‘Unpaid Seller’ when-
(a) The whole of the price has not been paid or tendered.
(b) A bill of exchange or other negotiable instrument was given as
payment, but the same has been dishonoured, unless this payment
was an absolute, and not a conditional payment.
Further, Section 47 provides about an unpaid seller’s right of lien.
Accordingly, an unpaid seller can retain the possession of the goods and
refusal to deliver them to the buyer until the price due in respect of
them is paid or tendered. This right can be exercised by him in the
following cases only:

12 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

(a) where goods have been sold without any stipulation of credit; (i.e.,
on cash sale)
(b) where goods have been sold on credit, but the term of credit has
expired; or
(c) where the buyer becomes insolvent.
In the instant case, Mr. Ganesh purchased 1000 Kg wheat from Mr.
Shankar on 3 month’s credit which was to be delivered after 10 days of
contract. But, after 5 days of contract, one friend of Mr. Shankar secretly
informed him that Mr. Ganesh may default in payment. On the belief of
friend, Mr. Shankar applied the right to lien and withheld the delivery.
(i) On the basis of above provisions and facts, it can be said that even
Mr. Ganesh was an unpaid seller until the term of credit i.e. has
expired, Mr. Shankar had to perform his promise of supplying 1000
Kg of wheat.
(ii) In case Mr. Ganesh became insolvent before the delivery of wheat,
Mr. Shankar had the right to apply the lien and he could withhold
the delivery.
13. By virtue of provisions of Section 13(a) of the Indian Partnership Act,
1932 a partner is not entitled to receive remuneration for taking part in
the conduct of the business. But this rule can always be varied by an
express agreement, or by a course of dealings, in which event the
partner will be entitled to remuneration. Thus, a partner can claim
remuneration even in the absence of a contract, when such
remuneration is payable under the continued usage of the firm. In other
words, where it is customary to pay remuneration to a partner for
conducting the business of the firm, he can claim it even in the absence
of a contract for the payment of the same.
In the given problem, existing partners are getting regularly a monthly
remuneration from firm customarily being working partners of the firm.
As Sony also admitted as working partner of the firm, he is entitled to
get remuneration like other partners.
14. According to Section 4 of the Indian Partnership Act, 1932, "Partnership"
is the relation between persons who have agreed to share the profits of

13 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

a business carried on by all or any of them acting for all. Therefore, for
determining the existence of partnership, it must be proved:
1. There must be an agreement between all the persons concerned;
2. The agreement must be to carry on some business;
3. The agreement must be to share the profits of a business and
4. The business was carried on by all or any of them acting for all.
On the basis of above provisions and facts provided in the question,
Mr. Ram and Mr. Raheem cannot be said under partnership as they are
teachers in a school and just purchased a flat jointly. By merely giving
the flat on rent, they are not doing business. They are just earning the
income from the property under their co-ownership. Hence, there is no
partnership between them. Therefore, Mr. Ram is liable to pay his share
only i.e. ` 1500. Mr. John has to claim the rest of ` 1500 from Mr.
Raheem.
15. By virtue of provisions of Section 45 of the Indian Partnership Act, 1932,
notwithstanding the dissolution of a firm, the partners continue to be
liable as such to third parties for any act done by any of them which
would have been an act of the firm, if done before the dissolution, until
public notice is given of the dissolution.
In the instant case, X and Y were partners in a firm which was dissolved
but no public notice was given. After dissolution, X purchased some
goods in the firm’s name from Z who was ignorant of the fact of
dissolution of firm. X became insolvent and Z filed a suit against Y for
recovery of his amount.
Following the provisions of Section 45, X and Y are continuing liable
against third party even after dissolution of firm until public notice is
given. As in the given problem, X became insolvent, therefore, Y will be
liable to Z.
16. According to section 16 of the Indian Partnership Act, 1932, subject to
contract between partners –
(a) if a partner derives any profit for himself from any transaction of
the firm, or from the use of the property or business connection of

14 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

the firm or the firm name, he shall account for that profit and pay
it to the firm;
(b) if a partner carries on any business of the same nature as and
competing with that of the firm, he shall account for and pay to
the firm all profits made by him in that business.
In the given scenario, B had sold iron bar to the firm at the current
prevailing market rate of 350 per Kg though he had stock with him
which he bought for INR 200 per Kg. Hence, he made an extra profit of
INR 150/Kg. This arises purely out of transactions with the firm. Hence, B
is accountable to the firm for the extra profit earned thereby.
17. Section 29 of the Indian Partnership Act, 1932 provides that a share in a
partnership is transferable like any other property, but as the partnership
relationship is based on mutual confidence, the assignee of a partner’s
interest by sale, mortgage or otherwise cannot enjoy the same rights
and privileges as the original partner.
The rights of such a transferee are as follows:
(1) During the continuance of partnership, such transferee is not
entitled
(a) to interfere with the conduct of the business,
(b) to require accounts, or
(c) to inspect books of the firm.
He is only entitled to receive the share of the profits of the
transferring partner, and he is bound to accept the profits as
agreed to by the partners, i.e., he cannot challenge the accounts.
(2) On the dissolution of the firm or on the retirement of the
transferring partner, the transferee will be entitled, against the
remaining partners:
(a) to receive the share of the assets of the firm to which the
transferring partner was entitled, and
(b) for the purpose of ascertaining the share,
he is entitled to an account as from the date of the dissolution.

15 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

By virtue of Section 31, no person can be introduced as a partner in a

firm without the consent of all the partners. A partner cannot by
transferring his own interest, make anybody else a partner in his place,
unless the other partners agree to accept that person as a partner. At
the same time, a partner is not debarred from transferring his interest. A
partner’s interest in the partnership can be regarded as an existing
interest and tangible property which can be assigned.
18. Comparison between a Limited Liability Partnership (LLP) and
partnership can be analysed on the below tabulated parameters.

Basis LLP Partnership firm

1. Regulating Act The Limited Liability The Indian Partnership
Partnership Act, Act, 1932.
2008.
2. Body corporate It is a body It is not a body
corporate. corporate.
3. Separate legal It is a legal entity It is a group of
entity separate from its persons with no
members. separate legal entity.
4. Creation It is created by a It is created by an
legal process called agreement between
registration under the partners.
the LLP Act, 2008.
5. Registration Registration is Registration is
mandatory. LLP can voluntary. Only the
sue and be sued in registered partnership
its own name. firm can sue the third
parties.
6. Perpetual The death, insanity, The death, insanity,
succession retirement or retirement or
insolvency of the insolvency of the
partner(s) does not partner(s) may affect
affect its existence its existence. It has no
of LLP. Members perpetual succession.
may join or leave

16 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

but its existence

continues forever.
7. Name Name of the LLP to No guidelines. The
contain the word partners can have any
limited liability name as per their
partners (LLP) as choice.
suffix.
8. Liability Liability of each Liability of each
partner limited to partner is unlimited. It
the extent to can be extended upto
agreed contribution the personal assets of
except in case of the partners.
willful fraud.
9. Mutual agency Each partner can Each partner can bind
bind the LLP by his the firm as well as
own acts but not other partners by his
the other partners. own acts.
10. Designated At least two There is no provision
partners designated partners for such partners
and atleast one of under the Partnership
them shall be Act, 1932.
resident in India.
11. Common seal It may have its There is no such
common seal as its concept in partnership
official signatures.
12. Legal Only designated All partners are
compliances partners are responsible for all the
responsible for all compliances and
the compliances penalties under the
and penalties under Act.
this Act.
13. Annual filing LLP is required to Partnership firm is not
of documents file: required to file any
(i) Annual annual document with

17 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

statement of the registrar of firms.

accounts
(ii) Statement of
solvency
(iii) Annual return
with the
registration of LLP
every year.
14. Foreign Foreign nationals Foreign nationals
partnership can become a cannot become a
partner in a LLP. partner in a
partnership firm.
17. Minor as Minor cannot be Minor can be
partner admitted to the admitted to the
benefits of LLP. benefits of the
partnership with the
prior consent of the
existing partners.

19. It was decided by the court in the case of Gilford Motor Co. Vs. Horne, if
the company is formed simply as a mere device to evade legal
obligations, though this is only in limited and discrete circumstances,
courts can pierce the corporate veil. In other words, if the company is
mere sham or cloak, the separate legal entity can be disregarded.
On considering the decision taken in Gilford Motor Co. Vs. Horne and
facts of the problem given, it is very much clear that Seven Stars Timbers
Private Limited was formed just to evade legal obligations of the
agreement between Mr. Dhruv and Sunmoon Timber Private Limited.
Hence, Seven Stars Timbers Private Limited is just a sham or cloak and
the separate legal entity between Mr. Dhruv and Seven Stars Timbers
Private Limited should be disregarded.
20. This case is governed by the ‘Doctrine of Ultra Vires’. According to this
doctrine, any act done, or a contract made by the company which travels
beyond the powers of the company conferred upon it by its
Memorandum of Association is wholly void and inoperative in law and is

18 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
BUSINESS LAWS

therefore not binding on the company. This is because the

Memorandum of Association of the company is, in fact, its charter; it
defines its constitution and the scope of the powers of the company.
Hence, a company cannot depart from the provisions contained in the
memorandum however imperative may be the necessity for the
departure. Hence, any agreement ultra vires the company shall be null
and void.
(i) Whether AK Private Limited is liable to pay the debt?
As per the facts given, AK Private Limited borrowed ` 36 crore
from BK Finance Limited which is beyond its borrowing power of
` 30 crore.
Hence, contract for borrowing of ` 36 crore, being ultra vires the
Memorandum of Association and thereby is void. AK Private
Limited is not, therefore, liable to pay the debt.
(ii) Remedy available to BK Finance Limited:
In light of the legal position explained above, BK Finance Limited
cannot enforce the said transaction and thus has no remedy
against the company for recovery of the money lent. BK Finance
limited may take action against the directors of AK Private Limited
as it is the personal liability of its directors to restore the borrowed
funds. Besides, BK Finance Limited may take recourse to the
remedy by means of ‘Injunction’, if feasible.
21. Foreign Company [Section 2(42) of the Companies Act, 2013]: It
means any company or body corporate incorporated outside India
which—
(i) has a place of business in India whether by itself or through an
agent, physically or through electronic mode; and
(ii) conducts any business activity in India in any other manner.
As Mike LLC is incorporated in Singapore and having a place of business
in Pune, India, it is a foreign Company.
22. According to section 117 of the Negotiable Instruments Act, 1881, the
compensation payable in case of dishonour of promissory note, bill of

19 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER
FOUNDATION COURSE

exchange or cheque, by any party liable to the holder or any endorsee,

shall be determined by the following rules:
(a) the holder is entitled to the amount due upon the instrument,
together with the expenses properly incurred in presenting, noting
and protesting it;
(b) when the person charged resides at a place different from that at
which the instrument was payable, the holder is entitled to receive
such sum at the current rate of exchange between the two places;
(c) an endorser who, being liable, has paid the amount due on the
same is entitled to the amount so paid with interest at 18% per
annum from the date of payment until tender or realisation
thereof, together with all expenses caused by the dishonour and
payment;
On the basis of the above provisions of law and facts of the case,
Saurabh has right to claim price of rice plus fees of advocate plus
interest @18% p.a. from the date of payment until tender or realisation
thereof.
23. Section 64 of the Negotiable Instruments Act, 1881 provides, Promissory
notes, bill of exchange and cheques must be presented for payment to
the maker, acceptor or drawee thereof respectively, by or on behalf of
the holder as hereinafter provided. In default of such presentment, the
other parties thereto are not liable thereon to such holder. Provided that
where a promissory note is payable on demand and is not payable at a
specified place, no presentment is necessary in order to charge the
maker thereof.
On the basis of the above law provisions and facts of the case, although
non-presentment of promissory note for payment results in discharge of
maker from liability but the given case is covered under the exception to
section 64. Hence, A would not be discharged from liability even if the
non-presentment by B as the promissory note was payable on demand
and no specific place for payment was mentioned.

