BUSINESS LAWS QUESTION BANK CHAPTER:1

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CA NIKESH AGRAWAL
BUSINESS LAWS QUESTION BANK CHAPTER: 1

Extra Question For Sept 2025 Attempt

Chapter: 1 - Indian Regulatory Framework
08 – Explain in brief the important functions played by the Ministry of Finance, the
Ministry of Corporate Affairs and the Ministry of Law and Justice in enforcing the law in
India. 4)c)6m,May2025

Ans – – The Ministry of Finance

• The Ministry of Finance (Vitta Mantralaya) is a Ministry within the Government of India
concerned with the economy of India, serving as the Treasury of India.

• In particular, it concerns itself with taxation, financial legislation, financial institutions,

capital markets, centre and state finances, and the Union Budget.

• One of the important functions of the Finance Ministry is the presentation of the Union
Budget. This annual event is eagerly awaited by professionals and the common man as it
provides for the rates of taxes and budget allocations for the ensuing year.

The Ministry of Corporate Affairs – Same as Ans No. 1

The Ministry of Law and Justice

• The Ministry of Law and Justice in the Government of India is a Cabinet Ministry

• It deals with the

➢ management of the legal affairs, through the Department of Legal Affairs

➢ legislative activities through the Legislative Department

➢ administration of justice in India through the Department of Justice

• The Department of Legal Affairs is concerned with advising the various Ministries of the
Central Government while the Legislative Department is concerned with drafting of principal
legislation for the Central Government.

07 - What do you understand by Law? Also explain, how is Law enforced in a legal system?

4)c)6m,MTP1,May2025

Ans – What is Law is same as Answer No. 5.

Enforcement of Law:

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BUSINESS LAWS QUESTION BANK CHAPTER: 1

• After a law is passed in parliament it has to be enforced. Somebody should monitor whether
the law is being followed. This is the job of the executive.

• Depending on whether a law is a Central law or a State law the Central or State Government
will be the enforcing authority.

• For this purpose, government functions are distributed to various ministries. Some of the
popular Ministries are the Ministry of Finance, the Ministry of Corporate Affairs, the
Ministry of Home Affairs, the Ministry of Law and Justice and so on. These Ministries are
headed by a minister and run by officers of the Indian administrative and other services.

• The Government of India exercises its executive authority through a number of Government
Ministries or Departments of State. A Ministry is composed of employed officials, known as
civil servants, and is politically accountable through a minister.

• Most major Ministries are headed by a Cabinet Minister, who sits in the Union Council of
Ministers, and is typically supported by a team of junior ministers called the Ministers of
State.

Chapter: 2 Unit: 1 – Nature of Contracts

No Extra Questions

Chapter: 2 Unit: 2 – Consideration

11 – Shri Shivay Temple Trust decided to get renovation of the temple under trust. For
this purpose, the President of the trust discussed the budget with contractor. The
contractor provided the budget of ` 5,00,000. After gaining enough membership to support
the funds required renovating the temple, the committee entered in a contract with
contractor for renovation. The plans for the proposed structure were submitted and
passed. But as the membership list increased, the plans also expanded. Hence, the
expected cost of construction is increased from ` 5,00,000 to ` 7,00,000. Now, increased
amount of ` 7,00,000 stayed approved and obligated by the committee and contractor.
Renovation work was completed, and contractor demanded the payment from committee.
Meanwhile, new members who promised to contribute did not turnup. President had filed the
suit against the members who promised to contribute. Members denied on the views that
their contract with committee to contribute was without any consideration hence invalid.
State with reason whether committee will succeed under the provisions of the Indian
Contract Act, 1872? RTP,May2025

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Ans - As per Section 25 of the Indian Contract Act, 1872, an agreement made without
consideration is void. However, there are certain exceptions to this rule. If a promisee
undertakes the liability on the promise of the person to contribute to charity, there the
contract shall be valid even without consideration. This was also confirmed in case of Kedarnath
vs. Gorie Mahommed.

In the instant case, the Committee of Shri Shivay Temple trust entered into contract for
renovation of temple for ` 5,00,000. Some members promised to contribute the funds and on
the basis of those promises, the committee has extended the work for which cost was increased
from ` 5,00,000 to ` 7,00,000. New members who promised to contribute did not turn up. The
committee had filed the suit against the members who promised to contribute. But members
denied the view that their contract with the committee to contribute was without any
consideration, hence invalid.

Hence, on the basis of the above facts and provisions, the promise made by members to
contribute is perfectly valid even without consideration. Therefore, the committee will succeed,
and members have to pay the promised amount.

Chapter: 2 Unit: 3 – Other Essential Elements of a Contract

No Extra Questions

Chapter: 2 Unit: 4 – Performance of Contract

25 – Give your opinion with reference to provisions of the Indian Contract Act, 1872:

1. Whether Joint promisor and promisee voluntary discharge their obligation even after
death?

2. In case they won't be able to discharge their obligation, whether any of the joint
promisor may be compelled?

3. What would be the situation in case of default by any one of them? 5)c)i)4m,May2025

Ans – 1) According to section 42 of the Indian Contract Act, 1872, if two or more persons have
made a joint promise, ordinarily all of them during their life-time must jointly fulfil the promise.
After death of any one of them, his legal representative jointly with the survivor or survivors
should do so. After the death of the last survivor the legal representatives of all the original co-
promisors must fulfil the promise.

Hence, the legal representative can jointly discharge the obligations of joint promisor and
promisee, after their death.

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2) As per section 43, each of two or more joint promisors may compel every other joint promisor
to contribute equally with himself to the performance of the promise, unless a contrary intention
appears from the contract.

Hence, the joint promisor may be compelled.

3) If any one of two or more joint promisors makes default in such contribution, the remaining
joint promisors must bear the loss arising from such default in equal shares.

24 – Albert obtained 2 loans of ` 3,00,000 and ` 4,00,000 respectively from a reputed

Bank. Out of these 2 loans, loan of ` 3,00,000 was guaranteed by Robert. Albert sent `
2,00,000 to bank but did not intimate as to how it is to be appropriated towards the loans.
The Bank appropriated the whole of ` 2,00,000 to the loan of ` 4,00,000 (the loan not
guaranteed). Robert objected on the decision of the Bank. He argued with bank that
repayment amount should be first adjusted to the guaranteed loan. State with reasons,
whether the Bank was correct in its decision under the Indian Contract Act, 1872?

RTP,Sept2025, 1)a)ii)MTP1,May2025

Ans - Section 60 of the Indian Contract Act, 1872 provides, where the debtor does not
intimate and there are no circumstances indicating to which debt the payment is to be applied,
the creditor may apply it at his discretion to any lawful debt actually due and payable to him
from the debtor. However, it cannot be applied to a disputed debt.

In the instant case, Albert obtained 2 loans of ` 3,00,000 and ` 4,00,000 respectively from a
reputed Bank of which loan of ` 3,00,000 was guaranteed by Robert. Albert sent ` 2,00,000 to
bank without intimating as to how it is to be appropriated towards the loans. The Bank
appropriated the whole of ` 2,00,000 to the loan of ` 4,00,000 (the loan not guaranteed).
Robert objected that repayment amount should be first adjusted to the guaranteed loan.

