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PAPER 3: BUSINESS AND CORPORATE LAWS The Indian Contract Act, 1872 1.

. A student was induced by his teacher to sell his brand new car to the later at less than the purchase price to secure more marks in the examination. Accordingly the car was sold. However, the father of the student persuaded him to sue his teacher. State on what ground the student can sue the teacher? A received certain goods from B promising to pay Rs. 10,000/-. Later on, A expressed his inability to make payment. C, who is known to A, pays Rs, 6000/- to B on behalf of A. However, A was not aware of the payment. Now B is intending to sue A for the amount of Rs. 10000/- whether he can do so? Advice. A bails his jewelry with B on the condition to safeguard in banks safe locker. However, B kept in safe locker at his residents, where he usually keeps his own jewellery's. After a month all jewelry was lost in a religious riot. A filed a suit against B for recovery. Referring to provisions of the Indian Contract Act, 1872, state whether A will succeed. What is agency? Briefly explain different modes of creation of an agency relationship.

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The Sale of Goods Act, 1930 5. X bought 100 boxes of Apple from Y on sample. After receiving delivery from Y, he found that 60 boxes were not according to the sample quality. Therefore, he wants to forfeit his contract with Y. Referring to the provisions of Sale of Goods Act, 1930, state whether he can rescind the contract with Y. A purchased a brand new car for Rs. 5 lakhs on a month's credit and agrees to take delivery on next week. A fire broke at dealers showroom and the car was badly damaged. A is refusing to take delivery of the car and wants to cancel the deal. State whether he can do so? M sold 100 bags of rice to N on two month's credit. N requested M to keep rice bags in his warehouse till the delivery. After one month N became insolvent and the official assignee is asking for delivery of rice bags without making payment to M. State whether M can retain delivery until paid.

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The Indian Partnership Act, 1932 8. X and Y are partners in a partnership firm. X introduced A, a manger, as his partner to Z. A remained silent. Z, a trader believing A as partner supplied 100 T.V sets to the firm on credit. After expiry of credit period, Z did not get amount of T.V sets sold to the partnership firm. Z filed a suit against X and A for the recovery of price. Considering the provisions of the Indian Partnership Act, 1932 state whether A is liable. M, a partner made an advance in excess of the amount of capital to be contributed to a partnership firm. Further, he also made an advance to the firm for expansion of its operations. However, firm is not doing well in its business and all partners are intending to dissolve the firm. Considering the provisions of the Indian Partnership Act, 1932 state whether they can do so? What will be status of M's additional contribution to capital and advance made by him to the firm?

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10. A, B and C are partners in a Partnership firm. They were carrying their business successfully for the past several years. Spouses of A and B fought in ladies club on their personal issue and A's wife was hurt badly. A got angry on the incident and he convinced C to expel B from their partnership firm. B was expelled from partnership without any notice from A and B. Considering the provisions of Indian Partnership Act, 1932 state whether they can expel a partner from the firm. The Negotiable Instruments Act, 1881 11. X drew a cheque payable to 'Y or on order'. Unfortunately it was lost and Y's endorsement was forged. Subsequently, the banker pays for the cheque. Is the banker discharged from liability? What will be the consequences if the drawer's signatures were forged?

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12. How do you distinguish between discharge of instrument and discharge of party under the Negotiable Instruments Act, 1881? 13. M drew a cheque amounting to Rs. 2 lakh payable to N and subsequently delivered to him. After receipt of cheque N indorsed the same to C but kept it in his safe locker. After sometime, N died, and P found the cheque in N's safe locker. Does this amount to Indorsement under the Negotiable Instruments Act, 1881? 14. Briefly explain the different modes of discharge of an instrument under the Negotiable Instruments Act, 1881 The Payment of Bonus Act, 1965 15. Briefly state the categories of employees who are exempted from the operation of the Payment of Bonus Act, 1965 16. Briefly explain the procedure for calculation of number of working days and proportionate reduction in bonus under the Payment of Bonus Act, 1965 17. A limited company earned super profits during financial year. It intends to give maximum bonus to its employees. In this regard you are asked to advice the company on permissible maximum bonus under the Payment of Bonus Act, 1965. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 18. An employee of limited company filed a claim for provident fund settlement with the provident fund commissioner. However, he did not get any settlement from the authority even after six month's. Referring to the EPF & MP Act, 1952 what course of action an authority should have taken in this respect. 19. Explain the quantum of contribution by the employees and the employer to the provident fund account under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. 20. Briefly explain the formation of Employees' Provident fund Appellate Tribunal under the EPF & MP Act, 1952. The Cooperative Societies Act, 1912 including the Multi-state Cooperative Societies Act, 2002 21. Explain the purposes for setting up of cooperative central banks and unions under the Cooperative Societies Act, 1912. 22. What are the conditions for registration of a society under the Cooperative Societies Act, 1912? 23. A Multi-state Cooperative Society is willing to appoint a new auditor in place of retiring auditor. Referring to the provisions of Multi-state Cooperative Societies Act, 2002, state whether they can do so. 24. Who can become member in a multi-state cooperative society as per the provisions of the Multistate Cooperative Societies Act, 2002. The Companies Act, 1956 25. The existing number of members in a public limited company is below the requirement as per the Companies Act, 1956. However, the company is continuing its business operations. State the legal consequences arising out of such continuance business. 26. X applied for 500 shares in a limited company in a fictitious name. The shares were allotted in that fictitious name. Referring to the relevant provisions of Companies Act, 1956 state whether X will incur any liability. 27. State the manner in which a person may acquire membership of a public company. 28. Under what circumstances a company becomes subsidiary of another company under the provisions of the Companies Act, 1956. 29. What is abridged form of prospectus? Under what circumstances such abridged prospectus is not required to be accompanied with the share application form?