20 JUNE 2024 EXAMINATION

© The Institute of Chartered Accountants of India

 PAPER – 2:
BUSINESS LAWS

QUESTIONS

Indian Regulatory Framework

1. What is Law and what is the process of making a law?
The Indian Contract Act, 1872
2. Explain the type of contracts in the following agreements under the
Indian Contract Act, 1872:
(i) Rahul contracts with Bhanu (owner of the factory) for the supply of
10 tons of sugar, but before the supply is effected, the factory
catches fire and everything is destroyed.
(ii) A coolie in uniform picks up the luggage of Rohan to be carried
out of the railway station without being asked by Rohan and
Rohan allows him to do so.
(iii) Obligation of finder of lost goods to return them to the true
owner.
3. Amit, a minor was studying in a college. On 1st July, 2023 he took a loan
of ` 1,00,000 from Bhavesh for payment of his college fees and to
purchase books and agreed to repay by 31st December, 2023. Amit
possesses assets worth ` 9 lakhs. On due date, Amit fails to pay back
the loan to Bhavesh. Bhavesh now wants to recover the loan from Amit
out of his (Amit’s) assets. Referring to the provisions of Indian Contract
Act, 1872 decide whether Bhavesh would succeed.
4. Mr. Shyam aged 58 years, was employed in a government department.
He was going to retire after two years. Mr. Dev made a proposal to
REVISION TEST PAPER
FOUNDATION EXAMINATION

Mr. Shyam, to apply for voluntary retirement from his post so that
Mr. Dev can be appointed in his place. Mr. Dev offered a sum of ` 10
Lakhs as consideration to Mr. Shyam to induce him to retire.
Mr. Shyam refused at first instance but when he evaluated the amount
offered as consideration is just double of his cumulative remuneration to
be received during the tenure of two years of employment, he agreed to
receive the consideration and accepted the above agreement to receive
money to retire from his office.
Whether the above agreement is valid? Explain with reference to
provision of the Indian Contract Act, 1872?
5. What will be rights with the promisor in following cases under the Indian
Contract Act, 1872? Explain with reasons:
(a) Sunil promised to bring back Jatin to life again.
(b) Aman agreed to sell 50 kgs of apples to Raman. The loaded truck
left for delivery on 15th March but due to riots in between reached
Raman on 19th March due to which the apples were rotten.
(c) An artist promised to paint on the fixed date for a fixed amount of
remuneration but met with an accident and lost his both hands.
(d) Abhishek entered into contract of import of toys from China. But
due to disturbance in the relation of both the countries, the
imports from China were banned.
6. Seema was running a boutique in New Delhi. She has to deliver some
cloth to her friend Kiran who was putting up an exhibition in Mumbai.
Seema delivered the sewing machine and some cloth to a railway
company to be delivered at a place where the exhibition was to be held.
Seema expected to earn an exceptional profit from the sales made at
this exhibition however she did not bring this fact to the notice of the
railway’s authorities. The goods were delivered to the place after the
conclusion of the exhibition. On account of such breach of contract by
railways authorities, can Seema recover the loss of profits under the
Indian Contract Act, 1872?
7. Explain any five circumstances under which contracts need not be
performed with the consent of both the parties.

2 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

8. ‘Sooraj’ guarantees ‘Vikas’ for the transactions to be done between

‘Vikas’ & ‘Nikhil’ during the month of March 2023. ‘Vikas’ supplied
goods of ` 30,000 on 01.03.2023 and of ` 20,000 on 03.03.2023 to
‘Nikhil’. On 05.03.2023, ‘Sooraj’ died in a road accident. On 10.03.2023,
being ignorant of the death of ‘Sooraj’, ‘Vikas’ further supplied goods of
` 40,000. On default in payment by ‘Nikhil’ on due date, ‘Vikas’ sued
legal heirs of ‘Sooraj’ for recovery of ` 90,000. Describe, whether legal
heirs of ‘Sooraj’ are liable to pay ` 90,000 under the provisions of Indian
Contract Act, 1872.
What would be your answer, if the estate of ‘Sooraj’ is worth ` 45,000
only?
9. Mr. Stefen owns a chicken farm near Gurugram, where he breeds them
and sells eggs and live chicken to retail shops in Gurugram.
Mr. Flemming also owns a similar farm near Gurugram, doing the same
business. Mr. Flemming had to go back to his native place in Australia
for one year. He needed money for travel, so he had pledged his farm to
Mr. Stefen for one year and received a deposit of ` 25 lakhs and went
away. At that point of time, the stock of live birds was 100,000 and eggs
10,000. The condition was that when Flemming returns, he will repay the
deposit and take possession of his farm with live birds and eggs.
After one year Flemming came back and returned the deposit. At that
time there were 109,000 live birds (increase is due to hatching of eggs
out of 10,000 eggs he had left), and 15,000 eggs.
Mr. Stefen agreed to return 100,000 live birds and 10,000 eggs only.
State the duties of Mr. Stefen as Pawnee and advise Mr. Flemming about
his rights in the given case.
The Sale of Goods Act, 1930
10. AB Cloth House, a firm dealing with the wholesale and retail buying and
selling of various kinds of clothes, customized as per the requirement of
the customers. They dealt with Silk, Organdie, cotton, khadi, chiffon and
many other different varieties of cloth.
Mrs. Reema, a customer, came to the shop and asked for a specific type
of cloth suitable for making a suit for her daughter’s birthday. She

3 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

specifically mentioned that she required cotton silk cloth which is best
suited for the purpose.
The Shop owner agreed and arranged the cloth pieces cut into as per
the buyers’ requirements.
When Reema went to the tailor to get the suit stitched, she found that
seller has supplied her cotton organdie material, cloth was not suitable
for the said purpose. It was heavily starched and not suitable for making
the suit that Reema desired for. The Tailor asked Reema to return the
cotton organdie cloth as it would not meet his requirements.
The Shop owner refused to return the cloth on the plea that it was cut to
specific requirements of Mrs. Reema and hence could not be resold.
With reference to the doctrine of "Caveat Emptor' explain the duty of
the buyer as well as the seller. Also explain whether Mrs. Reema would
be able to get the money back or the right kind of cloth as per the
requirement?
11. Samuel purchased a Television set from Arun, the owner of Gada
Electronics, on the condition that for the first three days he will check its
quality and if satisfied he will pay for that otherwise he will return the
Television set. On the second day, the Television set was spoiled due to
an earthquake. Arun demands the price of Television set from Samuel.
Whether Samuel is liable to pay the price under the Sale of Goods Act,
1930? Who will ultimately bear the loss?
12. Suraj sold his car to Sohan for ` 1,75,000. After inspection and
satisfaction, Sohan paid ` 75,000 and took possession of the car and
promised to pay the remaining amount within a month. Later on, Sohan
refuses to give the remaining amount on the grounds that the car was
not in good condition. Advise Suraj as to what remedy is available to
him against Sohan under the Sale of Goods Act, 1930.
13. Akash purchased 100 Kgs of wheat from Bhaskar at `80 per kg. Bhaskar
says that wheat is in his warehouse in the custody of Kishore, the
warehouse keeper. Kishore confirmed to Akash that he can take the
delivery of wheat from him and till then he is holding wheat on Akash’s
behalf. Before Akash picks the goods from warehouse, the whole wheat
in the warehouse has flowed in flood. Now Akash wants his price on the

4 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

contention that no delivery has been done by seller. Whether Akash is

right with his views under the Sale of Goods Act, 1930.
The Indian Partnership Act, 1932
14. Sahil, Amit and Kunal were partners in a firm. The firm is a dealer in
office furniture. They have regular dealings with M/s AB and Co. for the
supply of furniture for their business. On 30th June 2023, one of the
partners, Mr. Kunal died in a road accident. The firm ordered M/s AB and
Co. to supply the furniture for their business on 25th May 2023, when
Kunal was also alive.
Now Sahil and Amit continue the business in the firm’s name after
Kunal’s death. The firm did not give any notice about Kunal’s death to
the public or the persons dealing with the firm. M/s AB and Co.
delivered the furniture to the firm on 25th July 2023. The fact about
Kunal’s death was known to them at the time of delivery of goods.
Afterwards the firm became insolvent and failed to pay the price of
furniture to M/s AB and Co. Now M/s AB and Co. has filed a case against
the firm for recovery of the price of furniture. With reference to the
provisions of Indian Partnership Act, 1932, explain whether Kunal’s
private estate is also liable for the price of furniture purchased by the
firm?
15. State whether the following are partnerships under the Indian
Partnership Act, 1932:
(i) A and B buy commodity X and agree to sell the commodity with
sharing the profits equally.
(ii) Two firms each having 12 partners combine by an agreement into
one firm.
(iii) A and B, co-owners, agree to conduct the business in common for
profit.
(iv) Some individuals form an association to which each individual
contributes ` 5000 annually. The objective of the association is to
produce clothes and distribute the clothes free to the war widows.
(v) A and B, co-owners share between themselves the rent derived
from a piece of land.