On the basis of provisions and facts of the case, it can be said that in the absence of clear
intimation about the appropriation of payment, it is the sole discretion of the Bank to which loan
it can appropriate the amount. Hence, the Bank was correct in its decision under the Indian
Contract Act, 1872.

23 - 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 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
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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)a)i)4m,MDTP1

OR

Rahul is manufacturer of jute bags. He contracted with Sonia to supply raw jute for the
purpose of making bags. Rahul informed Sonia that production process of jute bags would
start from 27.06.2024 but Sonia must supply raw jute till 25.06.2024 so that quality
verifications can be done in next two days. Sonia supplied the jute on 27.06.2024 and
informed Rahul that she couldn’t supply on 25.06.2024 due to some unavoidable reasons and
she also assured that quality measures were not anyway compromised in supplies. But Rahul
wanted to avoid the contract as he was not given opportunity to examine the goods. In light
of provisions of Indian Contract Act, 1872, state whether Rahul can avoid the contract?

RTP,Sept2025

Ans - “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 12th 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.

OR

In the instant case, Rahul, a manufacturer of jute bags entered in a contract with Sonia to
supply raw jute with the instructions that he needs raw jute till 25.06.2024 so that quality
verifications can be done in next two days. But Sonia supplied the jute on 27.06.2024 with the
information that she couldn’t supply on 25.06.2024 due to some unavoidable reasons.

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On the basis of the facts of the case, Rahul was not given a proper opportunity to examine the
goods at the time of performance. This cannot be considered as valid performance by Sonia.
Hence, Rahul can avoid the contract entered with Sonia.

Chapter: 2 Unit: 5 – Breach of Contract And It's Remedies

No Extra Questions

Chapter: 2 Unit: 6 – Contingent & Quasi Contracts

12 – Akhil ordered 100 Kgs of wheat to M/s Sahil Kirana Store, and it promised to supply
the wheat by the evening. In the evening, the hawker of M/s Sahil Kirana Store comes
with 100 Kgs of wheat but mistakenly he delivered it at the house of neighbor of Akhil.
Referring to the provisions of the Indian Contract Act, 1872, advice who will be liable to
pay the price of wheat? RTP,Sept2025

Ans - By virtue of provisions of Section 72 of the Indian Contract Act, 1872, a person to whom
money has been paid or anything delivered by mistake or under coercion, must repay or return it.
Further, as per decision taken in case of Shivprasad Vs Sirish Chandra, every kind of payment of
money or delivery of goods for every type of ‘mistake’ is recoverable.

In the instant case, Akhil contracted M/s Sahil Kirana Store for supply of 100 Kgs of wheat
which to be delivered by the evening. In the evening, the hawker of M/s Sahil Kirana Store
mistakenly delivered 100 Kgs wheat at the house of neighbor of Akhil.

As the hawker of M/s Sahil Kirana Store mistakenly delivered 100 Kgs wheat at the house of
neighbor of Akhil and neighbor accepted the wheat, there is a quasi-contract between M/s Sahil
Kirana Store and neighbor. Hence, neighbor will be liable to pay the price of wheat.

Chapter: 2 Unit: 7 – Contract of Indemnity & Guarantee

17 - According to provisions of the Indian Contract Act, 1872, define the following terms
with reference to contract of guarantee:

(i) Nature and extent of Surety's Liability

(ii) Discharge of a Contract of Surety by Invalidation of the Contract of Guarantee.

3)c)6m,May2025

Ans – i) Nature and extent of Surety’s Liability [Section 128 of the Indian Contract Act,
1872]

(A) The liability of the surety is co-extensive with that of the principal debtor unless it is
otherwise provided by the contract.

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(B) Liability of surety is of secondary nature as he is liable only on default of principal debtor.

(c) Where a debtor cannot be held liable on account of any defect in the document, the liability
of the surety also ceases.

(D) A creditor may choose to proceed against a surety first, unless there is an agreement to the
contrary.

ii) Discharge of a contract of Surety by the invalidation of the contract of guarantee.

(a) Guarantee obtained by misrepresentation [Section 142]: 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.

(b) Guarantee obtained by concealment [Section 143]: Any guarantee which the creditor has
obtained by means of keeping silence as to material circumstances is invalid.

(c) Guarantee on contract that creditor shall not act on it until co-surety joins (Section 144):
Where a person gives a guarantee upon a contract that the creditor shall not act upon it until
another person has joined in it as co-surety, the guarantee is not valid if that other person does
not join.

16 – "Explain the circumstances under which a surety may be discharged by revocation of

the contract of guarantee under the Indian Contract Act, 1872." 6)b)6m,MTP1,May2025

Ans - A surety is said to be discharged when his liability as surety comes to an end.

The various modes of discharge of surety are as below:

(i) By revocation of the contract of guarantee.

(ii) By the conduct of the creditor, or

(iii) By the invalidation of the contract of guarantee.

By revocation of the Contract of Guarantee

(a) Revocation of continuing guarantee by Notice (Section 130 of the Indian Contract Act, 1872):
The continuing guarantee may at any time be revoked by the surety as to future transactions by
notice to the creditors. Once the guarantee is revoked, the surety is not liable for any future
transaction however he is liable for all the transactions that happened before the notice was
given. A specific guarantee can be revoked only if liability to principal debtor has not accrued.

(b) Revocation of continuing guarantee by surety’s death (Section 131): In the absence of any
contract to the contrary, the death of surety operates as a revocation of a continuing guarantee

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as to the future transactions taking place after the death of surety. However, the surety’s
estate remains liable for the past transactions which have already taken place before the death
of the surety.

(c) By novation [Section 62]: The surety under original contract is discharged if a fresh contract
is entered into either between the same parties or between the other parties, the consideration
being the mutual discharge of the old contract.

15 - Mr. R extended a loan to Mr. D with X, Y, and Z as sureties. Each surety executed
a bond with varying penalty amounts, X with a penalty of ` 10,000, Y with ` 20,000 and Z
with ` 40,000, in the event of Mr. D's failure to repay the borrowed money to Mr. R.
Examine the liabilities of the sureties in accordance with the Indian Contract Act, 1872,
when Mr. D defaults to the tune of ` 42,000. Additionally, assess the situation, if there
is no contractual arrangement among the sureties. 4)a)i)MDTP2,7, 4)a)i)4m,MTP1,Jan2025

Ans - As per section 146 of the Indian Contract Act, 1872, when two or more persons are co-
sureties for the same debt either jointly, or severally and whether under the same or different
contracts and whether with or without the knowledge of each other, the co-sureties in the
absence of any contract to the contrary, are liable, as between themselves, to pay each an equal
share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Section 147 provides that the principle 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.

In the given question, Mr. D makes a default of ` 42,000, and X, Y and Z as sureties have
executed the bond with varying penalty amounts. Hence, X is liable to pay ` 10,000, and Y and Z
` 16,000 each.

In the given case, if there is no contractual arrangement among the sureties, they would be
liable for equal contribution. Hence, X, Y and Z will be liable to pay ` 14,000 each.

