LAW

Ch : FULL PORTION
PAPER - 1
100
3 HRS
04/08/2025

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
Q.1. a) Mr. Rahul orders edible oil from Mr.Tushar at an offer rate of Rs.140/kg. As per their terms of
contract failure of either party will allow other party to claim 10% amount of order as damages
10% damages have been fixed on the basis of variation that keeps on taking place in the market
rate of edible oil (3% to 15% variation in prices of oil is noticed usually every few days)
determine whether these pre-decided damages are liquidated damages in nature or punitive in
nature and state if these can be recovered under Indian Law in case of breach by either party?
(6 marks)
A: As per the provisions of the Indian Contract Act, 1872, parties to a contract stipulate at the time
of its formation that on a breach of contract by any of them, a certain amount will be payable as
damage. It may amount to either liquidated damages or a penalty. Indian law makes no
distinction between penalty and liquidated damages. Section 74 provides that if a sum is named
in a contract as the amount to be paid in case of a breach, the aggrieved party is entitled to
receive from the party at fault a reasonable compensation not exceeding the amount so named.
It entitles a person complaining of breach of contract to get reasonable compensation and does
not entitle him to realise anything by way of penalty. In the given case, Mr. Rahul orders edible
oil from Mr. Tushar at an offer rate of Rs.140/kg. Asper their terms of contract failure of either
party will allow other party to claim 10% amount of order as damages which are fixed on the
basis of variation that keeps on taking in the market rate of edible oil ( usually 3% to 15%
variation in prices is noticed).Here, damages for breach of contract decided between the parties
in above case are in the nature of liquidated damages, as they are reasonable as per the
prevailing market conditions. Thus, in case of breach of contract by either party, 10% amount of
order can be recovered as damages.

b) Mr. X who is dealer of crackers and fireworks ordered goods worth Rs.5 Lacs from a trader of
Shivakashi one month before the Diwali, the delivery which usually takes place 1 week, in this
case took 4-5 weeks and the goods were delivered on the day of Diwali itself, Mr. X now
intends to either return the goods or pay 20-30% less as the same goods needs to be sold at
lower prices over the year, is Mr. X entitled to do so? (5 marks)
A. According to section 55 of the Indian Contract Act, 1872, when a party to a contract promises to
do certain thing at or before the specified time, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has not been performed, becomes voidable at the
option of the promisee, if the intention of the parties was that time should be of essence of the
contract.
Further, section of the Sale of Goods Act, 1830, unless otherwise agreed, the goods remain at
the seller’s risk until property therein has passed to the buyer. After that event they are at the
buyer’s risk, whether delivery has been made or not. But if delivery has been delayed by the
fault of the seller of the buyer, the goods shall be at the risk of the party in default, as regards
loss which might not have arisen but for the default.
In the given case, Mr. X, dealer of crackers and fireworks, ordered goods worth Rs. 5 lacs from
 traderShivakashi one month prior the Diwali, with an usual delivery time of 1 week. But it took
around 4-5 weeks and delivered the goods on the day of Diwali. Thus, Mr. X intends to either
return the goods or pay lesser amount to recover the loss that he may sustain by selling goods at
lower prices over the year.
Here, time was the essence of the contract as Mr. X ordered goods to sale them during the peak
period of demand during Diwali season. But due to the fault of Shivakashi, delivery of goods
got delayed. Thus, Mr. X can return the goods or can claim reduction in price to the extent loss
suffered by him.