5 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

16. When does dissolution of a partnership firm take place under the
provisions of the Indian Partnership Act, 1932? Explain.
The Limited Liability Partnership Act, 2008
17. State the rules regarding registered office of a Limited Liability
Partnership (LLP) and change therein as per provisions of the Limited
Liability Partnership Act, 2008.
The Companies Act, 2013
18. A, B and C has decided to set up a new club with name of ABC club
having objects to promote welfare of Christian society. They planned to
do charitable work or social activity for promoting the artwork of
economically weaker section of Christian society. The company obtained
the status of section 8 company and started operating from 1st April
2021 onwards.
However, on 30th September 2023, it was observed that ABC club was
violating the objects of its objective clause due to which it was granted
the status of section 8 Company under the Companies Act, 2013.
Discuss what powers can be exercised by the Central Government
against ABC club, in such a case?
19. HP Polytech Limited has a paid-up share capital divided into 6,00,000
equity shares of ` 100 each. 2,00,000 equity shares of the company are
held by the Central Government and 1,20,000 equity shares are held by
the Government of Maharashtra. Explain with reference to relevant
provisions of the Companies Act, 2013, whether HP Polytech Limited can
be treated as a Government Company.
20. Nolimit Private Company is incorporated as unlimited company having
share capital of ` 10,00,000. One of its creditors, Mr. Samuel filed a suit
against a shareholder Mr. Innocent for recovery of his debt against
Nolimit Private Company. Mr. Innocent has given his plea in the court
that he is not liable as he is just a shareholder. Explain, whether
Mr. Samuel will be successful in recovering his dues from Mr. Innocent?
The Negotiable Instruments Act, 1881
21. What are Negotiable Instruments? Explain its essential characteristics
under the Negotiable Instruments Act, 1881.

6 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

22. Manoj purchased some goods from Sagar. He issued a cheque to Sagar
for the sale price on 14th June, 2023. Sagar presented the cheque in his
bank and his bank informed him on 19th June, 2023 that cheque was
returned unpaid due to insufficiency of funds in the account of Manoj.
Sagar sued against Manoj under section 138 of the Negotiable
Instruments Act, 1881. State with reasons, whether this suit is
maintainable?

SUGGESTED ANSWERS/HINTS

1. What is Law?
Law is a set of obligations and duties imposed by the government for
securing welfare and providing justice to society. India’s legal framework
reflects the social, political, economic, and cultural aspects of our vast
and diversified country.
The Process of Making a Law
(i) When a law is proposed in parliament, it is called a Bill.
(ii) After discussion and debate, the law is passed in Lok Sabha.
(iii) Thereafter, it has to be passed in Rajya Sabha.
(iv) It then has to obtain the assent of the President of India.
(v) Finally, the law will be notified by the Government in the
publication called the Official Gazette of India.
(vi) The law will become applicable from the date mentioned in the
notification as the effective date.
(vii) Once it is notified and effective, it is called an Act of Parliament.
2. (i) It is a void contract.
Void Contract: Section 2 (j) of the Indian Contract Act, 1872 states
as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void
contract is one which cannot be enforced by a court of law.

7 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

(ii) It is an implied contract and Rohan must pay for the services
of the coolie.
Implied Contracts: Implied contracts come into existence by
implication. Most often the implication is by law and or by action.
Section 9 of the Indian Contract Act, 1872 contemplates such
implied contracts when it lays down that in so far as such proposal
or acceptance is made otherwise than in words, the promise is said
to be implied.
(iii) Obligation of finder of lost goods to return them to the true owner
cannot be said to arise out of a contract even in its remotest sense,
as there is neither offer and acceptance nor consent. These are said
to be quasi-contracts.
Quasi-Contract: A quasi-contract is not an actual contract, but it
resembles a contract. It is created by law under certain
circumstances. The law creates and enforces legal rights and
obligations when no real contract exists. Such obligations are
known as quasi-contracts. In other words, it is a contract in which
there is no intention on the part of either party to make a contract,
but law imposes a contract upon the parties.
3. According to section 68 of Indian Contract Act, 1872, if a person,
incapable of entering into a contract, or any one whom he is legally
bound to support, is supplied by another person with necessaries suited
to his condition in life, the person who has furnished such supplies is
entitled to be reimbursed from the property of such incapable person.
In the instant case, since the loan given to Amit is for the necessaries
suited to the conditions in life of the minor, his assets can be sued to
reimburse Bhavesh.
Hence, Bhavesh can proceed against the assets of Amit.
4. Section 10 of the Indian Contract Act, 1872 provides for the legality of
consideration and objects thereto. Section 23 of the said Act also states
that every agreement of which the object or consideration is unlawful is
void.

8 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

The given problem talks about entering into an agreement for sale of
public office, which is opposed to public policy. Public policy requires
that there should be no money consideration for the appointment to an
office in which the public is interested. Such consideration paid, being
opposed to public policy, is unlawful.
In the given case, Mr. Shyam, who was going to be retired after two
years was proposed by Mr. Dev, to apply for voluntary retirement from
his post, in order that he can be appointed in his place. In lieu of that,
Mr. Dev offered Mr. Shyam a sum of ` 10 lakh as consideration.
Mr. Shyam refused initially but later accepted the said agreement to
receive money to retire from his office.
Here, Mr. Shyam’s promise to sale for Mr. Dev, an employment in the
public services is the consideration for Mr. Dev’s promise to pay ` 10
lakh. Therefore, in terms of the above provisions of the Indian Contract
Act, the said agreement is not valid. It is void, as the consideration being
opposed to public policy, is unlawful.
5. (a) The contract is void because of its initial impossibility of performance.
(b) Time is essence of this contract. By the time apples reached
Raman, they were already rotten. The contract is discharged due to
destruction of the subject matter of contract.
(c) Such contract is of personal nature and hence cannot be
performed due to occurrence of an event resulting in impossibility
of performance of contract.
(d) Such contract is discharged without performance because of
subsequent illegality nature of the contract.
6. As per Section 73 to 75 of Indian Contract Act, 1872, damage means a
sum of money claimed or awarded in compensation for a loss or an
injury. Whenever a party commits a breach, the aggrieved party can
claim the compensation for the loss so suffered by him. General
damages are those which arise naturally in the usual course of things
from the breach itself. (Hadley Vs Baxendale).
Therefore, when a breach is committed by a party, the defendant shall
be held liable for all such losses that naturally arise in the usual course

9 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

of business. Such damages are called ordinary damages. However,

special damages are those which arise in unusual circumstances
affecting the aggrieved party and such damages are recoverable only
when the special circumstances were brought to the knowledge of the
defendant. If no special notice is given, then the aggrieved party can
only claim the ordinary damages.
In the given case, Seema was to earn an exceptional profit out of the
sales made at the exhibition, however she never informed about it to the
railway authorities. Since the goods were delivered after the conclusion
of the exhibition, therefore Seema can recover only the losses arising in
the ordinary course of business. Since no notice about special
circumstances was given to railways authorities, she could not recover
the loss of profits.
7. Under following circumstances, the contracts need not be performed
with the consent of both the parties:
(i) Novation: Where the parties to a contract substitute a new
contract for the old, it is called novation. A contract in existence
may be substituted by a new contract either between the same
parties or between different parties, the consideration mutually
being the discharge of old contract. Novation can take place only
by mutual agreement between the parties. On novation, the old
contract is discharged and consequently it need not be performed.
(Section 62 of the Indian Contract Act, 1872)
(ii) Rescission: A contract is also discharged by recission. When the
parties to a contract agree to rescind it, the contract need not be
performed. (Section 62)
(iii) Alteration: Where the parties to a contract agree to alter it, the
original contract is rescinded, with the result that it need not be
performed. In other words, a contract is also discharged by
alteration. (Section 62)
(iv) Remission: Every promisee may dispense with or remit, wholly or
in part, the performance of the promise made to him, or may
extend the time for such performance or may accept instead of it

10 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

any satisfaction which he thinks fit. In other words, a contract is

discharged by remission. (Section 63)
(v) Rescinds voidable contract: When a person at whose option a
contract is voidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is the
promisor.
(vi) Neglect of promisee: If any promisee neglects or refuses to afford
the promisor reasonable facilities for the performance of his
promise, the promisor is excused by such neglect or refusal as to
any non-performance caused thereby. (Section 67)
8. According to section 131 of Indian Contract Act, 1872, in the absence of
a contract to contrary, a continuing guarantee is revoked by the death of
the surety as to the future transactions. The estate of deceased surety,
however, liable for those transactions which had already taken place
during the lifetime of deceased. Surety’s estate will not be liable for the
transactions taken place after the death of surety even if the creditor
had no knowledge of surety’s death.
In this question, ‘Sooraj’ was surety for the transactions to be done
between ‘Vikas’ & ‘Nikhil’ during the month of March, 2023. ‘Vikas’
supplied goods of ` 30,000, ` 20,000 and of ` 40,000 on 01.03.2023,
03.03.2023 and 10.03.02023 respectively. ‘Sooraj’ died in a road accident,
but this was not in the knowledge of ‘Vikas’. When ‘Nikhil’ defaulted on
payment, ‘Vikas’ filed suit against legal heirs of ‘Sooraj’ for recovery of
full amount i.e. ` 90,000.
On the basis of above, it can be said in case of death of surety (‘Sooraj’),
his legal heirs are liable only for those transactions which were entered
before 05.03.2023 i.e. for ` 50,000. They are not liable for the transaction
done on 10.03.2023 even though Vikas had no knowledge of death of
Sooraj.
Further, if the worth of the estate of deceased is only ` 45,000, the legal
heirs are liable for this amount only.
9. According to section 163 of the Indian Contract Act, 1872, in the
absence of any contract to the contrary, the bailee is bound to deliver to

11 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

the bailor, or according to his directions, any increase or profit which

may have accrued from the goods bailed.
In the given question, when Mr. Flemming returned from Australia there
were 1,09,000 live birds and 15,000 eggs (1,00,000 birds and 10,000 eggs
were originally deposited by Mr. Flemming). Mr. Stefen agreed to return
1,00,000 live birds and 10,000 eggs only and not the increased number
of live birds and eggs.
In the light of the provision of law and facts of the question, following
are the answers:
Duties of Mr. Stefen: Mr. Stefen (pawnee) is bound to deliver to
Mr. Flemming (pawnor), any increase or profit (9,000 live birds and 5,000
eggs) which has occurred from the goods bailed (i.e. the live birds and
eggs).
Right of Mr. Flemmimg: Mr. Flemming is entitled to recover from
Pawnee any increase in goods so pledged.
10. Duty of the buyer according to the doctrine of “Caveat Emptor”: In
case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer
beware’. When sellers display their goods in the open market, it is for
the buyers to make a proper selection or choice of the goods. If the
goods turn out to be defective, he cannot hold the seller liable. The
seller is in no way responsible for the bad selection of the buyer. The
seller is not bound to disclose the defects in the goods which he is
selling.
Duty of the seller according to the doctrine of “Caveat Emptor”: The
following exceptions to the Caveat Emptor are the duties of the seller:
(i) Fitness as to quality or use
(ii) Goods purchased under patent or brand name
(iii) Goods sold by description
(iv) Goods of Merchantable Quality
(v) Sale by sample
(vi) Goods by sample as well as description