Chapter: 2 Unit: 8 – Bailment & Pledge

15 – Rahul hired a car for 15 days from M/s Kushwah Travels. After five days, M/s
Kushwah Travels demanded back his car from Rahul. He was also agreed to compensate for
any loss suffered by Rahul due to such premature return of goods. But Rahul refused to
return the car before the period of bailment i.e. 15 days. M/s Kushwah Travels sued Rahul
for recovery of car. Referring to the provisions of the Indian Contract Act, 1872, whether
M/s Kushwah Travels can recover the car from the Rahul before the time fixed for
bailment? RTP,Sept2025

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Ans - According to the Section 159 of the Indian Contract Act, 1872, when the goods are lent
gratuitously, the bailor can demand back the goods at any time even before the expiry of the
time fixed or the achievement of the object. However, due to the premature return of the
goods, if the bailee suffers any loss, which is more than the benefit actually obtained by him
from the use of the goods bailed, the bailor has to compensate the bailee.

In the given problem, Rahul hired a car for 15 days from M/s Kushwah Travels but just after
five days, M/s Kushwah Travels demanded back his car from Rahul. Rahul refused to return the
car before the period of bailment, i.e. 15 days. M/s Kushwah Travels filed suit against Rahul for
recovery of car.

Premature recovery of goods bailed available only in case of gratuitous bailment. If bailment is
for hire, this right is not available to bailor even he is ready to compensate for such premature
return. Hence, M/s Kushwah Travels cannot recover back the goods before 15 days.

14 - Explain the following terms with reference to the Indian Contract Act, 1872:

i) Pledge by mercantile agent 6)b)i)3m,May2025

Ans - Pledge by mercantile agent: According to section 178 of the Indian Contract Act, 1872,
a mercantile agent, who is in the possession of goods or document of title, with the consent of
owner, can pledge them while acting in the ordinary course of business as a Mercantile Agent.

Such Pledge shall be valid as if were made with the authority of the owner of goods. Provided,
Pawnee acted in good faith and had no notice that Pawnor has no authority to pledge.

13 - X was running a business of Car on lease. One fine day, Y came to hire a car for 10
days for his business tour from Delhi to Amritsar. X offered him a Honda city for `
50,000/- for 10 days on a condition that petrol and toll expenses will be borne by him.
During the journey, engine of car was choked. Y has to spend ` 10,000/- for repair of
engine. When he was coming back from Amritsar, brakes of car were not working and a
major accident of Y happened due to this. Y was admitted to hospital and paid a bill of `
50,000 on recovery. Y asked X to compensate him charges for car repair and hospital
expenses amounting ` 60,000/-. X denied for compensation by saying that he was not
aware about the engine and brakes fault. Y filed a suit against X for recovery of damages.
Give your opinion with reference to provisions of the Indian Contract Act, 1872:

(i) Whether Y can withheld the amount of hire charges ` 50,000/- on account of non-
payment of damages?

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(ii) Whether Mr. X was liable to pay Damage as he was not aware of the fact of faults in
car? 4)a)7m,May2025

Ans - Bailment: 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.

Bailor’s duty to disclose faults in goods bailed in case of non- gratuitous bailment (Section 150):
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or
was not aware of the existence of such faults in the goods bailed.

Duty to pay necessary expenses in case of non-gratuitous bailment [Section 158]: The bailor is
liable to pay the extraordinary expenses incurred by the bailee.

Bailor’s responsibility to indemnify losses [Section 164]: It is the duty of bailor to indemnify all
the losses and expenses, which bailee has to pay on account of defective goods.

In the instant case, Y took a car on lease from X for 10 days for ` 50,000. During the journey, Y
has to spend ` 10,000 for repair of engine and paid ` 50,000 for hospital expenses due to
accident because of fault in brakes of car. These are the extraordinary expenses and losses and
it is the bailor’s duty to bear such expenses and losses.

Therefore, the answers are:

i) Y can withhold the hire charges of ` 50,000 on account of non payment of damages and claim
an additional `10,000, from X.

ii) X is liable for the full ` 60,000 (`10,000 repair + ` 50,000 hospital) as it is the bailor’s duty
to supply a car fit for the purpose for which it was hired.

12 - Explain the circumstances under which a contract of bailment may be terminated

under the Indian Contract Act, 1872. 6)b)6m,MTP2,May2025

Ans - A contract of bailment shall terminate under the Indian Contract Act, 1872 in the
following circumstances:

1) On expiry of stipulated period: If the goods were given for a stipulated period, the contract
of bailment shall terminate after the expiry of such period.

2) On fulfillment of the purpose: If the goods were delivered for a specific purpose, a bailment
shall terminate on the fulfillment of that purpose.

3) By Notice:

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(a) Where the bailee acts in a manner which is inconsistent with the terms of the bailment, the
bailor can always terminate the contract of bailment by giving a notice to the bailee.

(b) A gratuitous bailment can be terminated by the bailor at any time by giving a notice to the
bailee. However, the termination should not cause loss to the bailee in excess of the benefit
derived by him. In case the loss exceeds the benefit derived by the bailee, the bailor must
compensate the bailee for such a loss (Sec. 159).

4) By death: A gratuitous bailment terminates upon the death of either the bailor or the bailee.

5) Destruction of the subject matter: A bailment is terminated if the subject matter of the
bailment is destroyed or there is a change is in the nature of goods which makes it impossible to
be used for the purpose of bailment.

11 – In accordance with the provisions of The Indian Contract Act, 1872, Answer the
following :

i) Rights of Bailor against any wrong doer (Third Party)

ii) Duties of Pawnee 5)c)6m,MDTP8,10, 5)c)6m,MTP2,Jan2025, 4)a)i)4m,Sept2024

Ans – Suit by bailor & bailee against wrong doers [Section 180 of the Indian Contract Act,
1872]: If a third person wrongfully deprives the bailee of the use or possession of the goods
bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might
have used in the like case if no bailment had been made; and either the bailor or the bailee may
bring a suit against a third person for such deprivation or injury.

(ii) Duties of the Pawnee

Pawnee has the following duties:

a. Duty to take reasonable care of the pledged goods.

b. Duty not to make unauthorized use of pledged goods.

c. Duty to return the goods when the debt has been repaid or the promise has been performed.

d. Duty not to mix his own goods with goods pledged.

e. Duty not to do any act which is inconsistent with the terms of the pledge

f. Duty to return accretion to the goods, if any.

Chapter: 2 Unit: 9 – Agency

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15 - ABC Infrastructure Ltd. was running business successfully from several years. P was
the purchase manager of company. He authorized his agent Q to buy Raw Material on his
behalf for construction of Roads in Delhi. He instructed Q to buy only Mazboot Brand of
Cement @ ` 2,000 – 2,500 per ton to maintain quality of Roads in Delhi. However, Q
bought 1,000 tons of Mazboot Brand of cement from Mr. R a very well-known vendor of
ABC Infrastructure Ltd. @ `3,500/- per ton. Mr. Q has not disclosed the fact to R that
he was buying cement for ABC Infrastructure Ltd. When P discovered this aspect, he
refused to pay Mr. R and rejects the cement bought by Q on the ground that Q has
exceeded the authority. Mr. R suffered a huge loss on account of this transaction. Give
your opinion in accordance with provisions from the Indian Contract Act, 1872:

(i) Whether P was bound to pay Mr. R for cement purchased by his agent Mr. Q?