c) AmanLimited was incorporated by acquisition of Aman& Co., a partnership firm, which was
earlier involved in many illegal activities. The promoters furnished some false information and
also suppressed some material facts at the time of incorporation of the company. Some members
of the public (not being directors or promoters of the company) approached the National
Company Law Tribunal (NCLT) against the incorporation status of Aman Limited. NCLT is
about to pass the order by directing that the liability of the members of the company shall be
unlimited. Given the above, advice on whether the above order will be legal and mention the
precaution to be taken by NCLT before passing order in respect of the above as per the
provisions of the Companies Act, 2013. (5 marks)
A. As per section 7(7) of the Companies Act, 2013, where a company has been got incorporated by
furnishing false or incorrect information or representation or by suppressing any material fact or
information in any of the documents or declaration filed or made for incorporating such
company or by any fraudulent action, the Tribunal may, on an application made to it, on being
satisfied that the situation so warrants, direct that liability of the members shall be unlimited.
Hence, the order of NCLT will be legal.
Precautions: Before making any order,—
a) the company shall be given a reasonable opportunity of being heard in the matter; and
b) the Tribunal shall take into consideration the transactions entered into by the company,
including the obligations, if any, contracted or payment of any liability.

d) A owns a certain sum of money to B. A does not know the exact amount and hence he makes
out a blank cheque in favour of B, signs and delivers it to B with a request to fill up the amount
due payable by him. B fills up fraudulently the amount larger than the amount due, payable by
A and endorses the cheque to C in full payment of dues of B. Cheque of A is dishonoured.
Referring to the provisions of the Negotiable Instruments Act, 1881, discuss the rights of B
and C. (4 marks)
A. Section 44 of the Negotiable Instruments Act 1881 is applicable in this case. According to
Section 44 of this Act, B who is a party in immediate relation with the drawer of the cheque is
entitled to recover from A only the exact amount due from A and not the amount entered in the
cheque. However the right of C, who is a holder for value, is not adversely affected and he can
claim the full amount of the cheque from B
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?
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)

Q.2. a) “An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived”. Discuss stating also the effect of anticipatory breach on contracts?
(6 marks)
A. An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived. When the promisor refuses altogether to perform his promise and
signifies his unwillingness even before the time for performance has arrived, it is called
 Anticipatory Breach. The law in this regard has very well summed up in Frost v. Knight and
Hochster v. DelaTour: Section 39 of the Indian Contract Act deals with anticipatory breach of
contract and provides as follows: “When a party to a contract has refused to perform or disable
himself from performing, his promise in its entirety, the promisee may put an end to the
contract, unless he has signified, but words or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from performance or from further
performance. Further he gets an option:
a) To either treat the contract as “rescinded and sue the other party for damages from breach of
contract immediately without waiting until the due date of performance; or
b) He may elect not to rescind but to treat the contract as still operative, and wait for the time
of performance and then hold the other party responsible for the consequences of non-
performance. But in this case, he will keep the contract alive for the benefit of the other
party as well as his own, and the guilty party, if he so decides on re-consideration, may still
perform his part of the contract and can also take advantage of any supervening
impossibility which may have the effect of discharging the contract.

b) Mr. Raju went to a shop and asked for Apple iPhone 11Pro, the Shopkeeper told that its price is
Rs.85,000 Raju asked the shopkeeper to show him the phone first so that he can decide to buy or
not to buy. The shopkeeper shown him the phone and while he was looking into the phone and
examining its functions and all person standing next to Raju snatched the phone from Raju and
ran away. Who should bear the loss in this case? (4 marks)
A. According to section 26 of the Sale of Goods Act, 1930, 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. But, one of the exception to the aforesaid rule says, the duties and
liabilities of the seller or the buyer as bailee of goods for the other party remain unaffected even
when the risk has passed generally.
In the given case, Mr. Raju went to a mobile shop and asked for Apple iPhone 11pro, the
shopkeeper told him the price of the phone as Rs. 85,000. Mr. Raju asked the shopkeeper to how
him the phone so that he can decide whether to buy or not. The shopkeeper showed him the
phone. While he was looking into the phone and examining its function’s and all, person
standing next to Raju snatched the phone from Raju and ran away.
Here, as Mr. Raju haven’t bought the phone which was snatched by the thief, risk related to the
phone lies with the shopkeeper. Also, Mr. Raju, as a bailee, has taken proper care of the phone.
Thus, being the owner of the phone, the shopkeeper is liable to bear the loss of phone.