12 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

(vii) Trade usage

(viii) Seller actively conceals a defect or is guilty of fraud
Based on the above provision and facts given in the question, it can be
concluded that Mrs. Reema is entitled to get the money back or the
right kind of cloth as required to serve her purpose. It is the duty of the
seller to supply such goods as are reasonably fit for the purpose
mentioned by the buyer. [Section 16(1) of the Sale of Goods Act, 1930].
11. According to Section 24 of the Sale of Goods Act, 1930, "When the
goods are delivered to the buyer on approval or on sale or return or
other similar terms, the property passes to the buyer:
(i) when he signifies his approval or acceptance to the seller,
(ii) when he does any other act adopting the transaction, and
(iii) if he does not signify his approval or acceptance to the seller but
retains goods beyond a reasonable time".
Further, as per Section 8, where there is an agreement to sell specific
goods, and subsequently the goods without any fault on the part of the
seller or buyer perish or become so damaged as no longer to answer to
their description in the agreement before the risk passes to the buyer,
the agreement is thereby avoided.
Samuel purchases a Television set from Arun, the owner of Gada
Electronics, on sale or approval for three days. Before Samuel could take
any decision, the Television set spoiled due to earthquake.
According to the above provisions and fact, the property has not been
passed to Samuel i.e. buyer as no condition of Section 24 is satisfied.
Hence, risk is not passed to the buyer and the agreement is thereby
avoided. Samuel is not liable to pay the price. The loss finally should be
borne by Seller, Mr. Arun.
12. As per section 55 of the Sale of Goods Act, 1930, an unpaid seller has a
right to institute a suit for price against the buyer personally. The said
Section lays down that:
(i) Where under a contract of sale the property in the goods has
passed to buyer and the buyer wrongfully neglects or refuses to

13 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

pay for the goods, the seller may sue him for the price of the
goods [Section 55(1)].
(ii) Where under a contract of sale the price is payable on a certain
day irrespective of delivery and the buyer wrongfully neglects or
refuses to pay such price, the seller may sue him for the price. It
makes no difference even if the property in the goods has not
passed and the goods have not been appropriated to the contract
[Section 55(2)].
This problem is based on the above provisions. Hence, Suraj will
succeed against Sohan for recovery of the remaining amount. Apart
from this, Suraj is also entitled to:
(1) Interest on the remaining amount
(2) Interest during the pendency of the suit.
(3) Costs of the proceedings.
13. As per the provisions of the Sale of Goods Act, 1930 there are three
modes of delivery,
(i) Actual delivery,
(ii) Constructive delivery and
(iii) Symbolic delivery.
When delivery is affected without any change in the custody or actual
possession of the things, it is called constructive delivery or delivery by
acknowledgement. Constructive delivery takes place when a person in
possession of goods belonging to the seller acknowledges to the buyer
that he is holding the goods on buyer’s behalf.
On the basis of the above provisions and facts, it is clear that possession
of the wheat has been transferred through constructive delivery. Hence,
Akash is not right. He cannot claim the price back.
14. According to Section 35 of the Indian Partnership Act, 1932, where
under a contract between the partners the firm is not dissolved by the
death of a partner, the estate of a deceased partner is not liable for any
act of the firm done after his death.

14 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

Further, in order that the estate of the deceased partner may be

absolved from liability for the future obligations of the firm, it is not
necessary to give any notice either to the public or the persons having
dealings with the firm.
In the light of the facts of the case and provisions of law, since the
delivery of furniture was made after Kunal’s death, his estate would not
be liable for the debt of the firm. A suit for goods sold and delivered
would not lie against the representatives of the deceased partner. This is
because there was no debt due in respect of the goods in Kunal’s
lifetime. He was already dead when the delivery of goods was made to
the firm and also it is not necessary to give any notice either to the
public or the persons having dealings with the firm on a death of a
partner (Section 35). So, the estate of the deceased partner may be
absolved from liability for the future obligations of the firm.
15. (i) Yes, this is a case of partnership as there exists the element of doing
business and sharing of profits equally.
(ii) Yes, this is a case of partnership because there is an agreement
between two firms to combine into one firm.
(iii) Yes, this is a case of partnership because A & B, co-owners, have
agreed to conduct a business in common for profit.
(iv) No, this is not a case of partnership as no charitable association
can be floated in partnership.
(v) No, this is not a case of partnership as they are co-owners and not
the partners. Further, there exist no business.
16. Dissolution of Firm: The Dissolution of Firm means the discontinuation
of the jural relation existing between all the partners of the Firm. But
when only one of the partners retires or becomes in capacitated from
acting as a partner due to death, insolvency or insanity, the partnership,
i.e., the relationship between such a partner and other is dissolved, but
the rest may decide to continue. In such cases, there is in practice, no
dissolution of the firm. The particular partner goes out, but the
remaining partners carry on the business of the Firm. In the case of
dissolution of the firm, on the other hand, the whole firm is dissolved.

15 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

The partnership terminates as between each and every partner of the

firm.
Dissolution of a Firm may take place (Section 39 - 44)
(a) as a result of any agreement between all the partners (i.e.,
dissolution by agreement);
(b) by the business of the Firm becoming unlawful (i.e., compulsory
dissolution);
(c) subject to agreement between the parties, on the happening of
certain contingencies, such as: (i) effluence of time; (ii) completion
of the venture for which it was entered into; (iii) death of a partner;
(iv) insolvency of a partner.
(d) by a partner giving notice of his intention to dissolve the firm, in
case of partnership at will and the firm being dissolved as from the
date mentioned in the notice, or if no date is mentioned, as from
the date of the communication of the notice; and
(e) by intervention of court in case of: (i) a partner becoming the
unsound mind; (ii) permanent incapacity of a partner to perform
his duties as such; (iii) Misconduct of a partner affecting the
business; (iv) willful or persistent branches of agreement by a
partner; (v) transfer or sale of the whole interest of a partner; (vi)
improbability of the business being carried on save at a loss; (vii)
the court being satisfied on other equitable grounds that the firm
should be dissolved.
17. Registered office of LLP and Change therein (Section 13 of the
Limited Liability Partnership Act, 2008)
(i) Every LLP shall have a registered office to which all
communications and notices may be addressed and where they
shall be received.
(ii) A document may be served on a LLP or a partner or designated
partner thereof by sending it by post under a certificate of posting
or by registered post or by any other manner, as may be
prescribed, at the registered office and any other address

16 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

specifically declared by the LLP for the purpose in such form and
manner as may be prescribed.
(iii) A LLP may change the place of its registered office and file the
notice of such change with the Registrar in such form and manner
and subject to such conditions as may be prescribed and any such
change shall take effect only upon such filing.
(iv) If the LLP contravenes any provisions of this section, the LLP and
its every partner shall be liable to a penalty of ` 500 for each day
during which the default continues, subject to a maximum of
` 50,000 for the LLP and its every partner.
18. Section 8 of the Companies Act, 2013 deals with the formation of
companies which are formed to promote the charitable objects of
commerce, art, science, education, sports etc. Such company intends to
apply its profit in promoting its objects. Section 8 companies are
registered by the Registrar only when a license is issued by the Central
Government to them.
ABC Club was a Section 8 company, and it was observed on 30th
September 2023 that it had started violating the objects of its objective
clause. Hence in such a situation the following powers can be exercised
by the Central Government:
(i) The Central Government may by order revoke the licence of the
company where the company contravenes any of the requirements
or the conditions of this sections subject to which a licence is
issued or where the affairs of the company are conducted
fraudulently, or violative of the objects of the company or
prejudicial to public interest, and on revocation the Registrar shall
put ‘Limited’ or ‘Private Limited’ against the company’s name in
the register. But before such revocation, the Central Government
must give it a written notice of its intention to revoke the licence
and opportunity to be heard in the matter.
(ii) Where a licence is revoked, the Central Government may, by order,
if it is satisfied that it is essential in the public interest, direct that
the company be wound up under this Act or amalgamated with
another company registered under this section. However, no such

17 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

order shall be made unless the company is given a reasonable

opportunity of being heard.
(iii) Where a licence is revoked and where the Central Government is
satisfied that it is essential in the public interest that the company
registered under this section should be amalgamated with another
company registered under this section and having similar objects,
then, notwithstanding anything to the contrary contained in this
Act, the Central Government may, by order, provide for such
amalgamation to form a single company with such constitution,
properties, powers, rights, interest, authorities and privileges and
with such liabilities, duties and obligations as may be specified in
the order.
19. Government Company [Section 2(45) of the Companies Act, 2013]:
Government Company means any company in which not less than 51%
of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more State
Governments,
and the section includes a company which is a subsidiary company of
such a Government company.
In the instant case, the paid-up share capital of HP Polytech Limited is
6,00,000 equity shares of ` 100 each. 200,000 equity shares are held by
Central government and 1,20,000 equity shares are held by Government
of Maharashtra. The holding of equity shares by both government is
3,20,000 which is more than 51% of total paid up equity shares.
Hence, HP Polytech Limited is a government company.
20. Section 2(92) of Companies Act, 2013, provides that an unlimited
company means a company not having any limit on the liability of its
members. The liability of each member extends to the whole amount of
the company’s debts and liabilities, but he will be entitled to claim
contribution from other members. In case the company has share
capital, the Articles of Association must state the amount of share

18 SEPTEMBER 2024 EXAMINATION

 REVISION TEST PAPER
BUSINESS LAWS

capital and the amount of each share. So long as the company is a going
concern the liability on the shares is the only liability which can be
enforced by the company. The creditors can institute proceedings for
winding up of the company for their claims. The official liquidator may
call the members for their contribution towards the liabilities and debts
of the company, which can be unlimited.
On the basis of the above, it can be said that Mr. Samuel cannot directly
claim his dues against the company from Mr. Innocent, the shareholder
of the company even though the company is an unlimited company. Mr.
Innocent is liable for upto his share capital. His unlimited liability will
arise when official liquidator calls the members for their contribution
towards the liabilities and debts of the company at the time of winding
up of company.
21. Meaning of Negotiable Instruments: Negotiable Instruments is an
instrument (the word instrument means a document) which is freely
transferable (by customs of trade) from one person to another by mere
delivery or by indorsement and delivery. The property in such an
instrument is passed to a bonafide transferee for value.
The Act does not define the term ‘Negotiable Instruments’. However,
Section 13 of the Act provides for only three kinds of negotiable
instruments, namely bills of exchange, promissory notes and cheques,
payable either to order or bearer.
Essential Characteristics of Negotiable Instruments
1. It is necessarily in writing.
2. It should be signed.
3. It is freely transferable from one person to another.
4. Holder’s title is free from defects.
5. It can be transferred any number of times till its satisfaction.
6. Every negotiable instrument must contain an unconditional
promise or order to pay money. The promise or order to pay must
consist of money only.
7. The sum payable, the time of payment, the payee, must be certain.