(ii) On the other hand, Q being agent refused to accept any liability to compensate R. In
this situation, Whether Mr. R can file a suit against Q? 1)a)7m,May2025

Ans - Principal’s liability when agent exceeds authority [Section 227 of the Indian Contract
Act, 1872]:

When an agent does more than he is authorised to do, and when the part of what he does, which
is within his authority, can be separated from the part which is beyond his authority, so much
only of what he does as is within his authority is binding as between him and his principal.

Principal not bound when excess of agent’s authority is not separable [Section 228]: Where an
agent does more than he is authorized to do, and what he does beyond the scope of his authority
cannot be separated from what is within it, the principal is not bound to recognize the
transaction.

When the agent exceeds his authority, misleads the third person in believing that the agent has
the requisite authority in doing the act, then the agent can be made liable personally for the
breach of warranty of authority.

When the agent does not disclose the name of the principal then there arises a presumption that
he himself undertakes to be personally liable.

In the instant case, Q violated the instructions of P by buying cement at ` 3,500 per ton, which
is beyond the authorized price limit. Furthermore, Q did not disclose to R that he was buying
cement for ABC Infrastructure Ltd.

Therefore, the answers are

(i) No, P was not bound to pay Mr. R, as the agent Q exceeded his authority, and the deviation
was inseparable from the authorized act.

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(ii) Yes, Mr. R can file a suit against Q, as Q is personally liable for the contract made without
disclosing about the ABC Infrastructure Ltd. and exceeding the authority given by the principal.

Alternative Answer

In the light of the given facts in the question, P, the Purchase Manger of the ABC
Infrastructure Ltd., authorised Q his agent to buy raw material on his behalf for construction of
roads in Delhi. He instructed Q to buy only Mazboot brand of cement @ ` 2000-2,500 per ton.
However, Q, violated the instructions of P by buying cement at `3,500 per ton. Furthermore, he
did not disclose to R that he was buying cement for ABC Infrastructure Ltd.

The stated issue marked in the question is related to the undisclosed principal and exceeding of
his authority. Given situation can be dealt with the provisions under section 230, 231 & 233 of
the Indian Contract Act.

According to the provision stated in section 230, an agent cannot personally enforce contracts
entered into by him on behalf of his principal, nor is he personally bound by them. He can neither
sue nor be sued on contracts made by him on his principal’s behalf.

However, there are exceptions where the agent is presumed to have agreed to be personally
bound.

Where the agent does not disclose the name of his principal or undisclosed principal (Principal
unnamed), then there arises a presumption that he himself undertakes to be personally liable.
Also, when the agent exceeds his authority, misleads the third person in believing that the agent
has the requisite authority in doing the act. In that case the agent can be made liable personally
for the breach of warranty of authority.

Further section 231 of the Indian Contract Act specifies rights of third parties to a contract
made by undisclosed agent.

As per the provision, if an agent makes a contract with a person who neither knows, nor has
reason to suspect, that he is an agent, his principal may require the performance of the
contract; but the other contracting party has, as against the principal, the same right as he
would have had as against the agent if the agent had been the principal.

Section 233 gives the option to a third person to sue the Agent or the Principal. In cases where
the agent is personally liable, a person dealing with him may hold either him or his principal, or
both of them, liable.

Therefore, the following are the answers:

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BUSINESS LAWS QUESTION BANK CHAPTER: 1

(i) No, P was not bound to pay Mr. R for purchase of the cement @ ` 3500/- per ton, as the
agent Q does not disclose the name of his principal and also exceeded his authority, thus making
himself to be personally bound and liable for the doing of said transaction.

(ii) Yes, in the light of the section 233, Mr. R is given an option to sue the agent or the Principal
or both. Yes, R can file a suit against Q, as Q is personally liable for the contract made without
disclosing about the ABC Infrastructure Ltd. and exceeding the authority given by the P
(principal).

Chapter: 3 Unit: 1 – Formation of The Contract of Sale

No Extra Questions

Chapter: 3 Unit: 2 – Conditions & Warranties

25 - Priyansh ordered 600 tins of apple juice from an American Company Amjuice Ltd. The
company informed that tins would be packed in the boxes each containing 50 tins. On
delivery, it was found that a substantial part was in boxes containing only 30 tins. Priyansh
rejected the whole order as the tins were not packed according to the description given in
the contract as the packing of tins was an essential part of the contract. Amjuice Ltd.
sued Priyansh for the recovery of price. State with reason whether Priyansh can avoid the
contract under the Sale of Goods Act, 1930? 2)a)7m,MTP1,May2025

Ans - By virtue of provisions of Section 15 of the Sale of Goods Act, 1930, where there is a
contract of sale of goods by description, there is an implied condition that the goods shall
correspond with the description. The buyer is not bound to accept and pay for the goods which
are not in accordance with the description of goods.

Thus, it has to be determined whether the buyer has undertaken to purchase the goods by their
description, i.e., whether the description was essential for identifying the goods where the
buyer had agreed to purchase. If that is required and the goods tendered do not correspond
with the description, it would be breach of condition entitling the buyer to reject the goods.

In the given case, Priyansh ordered 600 tins of apple juice from an American Company Amjuice
Ltd. that would be packed in the boxes each containing 50 tins. Amjuice Ltd. delivered
substantial part in boxes containing only 30 tins. Priyansh rejected the whole order while
Amjuice Ltd. sued Priyansh for the recovery of price. On the basis of above, the sale of apple
juice tins was based on sale by description, but actual delivery was not as per the description
given by seller at the time of contract. Hence, Priyansh is correct in rejection of the goods.

Chapter: 3 Unit: 3 – Transfer of Ownership & Delivery of Good

CA NIKESH AGRAWAL 15
BUSINESS LAWS QUESTION BANK CHAPTER: 1

29 – With reference to provisions of the Sale of Goods Act, 1930, answer the following:

What do you mean by Reservation of right of disposal? State the circumstances under
which right of disposal may be reserved. 6)c)i)3m,May2025

Ans - Reservation of right of disposal: Section 25 of the Sale of Goods Act, 1930, preserves
the right of disposal of goods to secure that the price is paid before the property in goods
passes to the buyer.

Where there is contract of sale of specific goods or where the goods have been subsequently
appropriated to the contract, the seller may, by the terms of the contract or appropriation, as
the case may be, reserve the right to dispose of the goods, until certain conditions have been
fulfilled. In such a case in spite of the fact that the goods have already been delivered to the
buyer or to a carrier or other bailee for the purpose of transmitting the same to the buyer, the
property therein will not pass to the buyer till the condition imposed, if any, by the seller has
been fulfilled.

Circumstances under which the right to disposal may be reserved: In the following
circumstances, seller is presumed to have reserved the right of disposal:

(1) If the goods are shipped or delivered to a railway administration for carriage and by the bill
of lading or railway receipt, as the case may be, the goods are deliverable to the order of the
seller or his agent, then the seller will be prima facie deemed to have reserved to the right of
disposal.