c) What do you mean by Designated Partner? Whether it is mandatory to appoint Designated

partner in a LLP? (3 marks)
A. Designated Partner [Section 2(j)]: “Designated partner” means any partner designated as such
pursuant to section 7. According to section 7 of the LLP Act, 2008:
(i) Every LLP shall have at least two designated partners who are individuals and at least one
of them shall be a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such LLP or
nominees of such bodies corporate shall act as designated partners.
(iii) Resident in India: For the purposes of this section, the term “resident in India” means a
person who has stayed in India for a period of not less than 120 days during the financial
year.

d) Mr.Shahidand Mr. Wahid are partners of a business carried by them. Mr. Imran who was
appointed as manager of the partnership firms used to tell customers of the firm that he is also
partner in the firm. One of the customers of the firm paid Rs.500,000 as Advance to the firm
Shahid and Wahid went missing from India and settled in Singapore. That customer, who had
belief in Imran’s statement that he is partner in the firm, wants to file suit for recovery of the
amount, on Imran. Mr. Imran is contending that he was in fact not a partner but mere manger of
 the firm. Can Mr. Imran be held liable for the liability assuming that the amount was not
received by Imran nor did he get any share in that amount, the whole amount was taken by
Shahid and Wahid? (3 marks)
A. According to section 28 of the Indian Partnership Act, 1932, where a man holds himself out as a
partner, or allows others to do it, he is then stopped from denying the character he has assumed
and upon the faith of which creditors may be presumed to have acted. Partnership by holding
out is also known as partnership by estoppel. In other words, when a person represents himself,
or knowing permits himself, to be represented as partner in the firm, he is liable like partner in a
firm to anyone who on the faith of such representation has given credit to the firm.
In the given case, Mr. Shahid and Mr. Wahid are partners in a firm. They have appointed Mr.
Imran as a manager of the firm. But he used to tell the customers of the firm that he is also
partner in the firm. One of the customer of the firm paid Rs. 5,00,000 as advance to the firm.
Mr.Shahid and Mr. Wahid went missing from India and settled in Singapore. That customer,
who had belief in Imran’s statement that he is a partner in the firm, wants to file suit for
recovery of the amount on Imran though he then contended that he was in fact not a partner but
mere manager of the firm. Here, Mr. Imran represented himself as a partner of the firm in front
of the customer, which made him partner of the firm by estoppel. Thus, Mr. Imran would be
liable for the amount of advance borrowed from the customer Rs. 5,00,000 as a partner by
holding out.

Q.3. a) Ramesh bought certain goods from Tushar. The goods are presently lying in the godown owned
byMr. Gaurav Ramesh has agreed to pay the price only after he makes further sale of those
goods (goods are still in the godown). Ramesh sold those goods to third parties and gave
delivery orders to his customers asking Gaurav, the godown owner, to deliver the goods to these
customers. Meanwhile Tushar asked Ramesh to pay for the goods but he is not answering to
Tushar’s phone calls Tushar has now asked Gaurav to not to deliver the goods till the time
Ramesh makes payment for the goods. Can Tushar exercise right of Lien in these
circumstances? (6 marks)
A. According to the provisions of section 47 of the Sale of Goods Act, 1930, subject to the
provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to
retain possession of them until payment or tender of the price in the following cases,namely:-
a) where the goods have been sold without any stipulation as to credit.
b) where the goods have been sold on credit, but the term of credit has expired.
c) where the buyer becomes insolvent.Further, section 49 states that, the unpaid seller of
goods loses his lien thereon.
a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods.
b) when the buyer or his agent lawfully obtains possession of the goods;
c) by waiver thereof.
In the given case, Ramesh bought goods from Tushar which are lying in the godown owned by
Mr. Gaurav. Ramesh has agreed to pay the price only after he makes further sale of those goods
(goods are still in the godown). Ramesh sold those goods to third parties and gave delivery
orders to his customers asking Gaurav, the godown owner, to deliver the goods to these
customers.But, when Mr.Tushar asked Ramesh to pay for the goods, he did not attend his
phone calls. That is why Tushar asked Gaurav to not to deliver the goods till the time Ramesh
makes payment for the goods.
Here, Tushar lost his right of lien over the goods which are sold to Ramesh as he had given right
toMr. Gaurav (bailee) to deliver the goods as per the order of Ramesh, though Tushar was
unpaid for the goods by Ramesh. Hence, Tushar can file suit for recovery of money but cannot
exercise the right of lien over the goods sold to Mr. Ramesh.