19 SEPTEMBER 2024 EXAMINATION

REVISION TEST PAPER
FOUNDATION EXAMINATION

8. The instrument should be delivered. Mere drawing of instrument

does not create liability.
22. By virtue of provisions of Section 138 of the Negotiable Instruments Act,
1881, where cheque was issued by a person to discharge a legally
enforceable debt was dishonoured by bank due to insufficiency of funds,
such person shall be deemed to have committed an offence and shall,
without prejudice to any other provision of this Act, be punished with
imprisonment for a term which may extend to two years or with fine
which may extend to twice the amount of the cheque, or with both.
However,
(a) the cheque has been presented to the bank within three months or
validity period of the cheque, whichever is earlier;
(b) the holder makes a demand for the payment of the said amount of
money by giving a notice in writing, to the drawer of the cheque
within 30 days of the receipt of information from the bank
regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said
amount of money within fifteen days of the receipt of the said
notice.
In the instant case, Manoj issued a cheque to Sagar for payment of the
price of goods purchased from him. When Sagar presented the cheque
in bank, it was returned unpaid due to insufficiency of funds in the
account of Manoj. Sagar sued against Manoj under section 138 of the
Negotiable Instruments Act, 1881.
For filing the suit under section 138, Sagar should have to make a
demand of payment by giving a notice in writing to Manoj upto
18th July, 2023. In case, Manoj failed in making the payment within
fifteen days of the receipt of the said notice, Sagar could sue under
section 138.

20 SEPTEMBER 2024 EXAMINATION

SUGGESTED ANSWER JUNE 2024
FOUNDATION EXAMINATION
 PAPER – 2: BUSINESS LAWS

Question No. 1 is compulsory.

Attempt any four questions from the remaining five questions.

Working notes should form part of the answers

Question 1
(a) R owns an electronics store. P visited the store to buy a water purifier priced
at `54,000/-. He specifically requested R for a purifier with a copper filter.
As P wanted to buy the purifier on credit, with the intention of paying in 9
equal monthly instalments, R demands a guarantor for the transaction. S (a
friend of P) came forward and gave the guarantee for payment of water
purifier. R sold P, a water purifier of a specific brand. P made payment for 4
monthly instalments and after that became insolvent. Explain with
reference to the Indian Contract Act, 1872, the liability of S as a guarantor
to pay the balance price of water purifier to R.
What will be your answer, if R sold the water purifier misrepresenting it as
having a copper filter, while it actually has a normal filter? Neither P nor S
was aware of this fact and upon discovering the truth, P refused to pay the
price. In response to P's refusal, R filed the suit against S, the guarantor.
Explain with reference to the Indian Contract Act 1872, whether S is liable
to pay the balance price of water purifier to R? (7 Marks)
(b) A company, ABC limited as on 31.03.2023 had a paid-up capital of ` 1 lakh
(10,000 equity shares of ` 10 each). In June 2023, ABC limited had issued
additional 10,000 equity shares of ` 10 each which was fully subscribed.
Out of 10,000 shares, 5,000 of these shares were issued to XYZ private
limited company. XYZ is a holding company of PQR private limited by
having control over the composition of its board of directors.
Now, PQR private limited claims the status of being a subsidiary of ABC
limited as being a subsidiary of its subsidiary i.e. XYZ private limited.
Examine the validity of the claim of PQR private limited.
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

State the relationship if any, between ABC limited & XYZ private limited as
per the provisions of the Companies Act, 2013. (7 Marks)
(c) The Indian Partnership Act does not make the registration of firms
compulsory, yet the consequences or disabilities of non-registration have a
persuasive pressure for their registration. Still, there are come cases where
non-registration of firm does not affect certain rights. Explain with
reference to the provisions of the Indian Partnership Act, 1932. (6 Marks)
Answer
(a) As per section 126 of the Indian Contract Act, 1872, the contract of
guarantee is defined as a contract to perform the promise or discharge
the liability of a third person in case of his default.
In this case, S has given a guarantee for P's payment obligation towards R.
When P defaulted after making four monthly instalments and became
insolvent, S's liability as a guarantor will come into existence.
According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise provided
by the contract.
Since P failed to pay the remaining instalments due to insolvency, S, as
the guarantor, is liable to pay the balance price of the water purifier to R.
In the given situation, S will have to pay the balance amount of ` 30,000
to R. [54,000-(4x6,000)]
In the second situation, R sold the water purifier misrepresenting it as
having a copper filter, while it actually has a normal filter; this changes the
situation significantly.
According to Section 142 of the Act, any guarantee which has been
obtained by means of misrepresentation made by the creditor, or with his
knowledge and assent, concerning a material part of the transaction, is
invalid. Here, guarantee is obtained by means of misrepresentation made
by the creditor (R), and therefore the guarantee is invalid.
Furthermore, under Section 143, any guarantee which the creditor has
obtained by means of keeping silence as to material circumstances, is
invalid.

2
 SUGGESTED ANSWER
BUSINESS LAWS

Here R misrepresented the filter type and both P and S were unaware of
this fact. The creditor (R) has obtained the guarantee by remaining silent
as to material circumstances. Therefore, the guarantee obtained from S
will be considered to be invalid.
Consequently, S cannot be held liable to pay the balance price of the
water purifier to R.
(b) As per Section 2(46) of the Companies Act, 2013, holding company in
relation to one or more other companies, means a company of which
such companies are subsidiary companies.
Section 2(87) defines “subsidiary company” in relation to any other
company (that is to say the holding company), means a company in which
the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies.
In the instant case, as on 31.03.2023, ABC Limited had a paid-up capital of
` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, ABC Limited
issued additional 10,000 equity shares, which was fully subscribed. Post-
issue, the total paid-up capital of ABC Limited is ` 2 lakhs (20,000 equity
shares of `10 each).
Out of these, 5,000 shares were issued to XYZ Private Limited. Since XYZ
Private Limited holds only 25% of the shares in ABC Limited, it does not
have control of more than one-half of the total voting power of ABC
Limited. Hence, XYZ Private Limited cannot be considered as a subsidiary
company of ABC Limited in terms of the second criteria stated above, that
of controlling of voting power.
XYZ Private Limited is the holding company of PQR Private Limited by
having control over the composition of its Board of Directors. But since
XYZ Private Limited cannot be termed as a subsidiary company of ABC
Limited, PQR Private Limited cannot claim the status of being a subsidiary
of ABC Limited in terms of the first criteria, that of controlling of the
composition of directors.

3
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

As per section 2(6) of the Act, Associate Company in relation to another

company, means a company in which that other company has a
significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.
The expression “significant influence” means control of at least twenty per
cent of total voting power, or control of or participation in business
decisions under an agreement.
In terms of the above provision, the relationship between ABC Limited
and XYZ Private Limited can be of an Associate Company.
Since XYZ Private Limited holds more than 20 percent of voting power in
ABC Limited, it can be considered as an Associate Company of ABC
Limited.
(c) The Indian Partnership Act, 1932 does not make the registration of firms
compulsory nor does it impose any penalty for non-registration. However,
under Section 69, non-registration of partnership gives rise to a number
of disabilities. Although registration of firms is not compulsory, yet the
consequences or disabilities of non-registration have a persuasive
pressure for their registration.
Exceptions: Non-registration of a firm does not, however affect the
following rights:
1. The right of third parties to sue the firm or any partner.
2. The right of partners to sue for the dissolution of the firm or for the
settlement of the accounts of a dissolved firm, or for realization of
the property of a dissolved firm.
3. The power of an Official Assignees, Receiver of Court to release the
property of the insolvent partner and to bring an action.
4. The right to sue or claim a set-off if the value of suit does not exceed
` 100 in value.
5. The right to suit and proceeding instituted by legal representatives or
heirs of the deceased partner of a firm for accounts of the firm or to
realise the property of the firm.

4
 SUGGESTED ANSWER
BUSINESS LAWS

Question 2
(a) Sony, a friend of Priya wanted to buy her two-wheeler. Priya agreed to sell
her two-wheeler to Sony and it was decided that price of her two-wheeler
will be fixed by Priya's father, who is an auto dealer. Priya immediately
handed over the keys to Sony. However, Priya's father refused to fix the
price as he did not want Priya to sell her vehicle. Priya expressed her
inability to sell the two-wheeler to Sony and asked for return, but Sony
refused to return the same. Explain-
(i) Can Priya take-back the vehicle from Sony?
(ii) Will your answer be different, if Priya had not handed over the vehicle
to Sony? (7 Marks)
(b) Ram wants to incorporate a company in which he will be the only member.
According to provisions of the Companies Act, 2013, what type of company
can be incorporated? What are the salient features of this type of company?
(7 Marks)
(c) A LLP is a new form of legal business entity with limited liability. It's an
alternative corporate business vehicle that only gives the benefits of limited
liability at low compliance cost but allows its partners the flexibility of
organizing their internal structure as a traditional partnership. Keeping in
view of above, define the following characteristics of LLP.
(i) Body Corporate
(ii) Mutual Agency
(iii) Foreign LLPs
(iv) Artificial legal person (6 Marks)
Answer
(a) Ascertainment of price (Section 9 of the Sale of Goods Act, 1930):
By virtue of Section 9, the price in a contract of sale may be-
(1) fixed by the contract, or
(2) agreed to be fixed in a manner provided by the contract, e.g., by a
valuer, or
(3) determined by the course of dealing between the parties.

5
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

Agreement to sell at valuation (Section 10):

Section 10 provides for the determination of price by a third party.
1. Where there is an agreement to sell goods on the terms that price is
to be fixed by the valuation of a third party and that third party either
does not or cannot make such valuation, the agreement is thereby
avoided.
However, a buyer who has received and appropriated the goods,
must pay a reasonable price for them.
2. In case the third party is prevented from making the valuation by the
default of either party, the party not at fault may maintain a suit for
damages against the party in fault.
(i) In the instant case, Priya handed over the keys of her two-
wheeler to Sony and it was decided between them that price of
the vehicle will be fixed by Priya’s father. However, Priya’s father
refused to fix the price as he did not want Priya to sell her
vehicle. As the keys have already been handed over to Sony, Priya
cannot take back the keys from Sony and Sony shall pay
reasonable price to Priya for the two-wheeler.
(ii) If Priya had not handed over the vehicle to Sony, the contract
could have been avoided as Priya’s father refused to fix the price
of the vehicle.
(b) (a) Section 2(62) of the Companies Act, 2013 defines one person company
(OPC) as a company which has only one person as a member.
Ram wants to incorporate a company in which he will be the only
member. Hence, he can incorporate an One person Company.
According to section 3(1)(c) of the Companies Act, 2013, OPC is a
private limited company with the minimum paid up share capital as
may be prescribed and having one member.
OPC (One Person Company) – salient features
♦ Only one person as member.
⬥ Minimum paid up capital – no limit prescribed.