(2) Where the seller draws a bill on the buyer for the price and sends to him the bill of
exchange together with the bill of lading or (as the case may be) the railway receipt to secure
acceptance or payment thereof, the buyer must return the bill of lading, if he does not accept or
pay the bill.

And if he wrongfully retains the bill of lading or the railway receipt, the property in the goods
does not pass to him.

28 - S purchased a dress from a reputed showroom and made the payment in cash. The
dress she purchased require some alteration. The shopkeeper assured S that it would take
just one day to get the dress altered. It was agreed that once the dress was altered the
shopkeeper would inform S through phone and she would collect the dress. Next day, by
evening the dress was altered and kept ready to be delivered to S. The shopkeeper
however forgot to inform S that the dress was ready.

In the meantime, a short circuit occurred near the delivery counter of the shop and some
packets ready for delivery caught fire. After waiting for 10 days, when, S went to collect
CA NIKESH AGRAWAL 16
BUSINESS LAWS QUESTION BANK CHAPTER: 1

her dress she was informed that she came late and her dress was burnt in fire. S, then
asked for refund of money what she paid. The shopkeeper refused, by saying that the
dress was kept ready the very next day of purchase and the loss due to fire occurred
after a week. He refused to bear the liability by saying that if S had collected the dress
on time, it would not have been burnt. S insisted that she was waiting for a call from the
shop and thus, entitled to claim the refund of cost of dress.

Examine, with reference to the provisions of the Sale of Goods Act, 1930, whether
shopkeeper will be liable to refund the cost of dress to S? 2)a)7m,May2025

Ans - Specific goods to be put into a deliverable state (Section 21 of the Sale of Goods
Act, 1930): Where there is a contract for the sale of specific goods and the seller is bound to
do something to the goods for the purpose of putting them into a deliverable state, the property
does not pass until such thing is done and the buyer has notice thereof.

According to section 26, “unless otherwise agreed, the goods remain at the seller’s risk until the
property therein is transferred to the buyer, but when the property therein is transferred to
the buyer, the goods are at the buyer’s risk whether delivery has been made or not”.

However, Section 26 also lays down an exception to the rule that ‘risk follows ownership.’ It
provides that where delivery of the goods has been delayed through the fault of either buyer or
seller, the goods are at the risk of the party in fault as regards any loss which might not have
occurred but for such fault.

In the instant case, S had paid in full and purchased a specific dress but the dress required
alteration, and it was agreed that the shopkeeper would inform S after alteration for collection.
The ownership had already passed to S when she paid for the dress, subject to alteration. The
delivery was conditional upon the shopkeeper informing S after alteration.

Even though the ownership may have passed to S, the seller (shopkeeper) failed to complete the
delivery by not informing S. Under Section 26, when delivery is delayed due to the fault of the
seller, the loss falls upon the party at fault.

Therefore, the shopkeeper is liable to refund the cost of the dress to S.

Alternative Answer

The given problem is based on the concept “Agreement to Sell” under section 4 of the Sale of
Goods Act, 1930. The term is defined in Section 4(3) of the Sale of Goods Act, 1930, as –
“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, it is called an agreement to sell.” Thus, whether a
contract of sale of goods is an absolute sale or an agreement to sell, depends on the fact

CA NIKESH AGRAWAL 17
BUSINESS LAWS QUESTION BANK CHAPTER: 1

whether it contemplates immediate transfer from the seller to the buyer or the transfer is to
take place at a future date. Hence, in an agreement to sell, the ownership of the goods is not
transferred immediately. It is intending to transfer at a future date upon the completion of
certain conditions thereon.

In the instant case, though S had paid and purchased a specific dress, but the dress required
alteration. Shopkeeper assured S that it would take just one day to get the dress altered and it
was agreed that he would inform S after alteration for collection. This reflects that transfer or
property in goods is to be transferred subject to fulfilment of the condition i.e., after the
alteration.

Further, Reservation of right of disposal given under Section 25, is applicable here. This section
preserves the right of disposal of goods to secure that the price is paid before the property in
goods passes to the buyer. Where there is contract of sale of specific goods or where the goods
have been subsequently appropriated to the contract, the seller may, by the terms of the
contract or appropriation, as the case may be, reserve the right to dispose of the goods, until
certain conditions have been fulfilled. In such a case in spite of the fact that the goods have
already been delivered to the buyer, the property therein will not pass to the buyer till the
condition imposed, if any, by the seller has been fulfilled.

Therefore, still the ownership lies with the seller on account of non fulfilment of condition as to
informing to the S that the dress is altered and is ready.

Further the plea taken by Shopkeeper that 10 days were passed after the alteration done and he
is not liable for damage caused, is not justifiable on account of not being a reasonable
circumstance and a ground.

Hence, in the light of the given facts, the shopkeeper is liable to refund the cost of the dress to
S.

27 - "Explain the rules relating to the delivery of goods under the Sale of Goods Act,
1930” with reference to the following:

(i) Effect of part delivery

(ii) Place of delivery

(iii) Delivery of wrong quantity." 6)c)MTP1,May2025

Ans – i) Effect of part delivery (Section 34 of the Sale of Goods Act, 1930): A delivery of
part of goods, in progress of the delivery of the whole has the same effect, for the purpose of
passing the property in such goods, as a delivery of the whole; but a delivery of part of the

CA NIKESH AGRAWAL 18
BUSINESS LAWS QUESTION BANK CHAPTER: 1

goods, with an intention of severing it from the whole, does not operate as a delivery of the
remainder.

ii) Place of delivery [Section 36(1)]: Whether it is for the buyer to take possession of the
goods or for the seller to send them to the buyer is a question depending in each case on the
contract, express or implied, between the parties. Apart from any such contract,

♦ goods sold are to be delivered at the place at which they are at the time of the sale, and

♦ goods agreed to be sold are to be delivered at the place at which they are at the time of the
agreement to sell or

♦ if goods are not then in existence, at the place at which they are manufactured or produced.

iii) Delivery of wrong quantity [Section 37]: Refer Ans - 22

26 – Saurabh purchased electric scooter of Vivek for ` 5000 only on the gun point. Vivek
decided to file the complaint and to avoid the contract on the basis of coercion applied
against him by Saurabh. But before he could do that, Saurabh sold the scooter to Vinay
who had no idea about the situation on which the scooter was purchased by Saurabh. Vivek
sued Saurabh and Vinay for recovery of scooter. Referring to the provisions of the Sale of
Goods Act, 1930, whether Vivek was correct in his decision? RTP,May2025

Ans - By virtue of provisions of Section 29 of the Sale of Goods Act, 1930, 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.

In the instant case, Saurabh purchased electric scooter of Vivek for ` 5000 only by applying
coercion. Before Vivek avoid the contract, Saurabh sold the scooter to Vinay who was an
innocent buyer. Now, Vivek sued Saurabh and Vinay for recovery of scooter.

According to above provisions, even Saurabh purchased the electric scooter by applying coercion,
Vinay got good title as he was an innocent buyer and purchased the scooter before setting aside
the contract by Vivek. Hence, Vivek cannot recover the scooter from Vinay. However, Vivek may
claim damages from Saurabh.