b) “Sharing of profits is only a prima facie, not a conclusive evidence of the existence of
partnership.” Examine the validity of the statement in the light of the provisions of the Indian
Partnership Act, 1932 and state as to how would you determine whether a group of persons does
or does not constitute partnership. (6 marks)
 A. It is true that sharing of profits of business is an essential element to constitute a partnership.
But it is only a prima facie evidence but not a conclusive evidence of the existence of
partnership. It is also true that the partners agree to share the profits of a business which is
carried on by all or by one of them acting for all. However, the sharing of profits would not by
itself make such person partner with the persons carrying on a business. Sharing of profits by
the following person will not make them partners in the partnership firm:
i) by a lender of money to persons engaged or about to engage in any business;
ii) by a servant or agent as remuneration
iii) by widow or child or a deceased partner as annuity, or
iv) by a previous owner or part owner of the business as consideration for the sale of goodwill
or share thereof.
To determine whether a group of persons running a business does or does not constitute
partnership, Section 6 of the India Partnership Act, 1932 has to be referred. According to
Section 6 “In determining whether a group of persons is or is not firm, regard shall be had to the
real relation between the parties as shown by all relevant facts taken together. It is very clear
from this that in determining relationship between parties and ascertaining the existence of
partnership all relevant facts such as follows are to be considered –
i) There must be an agreement between two or more persons
ii) There must be a business of partnership
iii) The partners must have agreed to share the profits of business
iv) The business must be carried on by all or any one of them acting for all.In other words
there must be mutual agency between the partners. Existence of mutual agency which is the
cardinal principle of partnership law, is very much helpful in reaching a conclusion in this
regard. In this situation each partner is the principal as well as agent of the other partners.
Hence, in order to determine whether the relation of partnership exists between two or more
persons or not, one should examine all the facts and circumstances as cited above.

c) Examine whether the following constitute a contract of ‘Bailment’ under the provisions of the
Indian Contract Act, 1872:
i) V parks his car at a parking lot, locks it, and keeps the keys with himself.
ii) Seizure of goods by customs authorities (4 marks)
A. i) Here in this case V parks his car at a parking lot, locks it, and keeps the keys with himself.
Mere custody of goods does not mean possession. For a bailment to exist the bailor must
give possession of the bailed property and the bailee must accept it (Section 148, Indian
Contract Act, 1872 is not applicable).As key is kept with himself there is no possession thus
it is not a bailment.
ii) Seizure of goods by customs authorities, the possession of the goods is transferred to them
custom authorities (section 148) is applicable.

Q.4. a) Explain whether the agency shall be terminated in the following cases under the provisions of
the Indian Contract Act, 1872:
i) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts
due to him from A. Afterwards, A becomes insane.
ii) A appoints B as A's agent to sell A's land. B, under the authority of A, appoints C as agent
of B. Afterwards, A revokes the authority of B but not of C. What is the status of agency
of C? (6 marks)
A. i) According to section 202 of the Indian Contract Act, 1872, where the agent has himself
aninterest in the property which forms the subject matter of the agency, the agency cannot,
in the absence of an express contract, be terminated to the prejudice of such interest.
In other words, when the agent is personally interested in the subject matter of agency, the
agency becomes irrevocable.
In the given question, A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A.
As per the facts of the question and provision of law, A cannot revoke this authority, nor it
 can be terminated by his insanity.
ii) According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person
employed by, and acting under the control of, the original agent in the business of the
agency.
Section 210 provides that, the termination of the authority of an agent causes the
termination (subject to the rules regarding the termination of an agent’s authority) of the
authority of all sub-agents appointed by him.
In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a sub-
agent. Thus, when A revokes the authority of B (agent), it results in termination of authority
of sub - agent appointed by B i.e. C (sub-agent).