6
SUGGESTED ANSWER
BUSINESS LAWS

⬥ The memorandum of OPC shall indicate the name of the other

person, who shall, in the event of the subscriber’s death or his
incapacity to contract, become the member of the company.
⬥ The other person whose name is given in the memorandum shall
give his prior written consent in prescribed form and the same
shall be filed with Registrar of companies at the time of
incorporation.
⬥ Such other person may be given the right to withdraw his
consent.
⬥ The member of OPC may at any time change the name of such
other person by giving notice to the company and the company
shall intimate the same to the Registrar.
⬥ Any such change in the name of the person shall not be deemed
to be an alteration of the memorandum.
⬥ Only a natural person who is an Indian citizen whether resident in
India or otherwise and has stayed in India for a period of not less
than 120 days during the immediately preceding financial year.
 shall be eligible to incorporate an OPC;
 shall be a nominee for the sole member of an OPC.
♦ No person shall be eligible to incorporate more than one OPC or
become nominee in more than one such company.
♦ No minor shall become member or nominee of the OPC or can
hold share with beneficial interest.
♦ Such Company cannot be incorporated or converted into a
company under section 8 of the Act. Though it may be converted
to private or public companies in certain cases.
♦ Such Company cannot carry out Non-Banking Financial
Investment activities including investment in securities of any
body-corporate.
⬥ If One Person Company or any officer of such company
contravenes the provisions, they shall be punishable with fine
which may extend to ten thousand rupees and with a further fine

7
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

which may extend to one thousand rupees for every day after the
first during which such contravention continues.
Here the member can be the sole member-cum-director.
(c) Body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a LLP
is a body corporate formed and incorporated under this Act and is a legal
entity separate from that of its partners and shall have perpetual
succession. Therefore, any change in the partners of a LLP shall not affect
the existence, rights or liabilities of the LLP.
Section 3 of LLP Act, 2008, provides that a LLP is a body corporate formed
and incorporated under this Act and is a legal entity separate from that of
its partners.
Mutual Agency: No partner is liable on account of the independent or
un-authorized actions of other partners, thus individual partners are
shielded from joint liability created by another partner’s wrongful
business decisions or misconduct. In other words, all partners will be the
agents of the LLP alone. No one partner can bind the other partner by his
acts.
Foreign LLPs: Section 2(1)(m) defines foreign limited liability partnership
“as a limited liability partnership formed, incorporated, or registered
outside India which established as place of business within India”. Foreign
LLP can become a partner in an Indian LLP.
Artificial Legal Person: A LLP is an artificial legal person because it is
created by a legal process and is clothed with all rights of an individual. It
can do everything which any natural person can do, except of course that,
it cannot be sent to jail, cannot take an oath, cannot marry or get divorce
nor can it practice a learned profession like CA or Medicine. A LLP is
invisible, intangible, immortal (it can be dissolved by law alone) but not
fictitious because it really exists.
Question 3
(a) (i) P, Q and R formed a partnership agreement to operate motor buses along
specific routes for a duration of 12 years. After operating the business for
four years, it was observed that the business incurred losses each year.
Despite this, P is determined to continue the business for the remaining
Period. Examine with reference to the Indian Partnership Act, 1932, can P

8
 SUGGESTED ANSWER
BUSINESS LAWS

insist to continue the business? If so, what options are available to Q and
R who are reluctant to continue operating the business? (4 Marks)
(ii) A and B operate a textile merchant business in partnership. Mr. A
finances the business and is a sleeping partner. In the regular course of
business, B acquires certain fabric goods belonging to C. However, B is
aware that these goods are stolen property. Despite this knowledge, B
proceeds to purchase and sell some of these stolen goods. Moreover, B
records proceeds from these sales in the firm’s books. Now, A wants to
avoid the liability towards C, on the grounds of misconduct by B. In the
light of the provisions of the Indian Partnership Act, 1932 discuss the
liability of A and B towards C. (3 Marks)
(b) (i) XYZ is a company incorporated under the Companies Act, 2013.
The paid up share capital of the company is held by others as on
31.03.2024 in as under:
(1) Government of India 20%
(2) Life Insurance Corporation of India (Public Institution) 8%
(3) Government of Tamil Nadu 10%
(4) Government of Rajasthan 10%
(5) ABC Limited (owned by Government Company) 15%
As per above shareholding, state whether XYZ limited be called a
government company under the provisions of the Companies Act, 2013.
(4 Marks)
(ii) M and N holding 70% and 30% of the shares in the company. Both
died in an accident. Answer with reference to the provisions of the
Companies Act, 2013, what will be the legal effect on the company as
both the members have died? (3 Marks)
(c) Explain in brief with reference to the provisions of the Indian Contract Act,
1872, what are the rights enjoyed by Surety against the Creditor, the
Principal Debtor and Co-Sureties? (6 Marks)
Answer
(a) (i) Section 40 of the Indian Partnership Act, 1932, gives right to the
partners to dissolve the partnership by agreement with the consent of

9
SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

all the partners or in accordance with a contract between the partners.

‘Contract between the partners’ means a contract already made.
Also, according to section 44, the Court may, at the suit of a partner,
may dissolve a firm on various grounds including where the business
of the firm cannot be carried on except at a loss (in future also).
In the instant case, P wants to continue the partnership business
despite the losses incurred over the past four years and Q and R are
reluctant to continue operating the business due to continuous
losses.
Here, P can insist on continuing the business if the partnership
agreement does not specifically provide such a right to one or more
partner / partners since Section 40 specifies that with the consent of
all the partners or in accordance with a contract between the partners
the firm can be dissolved.
Options available to Q and R
Mutual Agreement to Dissolve the Partnership: Q and R can
propose to P that the partnership be dissolved by mutual agreement.
If P agrees, the partnership can be dissolved amicably.
Dissolution by the Court: If P does not agree to dissolve the
partnership mutually, Q and R can approach the court for an order
under Section 44.
(ii) According to Section 25 of the Indian Partnership Act, 1932, every
partner is jointly and severally liable for all acts of the firm done while
he is a partner.
As per section 26, the firm is liable to the same extent as the partner
for any wrongful act or omission of a partner while acting:
(a) in the ordinary course of the business of the firm, or
(b) with the authority of the partners.
Section 27 provides that the firm is liable if a partner, acting within
the scope of his apparent authority, receives money or property from
a third party and misapplies it, or if the firm in the course of its
business receives money or property and the same is misapplied
while it is in the custody of the firm.

10
 SUGGESTED ANSWER
BUSINESS LAWS

In the instant case, both A and B are liable to C for the wrongful acts
committed by B. A cannot avoid liability merely on the grounds of
being a sleeping partner.
(b) (i) Under the Companies Act, 2013, a Government company is defined in
Section 2(45) as a company in which not less than 51% of the paid-up
share capital is held by:
• The Central Government, or
• Any State Government or Governments, or
• Partly by the Central Government and partly by one or more
State Governments,
And includes a company which is a subsidiary company of such a
Government company.
In the instant case, total Government Shareholding is 40% [i.e. 20%
(Government of India) + 10% (Government of Tamil Nadu) + 10%
(Government of Rajasthan)] = 40%
The holding of the Life Insurance Corporation of India i.e. 8% and
ABC Limited i.e. 15%, total amounting to 23% cannot be taken into
account while counting the prescribed limit of 51%.
Since the total shareholding held by the Central Government and
State Governments combined is 40%, which is less than 51%, XYZ
Limited does not qualify to be a Government company under the
provisions of the Companies Act, 2013.
(ii) One of the features of a company is that it has perpetual
succession. As per this feature, members may die or change, but the
company goes on till it is wound up on the grounds specified by the
Companies Act, 2013. The shares of the company may change hands
infinitely but that does not affect the existence of the company.
Since a company is an artificial person created by law, law alone can
bring an end to its life. Its existence is not affected by the death or
insolvency of its members.
In the instant case, on the death of M and N, who are holding 70%
and 30% shares in the Company, the existence of the company is not

11
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

affected, since the shares held by M and N will be legally transmitted

to their legal heirs.
(c) In terms of the provisions of the Indian Contract Act, 1872, the surety
enjoys the following rights:
(a) Rights against the creditor;
(b) Rights against the principal debtor;
(c) Rights against co-sureties.
Right against the Creditor
(a) Surety’s right to benefit of creditor’s securities [Section 141]: A
surety is entitled to the benefit of every security which the creditor
has against the principal debtor at the time when the contract of
suretyship is entered into, whether the surety knows of the existence
of such security or not; and, if the creditor loses, or, without the
consent of the surety, parts with such security, the surety is
discharged to the extent of the value of the security.
(b) Right to set off: If the creditor sues the surety, for payment of
principal debtor’s liability, the surety may have the benefit of the set
off, if any, that the principal debtor had against the creditor.
(c) Right to share reduction: The surety has right to claim
proportionate reduction in his liability if the principal debtor becomes
insolvent.
Right against the principal debtor
(a) Rights of subrogation [Section 140 of the Indian Contract Act,
1872]: Where, a guaranteed debt has become due, or default of the
principal debtor to perform a guaranteed duty has taken place, the
surety, upon payment or performance of all that he is liable for, is
invested with all the rights which the creditor had against the
principal debtor.
This right is known as right of subrogation. It means that on payment
of the guaranteed debt, or performance of the guaranteed duty, the
surety steps into the shoes of the creditor.
(b) Implied promise to indemnify surety [Section 145]: In every
contract of guarantee there is an implied promise by the principal

12
 SUGGESTED ANSWER
BUSINESS LAWS

debtor to indemnify the surety. The surety is entitled to recover from

the principal debtor whatever sum he has rightfully paid under the
guarantee, but not sums which he paid wrongfully.
Rights against co-sureties
“Co-sureties (meaning)- When the same debt or duty is guaranteed
by two or more persons, such persons are called co-sureties”
(a) Co-sureties liable to contribute equally (Section 146): Unless
otherwise agreed, each surety is liable to contribute equally for
discharge of whole debt or part of the debt remains unpaid by
debtor.
(b) Liability of co-sureties bound in different sums (Section 147):
The principal of equal contribution is, however, subject to the
maximum limit fixed by a surety to his liability. Co-sureties who
are bound in different sums are liable to pay equally as far as the
limits of their respective obligations permit.
Question 4
(a) (i) Mr. J entered into an agreement with Mr. S to purchase his house for
` 20 lakh, within three months. He also paid ` 50,000/- as token money.
In the meanwhile, in an anti-encroachment drive of the local
administration, Mr. S's house was demolished. When Mr. J was informed
about the incident he asked for the refund of token money.
Referring to the relevant provisions of the Indian Contract Act, 1872
state whether Mr. J is entitled to the refund of the amount paid.
(4 Marks)
(ii) Rama directs Shyam to sell laptops for him and agrees to give Shyam
eleven percent (11%) commission on the sale price fixed by Rama for
each laptop. As Government of India put restrictions on import of
Laptops, Rama thought that the prices of laptops might go up in near
future and he revokes Shyam's authority for any further sale. Shyam,
before receiving the letter at his end sold 5 laptops at the price fixed by
Rama. Shyam asked for 11% commission on the sale of 5 Laptops for
` 1 lakh each. Explain under the provisions of the Indian Contract Act,
1872:

13
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

(1) Whether sale of laptops after revoking Shyam's authority is

binding on Rama?
(2) Whether Shyam will be able to recover his commission from Rama,
if yes, what will be the amount of such commission? (3 Marks)
(b) A promissory note, payable at a certain period after sight, must be
presented to the maker thereof for payment. Under which scenarios
presentment for payment is not necessary and the instrument is
dishonoured at the due date for presentment according to the provisions of
the Negotiable Instrument Act. 1881? (7 Marks)
(c) Describe in brief about the following Regulatory bodies of the Government
of India: -
(i) Securities and Exchange Board of India
(ii) Reserve Bank of India
(iii) Insolvency and Bankruptcy Board of India (6 Marks)
Answer
(a) (i) According to section 56 of the Indian Contract Act, 1872, an
agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful:
A contract to do an act which, after the contract is made, becomes
impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful.
According to section 65 of the Indian Contract Act, 1872, when an
agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under such
agreement or contract is bound to restore it, or to make
compensation for it to the person from whom he received it.
In the instant case, Mr. J entered into a contract with Mr. S to
purchase his house for ` 20 lakh, with a token payment of ` 50,000.
The agreement included a condition that the sale would be
completed within three months. Before the completion of the sale,
the house was demolished by the local administration. This event
made it impossible for Mr. S to sell the house to Mr. J as agreed.