Chapter: 3 Unit: 4 – Unpaid Seller

No Extra Questions

Chapter: 4 Unit: 1 – General Nature of Partnership

CA NIKESH AGRAWAL 19
BUSINESS LAWS QUESTION BANK CHAPTER: 1

23 (“OR” Part) - "Partners in a firm may be classified into various types based on the
extent of their liability.” Describe the following: (i) Dormant Partner (ii) Nominal Partner
(iii) Partner in profits only (iv) Partner by holding out 5)b)7m,MTP1,May2025

Ans - i) Sleeping or Dormant Partner: It is a person who is a partner by agreement, and who
does not actively take part in the conduct of the partnership business. They share profits and
losses and are liable to the third parties for all acts of the firm. They are, however not required
to give public notice of their retirement from the firm.

iii) Partner in profits only: A partner who is entitled to share the profits only without being
liable for the losses is known as the partner for profits only and also liable to the third parties
for all acts of the profits only.

Note: Remaining 2 is already covered in Q.N 23 original question bank.

Chapter: 4 Unit: 2 – Relations of Partners

42 - "The partner indeed virtually embraces the character of both a principal and an
agent. The implied authority of a partner to bind the firm by all acts done by him in all
matters connected with business is done in the usual way, not beyond the nature and scope
of Partnership." Explain with reference to provisions of the Indian Partnership Act, 1932.

5)b)7m,May2025

Ans - The partner indeed virtually embraces the character of both a principal and an
agent.

As per Section 18 of the Indian Partnership Act, 1932, a partner is the agent of the firm for
the purpose of the business of the firm. So as far as he acts for himself and in his own interest
in the common concern of the partnership, he may properly be deemed 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 implied authority of a partner to bind the firm by all acts done by him in all matters
connected with business is done in the usual way, not beyond the nature and scope of
partnership.

Sections 19(1) and 22 deal with the implied authority of a partner. The impact of these
Sections is that the act of a partner which is done to carry on, in the usual way, business of the
kind carried on by the firm binds the firm, provided that the act is done in the firm name, or any

CA NIKESH AGRAWAL 20
BUSINESS LAWS QUESTION BANK CHAPTER: 1

manner expressing or implying an intention to bind the firm. Such an authority of a partner to
bind the firm is called his implied authority. It is however subject to the following restrictions:

1) The act done must relate to the usual business of the firm, that is, the act done by the
partner must be within the scope of his authority and related to the normal business of the firm.

2) The act is such as is done for normal conduct of business of the firm. The usual way of
carrying on the business will depend on the nature and circumstances of each particular case.

3) The act to be done in the name of the firm or in any other manner expressing or implying an
intention to bind the firm.

Thus, a partner has implied authority to bind the firm by all acts done by him in all matters
connected with the partnership business and which are done in the usual way and are not in their
nature beyond the scope of partnership.

41 - ABC & Co. is a renowned partnership firm doing business in textile industry from last
twenty years. But due to technical up-gradation, firm incurred heavy debts of ` 50 lakhs.
To maintain the integrity of the firm they introduced Mr. D, as a new partner. Before
admission of D, other partners A, B, and C decided on their own and made an agreement
with the creditors that the new partner will be liable for existing debt through novation.
When D joins, he came to know about the debt of ` 50 lakhs. With reference to the
provisions of the Indian Partnership Act, 1932, give your opinion:

(i) Whether D would be liable for the debts of the firm incurred prior to his admission by
virtue of the agreement between A, B, C and the creditors?

(ii) Whether your answer will be different if D was minor at the time of admission?

(iii) Whether D would be liable to pay the debt upon becoming major? 3)a)7m,May2025

Ans – i) Liability of D: As per section 31 of the Indian Partnership Act, 1932, the liabilities of
the new partner ordinarily commence from the date when he is admitted as a partner, unless he
agrees to be liable for obligations incurred by the firm prior to the date. The new firm, including
the new partner who joins it, may agree to assume liability for the existing debts of the old firm,
and creditors may agree to accept the new firm as their debtor and discharge the old partners.
The creditor’s consent is necessary in every case to make the transaction operative. The mere
agreement amongst partners cannot operate as Novation. Thus, an agreement between the
partners and the incoming partner that he shall be liable for existing debts will not ipso facto
give creditors of the firm any right against him.

CA NIKESH AGRAWAL 21
BUSINESS LAWS QUESTION BANK CHAPTER: 1

In the instant case, D would not be liable for the debts of the firm incurred prior to his
admission by virtue of the agreement between A, B, C and the creditors.

ii) If D was minor at the time of admission: As per section 30, the liability of the minor is
confined only to the extent of his share in the profits and the property of the firm.

Minor has no personal liability for the debts of the firm incurred during his minority.

Moreover, a mere agreement amongst partners cannot operate as Novation. Thus, an agreement
between the partners and the incoming partner that he shall be liable for existing debts will not
ipso facto give creditors of the firm any right against him.

Hence, D would not be liable in this case also.

iii) Liability of D upon becoming major: A minor partner on attaining majority becomes
personally liable to third parties for all acts of the firm done since he was admitted to the
benefits of partnership.

Moreover, a mere agreement amongst partners cannot operate as Novation. Thus, an agreement
between the partners and the incoming partner that he shall be liable for existing debts will not
ipso facto give creditors of the firm any right against him.

Hence, D would not be liable to pay the existing debt upon becoming major.

40 – Rahul and Kapil are partners in the firm M/s Saxena Marble House. Rahul purchased
100 shares of a reputed company in his name, but he made the payment from firm’s
account. Rahul did not consent to Kapil before acquiring of shares. Referring to the
provisions of the Indian Partnership Act 1932:

(a) Whether the shares purchased by Rahul constitute the property of firm?

(b) What would be your answer if Rahul debits himself in the accounts books of firm and
became a debtor to the firm? 3)a)7m,MTP1,May2025

Ans - According to section 14 of the Indian Partnership Act, 1932, ‘property of the firm’ means
‘partnership assets’, ‘joint stock’, ‘common stock’ or ‘joint estate’ of the firm. The property of
the firm includes:

(i) all property, rights and interests which partners may have brought into the common stock as
their contribution to the common business;

(ii) all the property, rights and interest acquired or purchased by or for the firm, or for the
purposes and in the course of the business of the firm; and

(iii) Goodwill of the business.

CA NIKESH AGRAWAL 22
BUSINESS LAWS QUESTION BANK CHAPTER: 1

Further, if the contrary intension does not appear, the property acquired with the money of the
firm is deemed to have been acquired for the firm.

In the instant case, Rahul and Kapil are partners in the firm M/s Saxena Marble House. Without
the consent of Kapil, Rahul purchased 100 shares of a reputed company in his name, but he made
the payment from firm’s account. The answers are:

(a) As shares were purchased from the money of firm, shares will be deemed to be the property
of firm.

(b) In case Rahul debits himself in the accounts books of firm as became a debtor of the firm,
shares will not be deemed the property of the firm. They will be the personal property of Rahul.