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30. A limited company willing to purchase a tea estate in Assam. Extracts from experts report mentioning number of tea plants and other relevant information was incorporated in the prospectus. The expert report was found to be incorrect. Does any prospective applicant shareholder buying the shares on the basis of false information has any remedy against the company? 31. A general meeting of a public company was adjourned by the chairman for want of quorum. Fresh notice was not served for the adjourned meeting. Do you feel that notice is required for the adjourned meeting? Referring to the provisions of the Companies Act, 1956 state the minimum number of members required to be present in the adjourned meeting. 32. X purchased 100 equity shares of ABC ltd. from Y. Though the amount of transaction was paid to the seller, the transferee name is not appearing in the list of members. Subsequently, the company declared dividend. Referring to the provisions of the Companies Act, 1956 state to whom the company will be paying the dividend. HINTS/SUGGESTED ANSWERS 1. Yes, A can sue his teacher on the ground of undue influence under the provisions of Indian Contract Act, 1872. A contract brought as a result of coercion, undue influence, fraud or misrepresentation would be voidable at the option of the person whose consent was caused. As per section 41 of the Indian Contract Act, 1872, when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. That is, performance by a stranger, accepted by the promisee, produces the result of discharging the promisor, although the latter has neither authorised nor ratified the act of the third party. Therefore, in the present instance, B can sue only for the balance amount ie., Rs. 4000/-and not for the whole amount. 3. Referring to the Section 152 of the Indian Contract Act, 1872, B is liable to compensate A for his negligence to keep jewellery's in the Bank. Here, A and B agreed to keep the jewellery's at the Banks safe locker and not at laters residence. Agency is a comprehensive word which is used to describe the relationship that arises where one person is employed by another in order to bring the latter into legal relations with a third person. The Indian Contract Act,1872 does not define Agency but it defines an agent as a person employed to do any act for another or to represent another in dealings with third person. The person for whom such act is done, or who is so represented is called the principal. (Section 182). The law recognises various modes to create the agency, which are as follows: (i) Agency by actual authority (ii) Agency by ratification (iii) Agency by ostensible authority (iv) Agency by necessity (v) Actual authority and apparent authority 5. 6. 7. 8. Referring to the provisions of the Sale of Goods Act, 1930, (section 17) X can repudiate the contract with Y because he has not delivered the goods as per sample quality. According to Section 20 of the Sale of Goods Act, 1930, the property in the Car has passed to A and he is bound to accept the delivery and pay price. As per Section 47 of the Sale of Goods Act,1930, M is entitled to retain the goods as security for the price until he is paid. Yes, A is also liable for the price because he becomes a partner by holding out (Section 28, Indian Partnership Act, 1932).

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When a partner makes an advance to the firm in addition to the amount of capital to be contributed by him. In such a case, the partner is entitled to claim interest thereon @6% per annum [Section 13 (d)]. While interest on capital account ceases to run on dissolution, the interest on advances keep running even often dissolution and up to the date of payment. From the discussion so far, you will notice that the Partnership Act makes a distinction between the capital contribution of a partner and the advance made by him to the firm. The advances are regarded as loans, which should bear interest while capital interest only when there is an agreement to this effect.