14
 SUGGESTED ANSWER
BUSINESS LAWS

In this situation, Mr. J is required to refund ` 50,000 token money

paid to Mr. S, as the contract to sell the house has become void due
to the demolition of the house by the local administration, as a result
of which it becomes impossible to sell the house on the part of S.
(ii) When termination of agent’s authority takes effect as to agent,
and as to third persons [Section 208 of the Indian Contract Act,
1872]: The termination of the authority of an agent does not, so far
as regards the agent, take effect before it becomes known to him, or,
so far as regards third persons, before it becomes known to them.
In the instant case,
(1) The revocation of Shyam's authority becomes effective only when
it is communicated to and received by Shyam. Since Shyam had
not received the revocation letter at the time of selling the
laptops, his authority to sell on behalf of Rama was still valid.
Hence, the sale of laptops conducted by Shyam is binding on
Rama.
(2) Shyam is entitled to receive his commission for the sales made
while he still had the authority to sell. Since he sold the laptops
before receiving the revocation, he is entitled to his commission
as per the initial agreement with Rama.
Amount of Commission: Shyam sold 5 laptops at the price fixed by
Rama, which is `1 lakh each. The total sales amount to `5 lakh. The
agreed commission rate is 11% i.e. ` 55,000.
(b) As per Section 76 of the Negotiable Instruments Act, 1881:
No presentment for payment is necessary, and the instrument is
dishonoured at the due date for presentment, in any of the following
cases:
(a) (i) If the maker, drawee or acceptor intentionally prevents the
presentment of the instrument, or
(ii) if the instrument being payable at his place of business, he closes
such place on a business day during the usual business hours, or
(iii) if the instrument being payable at some other specified place,
neither he nor any person authorised to pay it attends at such
place during the usual business hours, or
15
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

(iv) if the instrument not being payable at any specified place, he

cannot after due search be found;
(b) as against any party sought to be charged therewith, if he has
engaged to pay notwithstanding non-presentment;
(c) as against any party if, after maturity, with knowledge that the
instrument has not been presented—
o he makes a part payment on account of the amount due on the
instrument,
o or promises to pay the amount due thereon in whole or in part,
o or otherwise waives his right to take advantage of any default in
presentment for payment;
(d) as against the drawer, if the drawer could not suffer damage from the
want of such presentment.
(c) (i) The Securities and Exchange Board of India (SEBI):
• It is the regulatory body
• for securities and commodity market in India
• under the ownership of Ministry of Finance within the
Government of India.
• It was established on 12 April, 1988 as an executive body and was
given statutory powers on 30 January, 1992 through the SEBI Act,
1992.
(ii) Reserve Bank of India (RBI):
• It is India's Central Bank and regulatory body responsible for
regulation of the Indian banking system.
• It is under the ownership of Ministry of Finance, Government of
India.
• It is responsible for the control, issue and maintaining supply of
the Indian rupee.
• It also manages the country's main payment systems and works
to promote its economic development.

16
 SUGGESTED ANSWER
BUSINESS LAWS

• Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised

division of RBI through which it prints and mints Indian currency
notes (INR) in two of its currency printing presses located in
Nashik (Western India) and Dewas (Central India).
• RBI established the National Payments Corporation of India as
one of its specialised division to regulate the payment and
settlement systems in India.
• Deposit Insurance and Credit Guarantee Corporation was
established by RBI as one of its specialised division for the
purpose of providing insurance of deposits and guaranteeing of
credit facilities to all Indian banks.
(iii) Insolvency and Bankruptcy Board of India (IBBI)-
• It is the regulator for overseeing insolvency proceedings and
entities like Insolvency Professional Agencies (IPA), Insolvency
Professionals (IP) and Information Utilities (IU) in India.
• It was established on 1 October 2016 and given statutory powers
through the Insolvency and Bankruptcy Code, which was passed
by Lok Sabha on 5th May 2016.
• It covers Individuals, Companies, Limited Liability, Partnerships
and Partnership firms. The new code will speed up the resolution
process for stressed assets in the country.
• It attempts to simplify the process of insolvency and bankruptcy
proceedings.
• It handles the cases using two tribunals like NCLT (National
Company Law Tribunal) and Debt Recovery Tribunal.
Question 5
(a) PTC Hotels in Bombay decided to sell their furniture by auction sale. For
this purpose, they appointed RN & Associates as auctioneer. They invited
top ten renowned Architects in Bombay for bidding. A right to bid was not
notified by them. Furniture was put up in lots for sale. It was decided that
for every lot of furniture there will be a reserve price. On 25th Feb 2024,
Auction sale was started at [Link] in the lawn of PTC Hotels Bombay. For a

17
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

special lot of furniture three parties came for bidding Mr. Neel, Mr. Raj and
Mr. Dev on behalf of their respective companies. Bidding was as follows:

Mr. Neel ` 5.70 lakh

Mr. Raj ` 4.85 lakh
Mr. Dev ` 6.10 lakh
The sale was completed in favour of Mr. Neel by RN & Associates by fall of
hammer. Mr. Dev's Bid was rejected on ground that Right to bid was
reserved and company of Mr. Dev was not invited to bid.
For another bid of Italian Furniture was made by two parties as follows:

Mr. Dheer ` 15 lakh

Mr. Madhu (on behalf of R N & Associates) ` 15.20 lakh
Sale was completed in favour of Mr. Dheer instead of Mr. Madhu.
Mr. Dev and Mr. Madhu argued that auction sale was not lawful. Give your
opinion with reference to provisions of the Sale of Goods Act, 1930 whether
Auction Sale will be considered lawful or not? (7 Marks)
(b) "Dissolution of partnership doesn't mean dissolution of firm". Do you agree
with this statement? State any three situations where court can dissolve the
partnership firm. (7 Marks)
(c) Where a party to a contract refuses altogether to perform, or is disabled
from performing his part of it, the other party has a right to rescind it.
Discuss this statement and the effects of such refusal under the provisions
of The Indian Contract Act, 1872. (6 Marks)
Answer
(a) An ‘Auction Sale’ is a mode of selling property by inviting bids publicly
and the property is sold to the highest bidder. Section 64 of the Sale of
Goods Act, 1930 regulates the legal requirements for the sale by auction.
In terms of the provisions of the above Section, following are some of the
requirements, which inter alia are required to be complied with for
conduct of a valid auction sale-

18
 SUGGESTED ANSWER
BUSINESS LAWS

(i) Where the goods are sold in lots: Where the goods are put up for
sale in lots, each lot is prima facie deemed to be subject of a separate
contract of sale.
(ii) Right to bid may be reserved: Right to bid may be reserved
expressly by or on behalf of the seller and where such a right is
expressly reserved, but not otherwise, the seller or any one person on
his behalf may bid at the auction.
(iii) Where the sale is not notified by the seller: Where the sale is not
notified to be subject to a right to bid on behalf of the seller, it shall
not be lawful for the seller to bid himself or to employ any person to
bid at such sale, or for the auctioneer knowingly to take any bid from
the seller or any such person; and any sale contravening this rule may
be treated as fraudulent by the buyer.
(iv) Reserved price: The sale may be notified to be subject to a reserve
or upset price;
In the first Auction sale, the rejection of Mr. Dev’s bidding was not
justified since the information as to the right to bid was not expressly
given. Therefore, this auction sale was unlawful.
In auction sale of lot 2, since right to bid was not notified, it shall not be
lawful for the seller to bid himself or to employ any person to bid at such
sale. Therefore, auction made in favour of Mr. Dheer will be considered
lawful.
(b) Dissolution of partnership doesn’t mean dissolution of firm. According to
Section 39 of the Indian Partnership Act, 1932, the dissolution of
partnership between all partners of a firm is called the 'dissolution of the
firm'.
Thus, the dissolution of firm means the discontinuation of the legal
relation, the dissolution of firm means the discontinuation of the legal
relation existing between all the partners of the firm. But when only one
or more partners retires or becomes incapacitated from acting as a
partner due to death, insolvency or insanity, the partnership, the
relationship between such a partner and other is dissolved, but the rest
may decide to continue.

19
SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

In such cases, there is in practice, no dissolution of the firm. The particular

partner goes out, but the remaining partners carry on the business of the
firm, it is called dissolution of partnership. In the case of dissolution of the
firm, on the other hand, the whole firm is dissolved. The partnership
terminates as between each and every partner of the firm.
Important note: Different mode of presentation to an answer
Dissolution of partnership doesn’t mean dissolution of firm. This
statement can be proved with the help of some points of distinction
between both of them, which are as follows:
Dissolution of Firm Vs. Dissolution of Partnership

S. Basis of Difference Dissolution of Dissolution of

No. Firm Partnership
1. Continuation of It involves It does not affect
business discontinuation of continuation of
business in business. It involves
partnership. only reconstitution
of the firm.
2. Winding up It involves winding It involves only
up of the firm and reconstitution and
requires realization requires only
of assets and revaluation of assets
settlement of and liabilities of the
liabilities. firm.
3. Order of court A firm may be Dissolution of
dissolved by the partnership is not
order of the court. ordered by the
court.
4. Scope It necessarily It may or may not
involves involve dissolution
dissolution of of firm.
partnership.
5. Final closure of It involves final It does not involve
books closure of books of final closure of the
the firm. books of the firm.