39 – Amit and Ajay started the business of wholesale trading of sugar. For this purpose,
they contributed ` 3,00,000 and ` 1,00,000 respectively. Partnership deed was perfectly
prepared but clause regarding share of profit was not mentioned in the deed. Due to the
heavy rain, stock of sugar was spoiled, and firm incurred the loss of ` 60,000. Amit asked
Ajay to contribute equally to the loss, but Ajay agreed to contribute only 25% to the loss
i.e. in the ratio of capital contribution. Referring to the provisions of the Indian
Partnership Act, 1932, how much to be contributed by Ajay to firm’s loss? RTP,May2025

Ans - Section 13(b) of the Indian Partnership Act, 1932 provides, partners are entitled to share
equally in the profits earned and so contribute equally to the losses sustained by the firm. The
amount of a partner’s share must be ascertained as per the agreement between the partners. If
there is no agreement, then every partner is bound to contribute equally for the Firm’s business.
There is no connection between the proportion in which the partners shall share the profits and
the proportion in which they have contributed towards the capital of the firm.

In the instant case, Ajay wanted to contribute only 25% to the loss i.e. in the ratio of capital
contribution while Amit requested for equal share in loss.

On the basis of above provisions and facts of the problem given, Ajay must share the loss equally
as there was no agreement between partners regarding sharing of profit. Ratio of capital
contribution is not related with ratio of sharing profit.

Chapter: 4 Unit: 3 – Registration & Dissolution of A Firm

19 - Discuss the provisions of the Indian Partnership Act, 1932 regarding the payment of
firm debts and separate debts of partners. How are the firm’s property and the partners'
separate property applied in settling such debts? 1)c)ii)2m,MTP2,May2025

CA NIKESH AGRAWAL 23
BUSINESS LAWS QUESTION BANK CHAPTER: 1

Ans - Payment of firm debts and of separate debts (Section 49): Where there are joint
debts due from the firm and also separate debts due from any partner:

(i) the property of the firm shall be applied in the first instance in payment of the debts of the
firm, and if there is any surplus, then the share of each partner shall be applied to the payment
of his separate debts or paid to him;

(ii) the separate property of any partner shall be applied first in the payment of his separate
debts and surplus, if any, in the payment of debts of the firm.

Chapter: 5 – Limited Liability Partnership Act, 2008

12 - Explain the legal provisions regarding the eligibility of persons to become partners in a
Limited Liability Partnership (LLP) under the LLP Act, 2008. What are the consequences if
LLP carries on business with less than the minimum number of partners as prescribed?

RTP,Sept2025

Ans – Part 1 – Refer Ans 1)i

Part 2 - Minimum number of partners (Section 6):

i) Every LLP shall have at least two partners.

ii) If at any time the number of partners of a LLP is reduced below two and the LLP carries on
business for more than six months while the number is so reduced, the person, who is the only
partner of the LLP during the time that it so carries on business after those six months and has
the knowledge of the fact that it is carrying on business with him alone, shall be liable personally
for the obligations of the LLP incurred during that period.

11 - Raju and his friend Anil have approached you to help them to form a LLP. The object
of the proposed LLP is to run a charitable school which provides free education to the poor
children. What would be your suggestion in accordance of provisions of The Limited Liability
Partnership Act, 2008? 2)c)ii)3m,May2025

Ans – The essential requirement for forming LLP is carrying on a lawful business with a view to
earn profit. Thus, LLP cannot be formed for charitable or non-economic purpose.

In the instant case, Raju and Anil cannot form LLP to run a charitable school which provides free
education to the poor children.

In view of above it is suggested to them that they can form a section 8 company for this
purpose.

CA NIKESH AGRAWAL 24
BUSINESS LAWS QUESTION BANK CHAPTER: 1

10 - Explain the advantages of the LLP form of business. How does its legal structure
make it a flexible and preferable business model for entrepreneurs? Also, discuss the legal
capacities an LLP acquires upon registration. 2)c)6m,MTP2,May2025

Ans - Advantages of LLP form: LLP form is a form of business model which:

a) is organized and operates on the basis of an agreement

b) provides flexibility without imposing detailed legal and procedural requirements.

c) Easy to form

d) All partners enjoy limited liability

e) Flexible capital structure

f) Easy to dissolve

Effect of registration: 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.

Chapter: 6 – The Companies Act, 2013

58 - "What documents and information are required to be filed with the Registrar for the
registration of a company under the Companies Act, 2013? 2)b)7m,MTP1,May2025

Ans - Filing of the documents and information with the registrar: For the registration of the
company following documents and information are required to be filed with the registrar within
whose jurisdiction the registered office of the company is proposed to be situated-

i) the memorandum and articles of the company duly signed by all the subscribers to the
memorandum.

ii) a declaration by person who is engaged in the formation of the company (an advocate, a
chartered accountant, cost accountant or company secretary in practice), and by a person named
in the articles (director, manager or secretary of the company), that all the requirements of this
Act and the rules made thereunder in respect of registration and matters precedent or
incidental thereto have been complied with.

CA NIKESH AGRAWAL 25
BUSINESS LAWS QUESTION BANK CHAPTER: 1

iii) a declaration from each of the subscribers to the memorandum and from persons named as
the first directors, if any, in the articles stating that-

➢ he is not convicted of any offence in connection with the promotion, formation or

management of any company, or

➢ he has not been found guilty of any fraud or misfeasance or of any breach of duty to any
company under this Act or any previous company law during the last five years,

➢ and that all the documents filed with the Registrar for registration of the company
contain information that is correct and complete and true to the best of his knowledge
and belief;

iv) the address for correspondence till its registered office is established;

v) the particulars (names, including surnames or family names, residential address, nationality) of
every subscriber to the memorandum along with proof of identity, and in the case of a
subscriber being a body corporate, such particulars as may be prescribed.

vi) the particulars (names, including surnames or family names, the Director Identification
Number, residential address, nationality) of the persons mentioned in the articles as the
subscribers to the Memorandum and such other particulars including proof of identity as may be
prescribed; and

vii) the particulars of the interests of the persons mentioned in the articles as the first
directors of the company in other firms or bodies corporate along with their consent to act as
directors of the company in such form and manner as may be prescribed.

57 - Ratanmul Milk India Limited is a public company and formed on 01.01.2023. On this
date, Mr. Sharman was appointed as Legal Advisor of the company. It was mentioned in
the Articles of Association of the company that Mr. Sharman will not be removed from the
post of Legal Advisor till 31.03.2027. On 01.07.2024, a Special Resolution was passed for
the alteration in Articles of Association and Mr. Sharman was removed from the company.
Mr. Sharman filed the suit against Ratanmul Milk India Limited for removal as a Legal
Advisor. Referring the provisions of the Companies Act, 2013, whether can company remove
Mr. Sharman? RTP,May2025

CA NIKESH AGRAWAL 26
BUSINESS LAWS QUESTION BANK CHAPTER: 1

Ans - The Articles of Association of a company are its rules and regulations, which are framed
to manage its internal affairs. Just as the Memorandum contains the fundamental conditions
upon which the company is allowed to be incorporated, so also the Articles are the internal
regulations of the company (Guiness vs. Land Corporation of Ireland).

In the instant case, the AOA of Ratanmul Milk India Limited provided that Mr. Sharman will be
the Legal Advisor of the company and shall not be removed upto 31.03.2027. But company
removed him on 01.07.2024 by passing the Special Resolution in the meeting of members and
making the alteration in AOA.