b) Jadoo Private Ltd is a company incorporated under Companies Act 2013 as a private company
and its turnover in immediately previous year was Rs.30 Crores and it’s paid up capital is Rs.3
crores, it’s 75% voting power is with another company namely Magic Ltd.Jadoo PrivateLtd is
claiming it to be a small company as its turnover and paid up share capital is below the
threshold limit. Do you agree with the same? (6 marks)
A. According to section 2(71) of the Companies Act, 2013, public company means a company
which is not a private company and has a minimum paid-up share capital as may be prescribed.
Provided that a company which is a subsidiary of a company, not being a private company, shall
be deemed to be public company for the purposes of this Act even where such subsidiary
company continues to govbe a private company in its articles.
Further, section 2(85) states that small company means company, other than the public
company;
i) of which paid-up share capital does not exceed fifty lakh 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 its last profit and loss account does not exceed two crore rupees or
such higher amount as may be prescribed which shall not be more than hundred crore
rupees.
Except, a holding company or a subsidiary company; a company registered under section 8; or a
company or body corporate governed by any special
Act.
In the given case, JadooPrivate Ltd is incorporated under Companies Act, 2013 as a private
company and its turnover for the immediately preceding year was Rs. 30 crores and it’s paid up
capital is Rs.3 crore. It’s 75% voting right is with another company namely Magic Ltd. which is
a public limited company.
Here, as per the context of above provision, Jadoo Private Ltd, being subsidiary company of a
public company, is a public company and not a private company. Also, Jadoo Private Ltd is a the
subsidiaryof another public company, it falls within the exception to the definition of small
company. Hence, Jadoo Private Ltd is neither a private company nor small company.

c) Mr. D sold some goods to Mr. E for Rs 5,00,000 on 15 days credit. Mr. D delivered the goods.
On due date Mr. E refused to pay for it. State the position and rights of Mr. D as per the Sale of
Goods Act, 1930. (4 marks)
A. Position of Mr. D: Mr. D sold some goods to Mr. E for Rs5,00,000 on 15 days credit.
Mr. D delivered the goods. On due date Mr. E refused to pay for it. So, Mr. D is an unpaid seller
as according to section 45(1) of the Sale of Goods Act,1930 the seller of goods is deemed to be
an ‘Unpaid Seller’ when the whole of the price has not been paid or tendered and the seller had
an immediate right of action for the price.
Rights of Mr. D: As the goods have parted away from Mr. D, therefore, Mr. D cannot exercise
the right against the goods, he can only exercise his rights against the buyer i.e. Mr. E which are
as under:
(i) Suit for price (Section 55)
In the mentioned contract of sale, the price is payable after 15 days and Mr. E refuses to pay
such price, Mr. D may sue Mr. E for the price.
(ii) Suit for damages for non-acceptance (Section 56):
 Mr. D may sue Mr. E for damages for non-acceptance if Mr. E wrongfully neglects or refuses to
accept and pay for the goods. As regards measure of damages, Section 73 of the Indian Contract
Act, 1872 applies.
(iii) Suit for interest [Section 61]: If there is no specific agreement between the Mr. D and Mr.
E as to interest on the price of the goods from the date on which payment becomes due, Mr. D
may charge interest on the price when it becomes due from such day as he may notify to Mr. E.