20
SUGGESTED ANSWER
BUSINESS LAWS

Dissolution By the Court (Section 44 of the Indian Partnership Act,

1932):
Court may, at the suit of the partner, dissolve a firm on any of the
following grounds:
(a) Insanity/unsound mind: Where a partner (not a sleeping partner)
has become of unsound mind, the court may dissolve the firm on a
suit of the other partners or by the next friend of the insane partner.
Temporary sickness is no ground for dissolution of firm.
(b) Permanent incapacity: When a partner, other than the partner suing,
has become in any way permanently incapable of performing his
duties as partner, then the court may dissolve the firm. Such
permanent incapacity may result from physical disability or illness etc.
(c) Misconduct: Where a partner, other than the partner suing, is guilty
of conduct which is likely to affect prejudicially the carrying on of
business, the court may order for dissolution of the firm, by giving
regard to the nature of business. It is not necessary that misconduct
must relate to the conduct of the business. The important point is the
adverse effect of misconduct on the business. In each case nature of
business will decide whether an act is misconduct or not.
(d) Persistent breach of agreement: Where a partner other than the
partner suing, wilfully or persistently commits breach of agreements
relating to the management of the affairs of the firm or the conduct
of its business, or otherwise so conduct himself in matters relating to
the business that it is not reasonably practicable for other partners to
carry on the business in partnership with him, then the court may
dissolve the firm at the instance of any of the partners. Following
comes in to category of breach of contract:
 Embezzlement,
 Keeping erroneous accounts
 Holding more cash than allowed
 Refusal to show accounts despite repeated request etc.

21
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

(e) Transfer of interest: Where a partner other than the partner suing,
has transferred the whole of his interest in the firm to a third party or
has allowed his share to be charged or sold by the court, in the
recovery of arrears of land revenue due by the partner, the court may
dissolve the firm at the instance of any other partner.
(f) Continuous/Perpetual losses: Where the business of the firm cannot
be carried on except at a loss in future also, the court may order for
its dissolution.
(g) Just and equitable grounds: Where the court considers any other
ground to be just and equitable for the dissolution of the firm, it may
dissolve a firm. The following are the cases for the just and equitable
grounds-
(i) Deadlock in the management.
(ii) Where the partners are not in talking terms between them.
(iii) Loss of substratum.
(iv) Gambling by a partner on a stock exchange.
(c) An anticipatory breach of contract is a breach of contract occurring
before the time fixed for performance has arrived. When the promisor
refuses altogether to perform his promise and signifies his unwillingness
even before the time for performance has arrived, it is called Anticipatory
Breach.
Anticipatory breach of a contract may take either of the following two
ways:
(a) Expressly by words spoken or written, and
(b) Impliedly by the conduct of one of the parties.
Section 39 of the Indian Contract Act deals with anticipatory breach of
contract and provides as follows:
“When a party to a contract has refused to perform or disable himself
from performing, his promise in its entirety, the promisee may put an end
to the contract, unless he has signified, but words or conduct, his
acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from
performance or from further performance. Further he gets an option:
22
 SUGGESTED ANSWER
BUSINESS LAWS

(1) To either treat the contract as “rescinded and sue the other party for
damages from breach of contract immediately without waiting until
the due date of performance;
or
(2) He may elect not to rescind but to treat the contract as still operative
and wait for the time of performance and then hold the other party
responsible for the consequences of non-performance. But in this
case, he will keep the contract alive for the benefit of the other party
as well as his own, and the guilty party, if he so decides on re-
consideration, may still perform his part of the contract and can also
take advantage of any supervening impossibility which may have the
effect of discharging the contract.
Question 6
(a) Mr. Y issued a cheque for ` 10,000 to Mr. Z which was dishonoured by the
Bank because Y did not have enough funds in his account and has no
authority to overdraw. Examine as per the provisions of the Negotiable
Instruments Act, 1881 whether-
(i) Mr. Y is liable for dishonour of cheque, if yes, what are the
consequences for such an offence?
(ii) What would be your answer if Y issued a cheque as a donation to
Mr. Z? (7 Marks)
(b) Explain the term Wagering agreement in the light of the Indian Contract
Act, 1872. Also, explain some transactions resembling with wagering
transaction but which are not void.
OR
(b) What is the meaning of contingent contract? Write briefly its essentials.
Also, explain any three rules relating to enforcement of a contingent
contract. (6 Marks)
(c) J, a wholesaler of premium Basmati rice delivered on approval 100 bags of
rice of 10 kg each to a local retailer, on sale or returnable basis within a
month of delivery. The next day the retailer sold 5 bags of rice to a regular
customer K. A week later K informed the retailer that the quality of rice was
not as per the price.

23
 SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

The retailer now wants to return all the rice bags to J, including the 4 bags
not used by K. Can the retailer do so?
Also briefly describe the provisions underlying in this context of the Sale of
Goods Act, 1930, (7 Marks)
Answer
(a) Dishonour of Cheque for Insufficiency, Etc., of funds in the accounts
[Section 138 of the Negotiable Instruments Act, 1881]
Where any cheque drawn by a person on an account maintained by him
with a banker—
• for payment of any amount of money
• to another person from that account
• for the discharge, in whole or in part, of any debt or other liability, [A
cheque given as gift or donation, or as a security or in discharge of a
mere moral obligation, or for an illegal consideration, would be
outside the purview of this section]
• is returned by the bank unpaid,
• either because of the—
o amount of money standing to the credit of that account is
insufficient to honour the cheque, or
o that it exceeds the amount arranged to be paid from that
account by an agreement made with that bank,
such person shall be deemed to have committed an offence and shall, be
punished with imprisonment for a term which may extend to two years, or
with fine which may extend to twice the amount of the cheque, or with
both.
In the instant case,
(i) Since Y’s cheque was dishonoured by the Bank due to insufficiency of
funds in his account, he shall be deemed to have committed an
offence and shall, be punished with imprisonment for a term which
may extend to two years, or with fine which may extend to Rs. 20,000,
or with both.

24
 SUGGESTED ANSWER
BUSINESS LAWS

(ii) A cheque given as gift or donation, or as a security or in discharge of

a mere moral obligation, or for an illegal consideration, would be
outside the purview of this section. Hence, if Y issued a cheque as a
donation to Mr. Z, he shall not be liable under section 138 of the Act.
(b) Wagering agreement (Section 30 of the Indian Contract Act, 1872):
An agreement by way of a wager is void. It is an agreement involving
payment of a sum of money upon the determination of an uncertain
event. The essence of a wager is that each side should stand to win or
lose, depending on the way an uncertain event takes place in reference to
which the chance is taken and in the occurrence of which neither of the
parties has legitimate interest.
Transactions resembling with wagering transaction but are not void
(i) Chit fund: Chit fund does not come within the scope of wager
(Section 30). In case of a chit fund, a certain number of persons
decide to contribute a fixed sum for a specified period and at the end
of a month, the amount so contributed is paid to the lucky winner of
the lucky draw.
(ii) Commercial transactions or share market transactions: In these
transactions in which delivery of goods or shares is intended to be
given or taken, do not amount to wagers.
(iii) Games of skill and Athletic Competition: Crossword puzzles,
picture competitions and athletic competitions where prizes are
awarded on the basis of skill and intelligence are the games of skill
and hence such competitions are valid.
(iv) A contract of insurance: A contract of insurance is a type of
contingent contract and is valid under law and these contracts are
different from wagering agreements.
OR
(b) Essentials of a contingent contract
(a) The performance of a contingent contract would depend upon
the happening or non-happening of some event or condition. The
condition may be precedent or subsequent.

25
SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

(b) The event referred to as collateral to the contract. The event is not
part of the contract. The event should be neither performance
promised nor a consideration for a promise.
(c) The contingent event should not be a mere ‘will’ of the promisor.
The event should be contingent in addition to being the will of the
promisor.
(d) The event must be uncertain. Where the event is certain or bound
to happen, the contract is due to be performed, then it is a not
contingent contract.
Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract
Act, 1872)
“A contract to do or not to do something, if some event, collateral to such
contract, does or does not happen”.
Rules Relating to Enforcement of a contingent contract:
The rules relating to enforcement of a contingent contract are laid down
in sections 32, 33, 34, 35 and 36 of the Act.
(a) Enforcement of contracts contingent on an event happening:
Section 32 says that “where a contingent contract is made to do or
not to do anything if an uncertain future event happens, it cannot be
enforced by law unless and until that event has happened. If the
event becomes impossible, such contracts become void”.
(b) Enforcement of contracts contingent on an event not happening:
Section 33 says that “Where a contingent contract is made to do or
not do anything if an uncertain future event does not happen, it can
be enforced only when the happening of that event becomes
impossible and not before”.
(c) A contract would cease to be enforceable if it is contingent upon
the conduct of a living person when that living person does
something to make the ‘event’ or ‘conduct’ as impossible of
happening.
Section 34 says that “if a contract is contingent upon as to how a
person will act at an unspecified time, the event shall be considered
to have become impossible when such person does anything which

26
 SUGGESTED ANSWER
BUSINESS LAWS

renders it impossible that he should so act within any definite time or

otherwise than under further contingencies”.
(d) Contingent on happening of specified event within the fixed
time: Section 35 says that Contingent contracts to do or not to do
anything, if a specified uncertain event happens within a fixed time,
becomes void if, at the expiration of time fixed, such event has not
happened, or if, before the time fixed, such event becomes
impossible.
(e) Contingent on specified event not happening within fixed time:
Section 35 also says that - “Contingent contracts to do or not to do
anything, if a specified uncertain event does not happen within a
fixed time, may be enforced by law when the time fixed has expired,
and such event has not happened or before the time fixed has
expired, if it becomes certain that such event will not happen”.
(f) Contingent on an impossible event (Section 36): Contingent
agreements to do or not to do anything, if an impossible event
happens are void, whether the impossibility of the event is known or
not to the parties to the agreement at the time when it is made.
(c) According to Section 24 of the Sales of Goods Act, 1930, in case of
delivery of goods on approval basis, the property in goods passes from
seller to the buyer:-
(i) When the person to whom the goods are given either accepts them
or does an act which implies adopting the transaction.
(ii) When the person to whom the goods are given retains the goods
without giving his approval or giving notice of rejection beyond the
time fixed for the return of goods and in case no time is fixed after
the lapse of reasonable time.
In the given case, J (seller) has delivered on approval 100 bags of rice of
10 kg each to local retailer (buyer) on sale or returnable basis within a
month of delivery. Out of these 100 bags, the local retailer sold 5 bags to
K (customer). It implies that the local retailer has accepted 5 bags out
of 100.

27
SUGGESTED ANSWER
FOUNDATION EXAMINATION: JUNE 2024

A week later, local retailer received the complaint of some defect in the
rice bags, so, he wanted to return all the bags to the J (seller).
According to the above provisions, the local retailer is entitled to return
only 95 bags to the J (seller) and not those 4 bags which are not used by
K. Because, as per clause (i) above, the local retailer has already sold 5
bags, signifying that he has done an act which implies adopting the
transaction relating to those 5 bags.

28