On the basis of above provisions of Law and facts of the case, Mr. Sharman cannot enforce any
right against the company. Company had right to remove him by making alteration in AOA.

28 (“OR” Part) - The paid-up equity share capital of ACD Ltd. is ` 80 crores & preference
share capital of ` 20 crores. B Ltd. holds equity shares in ACD Ltd. worth ` 15 crores and
preference shares worth ` 10 crores.

Can B Ltd. be considered as an Associate Company of ACD Ltd.? 1)b)ii)3m,May2025

Ans - 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, the paid up share capital of ACD Ltd. is ` 80 crores. B Ltd. holds equity share
capital of ` 15 crore in ACD Ltd. i.e. less than 20% significant influence. Therefore ACD Ltd.
cannot be considered as an Associate Company of B Ltd.

24 (“OR” Part)- Parasnath Infraheight Limited is a public company and having 215 members
of which 20 members were employees in the company during the period 1st June, 2022 to
30th June, 2024. They were allotted shares in Parasnath Infraheight Limited on 1st April,
2018 which are held by them till today i.e. 31st August 2024. Now, the company wants to
convert itself into a private company. State with reasons, whether Parasnath Infraheight
Limited is required to reduce the number of members under the provisions of the Companies
Act, 2013? 1)b)7m,MTP1,May2025
CA NIKESH AGRAWAL 27
BUSINESS LAWS QUESTION BANK CHAPTER: 1

Ans - According to Section 2(68) of Companies Act, 2013, “Private company” means a company
having a minimum paid-up share capital as may be prescribed, and which by its articles,—

i) restricts the right to transfer its shares;

ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that 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:

Provided further 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; and

iii) prohibits any invitation to the public to subscribe for any securities of the company;

In the given problem, Parasnath Infraheight Limited is a public company and wants to convert
itself into a private company. It is having 215 members out of which 20 members were employees
during the period 1st June, 2022 to 30th June, 2024. These members were members in the
company from 1st April, 2018 which are held by them till date i.e. 31st August, 2024.

Following the provisions of Section 2(68) of the Act, 20 members were employees of the
company, but they were not employee at the time of getting membership and nor on existing date
i.e. 31st August, 2024. Hence, they will be considered as members for the purpose of the limit of
200 members. Therefore, the company is required to reduce the number of members before
converting it into a private company.

11 (“OR” Part) - State with reasons whether the following companies can be treated as
Small Companies with reference to the provisions of the Companies Act, 2013:

1 - STS Pvt. Ltd., having a turnover of ` 10 crores and the paid-up capital of ` 1 crore
(1,00,000 equity shares of ` 100 each). Out of these 60,000 equity shares are held by
UV Infratech Pvt. Ltd.

2 - ZX Ltd., having a paid-up capital of ` 3 crores and turnover of ` 35 crores.

1)b)i)4m,May2025

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Ans - 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 or such higher amount as
may be prescribed which shall not be more than ten 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 or such higher amount as may be prescribed
which shall not be more than one hundred 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.

1 - In the instant case, (i) STS Pvt. Ltd. though is a small company taking into account its
turnover and paid up share capital (i.e. ` 10 crores and ` 1 crore respectively), but since it is the
subsidiary c.ompany of UV Infratech Pvt. Ltd. (UV Infratech Pvt. Ltd. holds ` 60,00,000 equity
share capital of STS Pvt. Ltd.), hence STS Pvt. cannot be considered as small company.

2 - ZX Ltd. cannot be considered as a small company since it is a public company.

Chapter: 7 – The Negotiable Instruments Act, 1881

26 - Ram purchased a second-hand car from his friend Rohan for 5 lakhs on 10th
November, 2022. He paid 4 lakh immediately and promised to pay 1 lakh within a year.
But, he could not pay the remaining amount till December-2023. On 5th January, 2024
Ram received an invitation for Rohan's wedding which he could not attend but sent a cheque
of 51,000 as gift by post.

When Rohan deposited the cheque, it was returned unpaid due to insufficient balance in the
account of Ram. Rohan considered it as an offence under Section 138 of The Negotiable
Instruments Act, 1881.

Advise

(i) Whether Ram would be held liable for dishonour of cheque ?

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(ii) Whether Rohan was justified in considering this as an offence under Section 138 of the
Negotiable Instruments Act, 1881. 6)a)7m,May2025

Ans – Ans – Provision of Sec. 138 will apply as per Answer – 19

i) In the given question, Rohan received a cheque from Ram, for ` 51,000 as a gift for his
marriage. In terms of section 138, cheque given as a gift does not fall within this section. Hence,
Ram would not be held liable for dishonour of cheque.

ii) The explanation to the section provides that for the purpose of section 138 only a legally
enforceable debt or other liability is to be taken into consideration. The cheque of ` 51,000 was
issued in the nature of a gift and not as a part of the payment for the balance amount of car.
Hence, Rohan was not justified in considering the dishonour of cheque, an offence under section
138 of the Negotiable Instruments Act, 1881.

25 – Delivery of an instrument is essential whether instrument is payable to bearer or

order for effecting the negotiation. Discuss this statement with reference to provisions of
The Negotiable Instruments Act, 1881. 4)b)i)3m,May2025

Ans – As per Section 46 of the Negotiable Instruments Act, 1881, 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.

Section 46 also lays down that when an instrument is conditionally or for a special purpose only,
the property in it does not pass to the transferee, even though it is indorsed to him, unless the
instrument is negotiated to a holder in due course.

24 - "Explain the concept of 'presentment for payment' under Section 64 of the

Negotiable Instruments Act, 1881. What are the consequences of non presentment?"

4)b)7m,MTP1,May2025

Ans - Presentment for payment [Section 64 of the Negotiable Instruments Act, 1881]

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.

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BUSINESS LAWS QUESTION BANK CHAPTER: 1

In default of such presentment, the other parties thereto are not liable thereon to such holder.

Where authorised by agreement or usage, a presentment through the post office by means of a
registered letter is sufficient.

Exception: 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.

Notwithstanding anything contained in section 6, where an electronic image of a truncated

cheque is presented for payment, the drawee bank is entitled to demand any further information
regarding the truncated cheque from the bank holding the truncated cheque in case of any
reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the
suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled
to further demand the presentment of the truncated cheque itself for verification.

Provided that the truncated cheque so demanded by the drawee bank shall be retained by it, if
the payment is made accordingly.

14 - What is a Negotiable Instrument? Explain its meaning and essential characteristics.

How does the Negotiable Instruments Act, 1881 classify instruments as payable to order
or payable to bearer? 4)b)7m,MTP2,May2025

Ans – Meaning & Characteristics already covered in same ans.

Part – 2 - A negotiable instrument is payable to order when:

a) It is expressed to be so payable

b) When it is expressed to be payable to a specified person and does not contain words
prohibiting its transfer. (i.e. it is transferrable by indorsement and delivery)

A negotiable instrument is payable to bearer when:

a) When it is expressed to be so payable e.g. pay bearer

b) When the only or last indorsement (indorsement means signing of the instrument) on the
instrument is an indorsement in blank i.e., the person who possesses it can demand payment.

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