10. 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. It is, thus, essential that: (i) the power of expulsion must have existed in a contract between the partners; (ii) the power has been exercised by a majority of the partners; and (iii) it has been exercised in good faith. If all these conditions are not present, the expulsion is not deemed to be in bonafide interest of the business of the firm. The test of good faith as required under Section 33(1), Indian Partnership Act, 1932 includes three things: (a) that the expulsion must be in the interest of the partnership. (b) that the partner to expelled is served with a notice. (c) that he is given an opportunity of being heard. If a partner is otherwise expelled, the expulsion is null and void. The only remedy, when a partner misconduct in the business of the firm, is to seek judicial dissolution. Therefore, expulsion of Partner B is not valid. 11. The paying banker is discharged from liability, despite the forged Indorsement in favour of the payee, because of special protection granted by section 85(1) of the Negotiable Instruments Act, 1881. In another instance, where the drawer's signature is forged, a banker remains liable to the drawer even by a payment in due course and cannot debit the drawer's account. 12. An instrument is said to be discharged only when the party who is ultimately liable thereon is discharged from liability. Therefore, discharge of a party to an instrument does not discharge the instrument itself. Consequently, the holder in due course may proceed against the other parties liable for the instrument. On the other hand, when a bill has been discharged by payment, all rights there under are extinguished even a holder in due course cannot claim any amount under the bill. 13. No, P does not become the holder of the cheque as the negotiation was not completed by delivery of the cheque to him. (Section 48, the Negotiable Instruments Act, 1881) 14. Discharge of an instrument 1. 2. 3. 4. 5. by express waiver by payment in due course by party primarily liable by becoming holder by cancellation by discharge as a simple contract.

15. The following are the categories of employees who are excluded from the operation of the Payment of Bonus Act, 1965: (i) Employees employed by the Life Insurance Corporation of India. (ii) Seamen as defined under Section 3(42) of the Merchant Shipping Act, 1958. (iii) Employees registered or listed under any scheme made under the Dock Workers

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(Regulation of Employment) Act, 1948 and employed by the registered or listed employers. (iv) Employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or State Government or a local authority. 16. Section 14 of the Payment of Bonus Act, 1965 provides computation of number of working days for the purposes of Section 13. Section 13 in turn prescribes a scale whereby bonus can be proportionately reduced in certain cases. Under Section 14, following days shall be deemed to be the working days of an employee and shall be counted while calculating the total working days on which he has been on work for the purpose of bonus: (i) day when he has been laid off under an agreement or by a standing order under Industrial Employment (standing orders) Act, 1946 or Industrial Disputes Act, 1947 or any other law.

(ii) he has been on leave with salary or wage. (iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment and (iv) the employee has been on maternity leave with salary or wages during the accounting year. 17. Where, in respect of any accounting year referred to in Section 10 of the Payment of Bonus Act,1965, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum 20% of such salary or wage. 18. The Provident Fund claims complete in all respects submitted along with the requisite documents shall be settled and the benefit amount paid to the beneficiaries within 30 days from the date of its receipt by the Commissioner. If there is any deficiency in the claim, the same shall be recorded in writing and communicated to the applicant within 30 days from the date of receipt of such application. In case the Commissioner fails without sufficient cause to settle a claim complete in all respects within 30 days, the Commissioner shall be liable for the delay beyond the said period and penal interest at the rate of 12% per annum may be charged on the benefit amount and the same may be deducted from the salary of the Commissioner. 19. According to Section 6 of the Employees' Provident Funds and Miscellaneous Provision's Act, 1952, the employees contribution to the fund shall be 10% of the basic wage, dearness allowance and retaining allowance (if any). An employee can at his will contribute beyond 10% if the scheme makes provision therefore subject to the conditions that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this Section. This rule will prevail irrespective of whether the employer employs the person directly or through contractor. According to the first proviso to the Section the Central Government may, however, raise the aforesaid percentage of contribution from 10% to 12% in respect of any establishments. It may do so after making such inquiries as it deems fit. 20. The Central Government may, by notification in the Official Gazette, constitute one or more Appellate Tribunals to be known as the Employees Provident Funds Appellate Tribunal to exercise the powers and discharge the functions conferred on such Tribunal by the EPF & MP Act,1952 and every such Tribunal shall have jurisdiction in respect of establishments situated in such area as may be specified in the notification constituting the Tribunal. 21. Under the Cooperative Societies Act, 1912, Cooperative Central Banks and Unions can be set up only with the object to facilitate the operations of primary societies. In no case, profit-making should be their objective:

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They must be established with the object of facilitating the operations of Cooperative Societies;