Q.5. a) A and B are friends and there shops are nearby. One day A’s shop got fire and B saved A’s goods
from the fire by spraying fire extinguishers of his own shop later, A promised to pay Rs.5,000 to
B which is nothing but the cost of fire extinguishers which B used of his own shop. Identify the
above example and whether B can recover the amount from Mr A? (6 marks)
A. According to section 2(d) of the Indian Contract Act, 1872, when at the desire of the promisor,
the promisee or any other person has done or abstained from doing, or does or abstains from
doing or promises to do or abstain from doing something, such an act or abstinence or promise
is called consideration for the promise. Consideration may be past, present or future. The
general rule is that an agreement made without consideration is void. But one of the exceptions
to it says a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, is enforceable under Section 25(2). In order that a promise to pay
for the past voluntary services be binding and legally enforceable, provided that the services
should have been rendered voluntarily, the services must have been rendered for the promisor,
the promisor must be in existence at the time when services were rendered and the promisor
must have intended to compensate the promise.
In the given case, Mr. A and Mr. B are friends and there shops are nearby. One day Mr. A’s shop
burnt by fire. Mr. B saved Mr. A’s goods from the fire by spraying the fire extinguishers of his
own shop voluntarily. Later on, Mr. A promise to pay Rs. 5,000 to Mr. B which is nothing but
the cost of fire extinguishers used by Mr. B.
In the above case, Mr. B voluntarily saved the goods of Mr. A’s shop from fire without any prior
request of Mr. A. But, Mr.A later agreed to pay the amount for Mr. B’s act which would be as
termed as past consideration and Mr. A would be legally bound to pay the agreed amount of
Rs. 5,000 to Mr. B as a compensation of the fire extinguishers used by him.

b) A, B and C are partners in a firm called ABC Firm. A, with the intention of deceiving D, a
supplier of office stationery, busy certain stationery on behalf of the ABC Firm. The stationery
is of use in the ordinary course of the firm’s business. A does not give the stationery to the firm,
instead brings it to his own use. The supplier D, who is unaware of the private use of stationery
by A, claims the price from the firm. The firm refuses to payfor the price, on the ground that the
stationery was never received by it (firm). Referring to the provisions of the Indian Partnership
Act, 1932 decide:
(i) Whether the Firm’s contention shall be tenable ?
(ii) What would be your answer if a part of the stationery so purchased by A was delivered to
the firm by him, and the rest of the stationery was used by him for private use, about which
neither the firm nor the supplier D was aware? (4 marks)
A. The problem in the question is based on the ‘Implied Authority’ of a partner provided in Section
19 of the Indian Partnership Act 1932. The section provides that subject to the Indian
Partnership Act, 1932, the section provides that subject to the provisions of Section 22 of the
Act, the act, 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. The authority of a partner to bind the firm conferred by
this section is called his ‘Implied Authority’ [Sub-Section (i) of section 19]. Further more, every
partner is in contemplation of law the general and accredited agent of the partnership and may
consequently bind all the other partners by his acts in all matters which are within the scope and
object of the partnership Hence, if the partnership is of a general commercial nature, he may buy
goods on account of the partnership
Considering the above provisions and explanation, the questions as asked in the problem may be
answered as under:
(i) The firm’s contention is not tenable, for the reason that the partner, in the usual course of
 the business on behalf of the firm has on implied authority to bind the firm. The firm is,
therefore, liable for the price of the goods,
(ii) In the second case also the answer would be the same as above, i.e. the implied authority of
the partner binds the firm.
In both the cases, however, the firm ABC can take action against A, the partner but it has to pay
the price of stationery to the supplier D.

c) A company registered under section 8 of the Companies Act, 2013, earned huge profit during
the financial year ended on 31st March, 2019 due to some favorable policies declared by the
Government of India and implemented by the company. Considering the development, some
members of the company wanted the company to distribute dividends to the members of the
company. They approached you to advise them about the maximum amount of dividend that can
be declared by the company as per the provisions of the Companies Act, 2013.
(3 marks)
A. Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed
to
• Promote the charitable objects of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment etc. Such company intends to apply its
profit in
• Promoting its objects and
• Prohibiting the payment of any dividend to its members.
Hence, a company that is registered under section 8 of the Companies Act, 2013, is prohibited
from the payment of any dividend to its members. In the present case, the company in question
is a section 8 company and hence it cannot declare dividend. Thus, the contention of members is
incorrect.