(ii) Their liability must ordinarily be limited. (iii) They are not subject to the restrictions imposed by Section 5 in so far as their members are societies; (iv) They are not subject to the requirements of Section 6 with regard to members residence, and similarity of tribe, class or occupation. 22. According to Section 6 of the Co-operative Societies Act, 1912, the condition for registration of a society are as follows: A society, other than a society of which a member is a registered society, shall not be registered under this Act if it does not consist of at least ten persons above the age of eighteen years and where the object of the society is the creation of funds to be lent to its members, unless such person: (i) reside in the same town or village or in the same group of village; or (ii) save where the Registrar otherwise directs, are members of the same tribe, class, caste or occupation; (iii) The word limited shall be the last word to the name of registered under this Act. every society with limited liability

If a society fails to retain ten members, such a failure may lead to the cancellation of its registration (Section 40). But the breach of the other conditions does not lead to cancellation unless the bye-laws so provide for. 23. Provision as to resolutions for appointing or removing auditors: (Section 71, the Multi-state Cooperative Societies Act,2002) 1. A special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be re-appointed. On receipt of notice of such a resolution, the multi-State co-operative society shall forthwith send a copy thereof to the retiring auditor. Where such notice is given and the retiring auditor makes representations in writing to the society (not exceeding a reasonable length) and requests their notification to members, the society shall, (unless the representations are received by it too late),a. b. 4. state the fact of the representations having been made, in any notice of the resolution given to members; and send a copy of the representation to every member of the Multi-State co-operative society to whom notice of the meeting is sent.

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If a copy of the representations is not sent to the members because they were received too late or because of the society's default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.

24. Under the Multi-state Cooperative Societies Act,2002 the following persons are eligible to become members of Multi-State Co-operative Society (Section 25), namely (a) an individual competent to contract u/s 11 of the Indian Contract Act; (b) any Multi-State Co-operative Society or any Co-operative Society; (c) the Central Government. (d) a State Government;

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(e) the National Co-operative Development Corporation established under the National Cooperative Development Corporation Act, 1962; (f) any other corporation owned or controlled by Government; (g) any Government company as defined in Section 617 of the Companies Act, 1956; (h) such class or classes of persons or association of persons as may be permitted by the Central Registrar having regard to the nature and activities of Multi-State Co-operative Society. However, no individual person shall be eligible for admission as a member of a national Co-operative Society or a Federal Co-operative [section 25(2)]. 25. Members are personally and severally liable for the whole of the debts contracted after the date from which number of members falls below minimum requirement as per the Companies Act, 1956. 26. X shall be punishable with imprisonment for a term, which may extend to 5 years. (Section 68A (1) The Companies Act, 1956.) 27. Membership 1. 2. 3. 4. 5. By subscribing to the memorandum of association By application and allotment of shares By agreeing to take qualification shares By transfer of shares By succession.

28. Holding and Subsidiary Companies are relative terms. A company is a holding company of another only if the other is its subsidiary. Any of the circumstances illustrated below must exist to constitute the relationship of holding and subsidiary companies: (a) When one company control the composition of Board of Directors of the other companies. (b) When a company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company. Where a company other than above mentioned company above holds more than half in nominal value of the equity share capital of the other company. [Section 4(1)(b)]. (c) Where a company is subsidiary of another company which is subsidiary of still another company. 29. Abridged form of prospectus As per the new definition contained in the Companies (Amendment) Act, 2000, abridged prospectus means a memorandum containing such salient features of a prospectus as may be prescribed. [(Section 2(1)] The exceptions are: (a) In the case of bona fide underwriting agreement [Section 56(3)(a)]. (b) Where the shares or debentures are not offered to the public [Section 56(3)(b)]. (c) Where the offer is made only to existing members or debenture holders of the company, whether with or without the right of renunciation [Section 56(5)(a)]. (d) In the case of issue of shares or debentures which are in all respects similar with those previously issued and dealt in on a recognised stock exchange [Section 56(5)(b)].

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30. In the case of mis-statement in a prospectus, the allottees shall have the right to claim compensation from the company for any loss that they might have sustained in terms of the value of shares. 31. As per section 174 of the companies Act, 1956, if within half an hour from the time appointed for holding a meeting for the company quorum is not present, the meeting, shall stand adjourned to the same day in the next week, at the same time and place unless the directors determine otherwise. No fresh notice is, therefore, required to hold the adjourned meeting. Besides, no quorum is necessary in the adjourned meeting. Thus, the adjourned meeting in question is valid. 32. According to section 206 of the Companies Act, 1956 dividend shall be paid only to the registered holder of shares or to his order or to his bankers or to the bearer of a share warrant. Where shares have been sold but not yet registered, the dividend shall be paid to the transferee only in case the transferor gives a mandate in writing to that effect. Otherwise, the dividend in respect of such shares shall be transferred to the unpaid dividend account.

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