d) X draws a cheque in favour of Y. After having issued the cheque he informs Y not to present the
cheque for payment. He also informs the bank to stop payment. Decide, under provisions of the
Negotiable Instruments Act, 1881, whether the said acts of X constitute an offence against him?
(3 marks)
A. Offence under the Negotiable Instruments Act, 1881 This problem is based on the case of Modi
Cements ltd. Vs. Kuchil Kumar Nandi, 1998
In this case the Supreme Court held that once a cheque is issued by the drawer, a presumption
under Section 139 of the Negotiable Instruments Act, 1881 follows and merely because the
drawer issues a notice thereafter to the drawee or to the bank for stoppage of payment, it will
not preclude an action under Section 138. The object of Section 138 to 142 of the Act is to
promote the efficacy of the banking operations and to ensure credibility in transacting business
through cheques. Section 138 is a penal provision in the sense that once a cheque is drawn on an
account maintained by the drawn with his banker for payment of any amount of money to
another person from out of that account for the discharge in whole or in part of any debt or the
liability, is informed by the bank unpaid either because of insufficient of amount to honour the
cheques or the amount exceeding the arrangement made with the bank, such a person shall be
deemed to have committed an offence.
Q.6. a) Anne Private Limited has borrowed Rs 36 crores from Bajaj Finance Limited. However, as per
memorandum of Anne Private Limited the maximum borrowing power of the company is Rs 30
crores. Examine, whether Anne Private Limited is liable to pay this debt? State the remedy, if
any available to Bajaj Finance Limited. (6 marks)
A. This case is governed by the ‘Doctrine of Ultra Vires’. According to this doctrine, any act done
or a contract made by the company which travels beyond the powers of the company conferred
upon it by its Memorandum of Association is wholly void and inoperative in law and is
therefore not binding on the company. This is because, the Memorandum of Association of the
company is, in fact, its charter; it defines its constitution and the scope of the powers of the
company. Hence, a company cannot depart from the provisions contained in the memorandum.
Hence, any agreement ultra vires the company shall be null and void.
(i) Whether Anne Private Limited is liable to pay the debt - As per the facts given, Anne
 Private Limited borrowed Rs 36 crores from Bajaj Finance Limited which is beyond its
borrowing power of Rs 30 crores. Hence, contract for borrowing of Rs 36 crores, being
ultra vires the memorandum of association and thereby ultra vires the company, is void.
Anne Private Limited is not, therefore, liable to pay the debt.
(ii) Remedy available to Bajaj Finance Limited - In light of the legal position explained above,
Bajaj Finance Limited cannot enforce the said transaction and thus has no remedy against
the company for recovery of the money lent. Bajaj Finance limited may take action against
the directors of Anne Private Limited as it is the personal liability of its directors to restore
the borrowed funds. Besides, Bajaj Finance Limited may take recourse to the remedy by
means of ‘Injunction’, if feasible.

b) Rahul sent a consignment of goods worth Rs. 60,000 by railway and got railway receipt. He
obtained an advance of Rs. 30,000 from the bank and endorsed and delivered the railway receipt
in favour of the bank by way of security. The railway failed to deliver the goods at the
destination. The bank filed a suit against the railway for Rs. 60,000. Decide in the light of
provisions of the Indian Contract Act, 1872, whether the bank would succeed in the said suit?
(4 marks)
A. Rights of Bailee (The Indian Contract Act, 1872) As per Sections 178 and 178A of the Indian
Contract Act, 1872 the deposit of title deeds with the bank as security against an advance
constitutes a pledge. As a pledge, a banker’s rights are not limited to his interest in the goods
pledged. In case of injury to the goods or their deprivation by a third party, pledge would have
all such remedies that the owner of the goods would have against them. In Morvi Mercantile
Bank ltd. vs. Union of India, the Supreme Court held that the bank (pledgee) was entitled to
recover not only the amount of the advance due to it, but the full value of the consignment.
However, the amount over and above his interest is to be held by him in trust for the pledgor.
Thus, the bank will succeed in this claim of Rs. 60,000 against Railway.

c) Examine the validity of the following instruments.

(i) An instrument that reads: “I of my own free will and accord approached B and borrowed
from him the sum of Rs. 100 bearing interest at the rate of 2 per cent per mensem. I have
therefore executed these few presents by way of apromissory note so that it may serve as
evidence and be of use when needed.”
(ii) An instrument that reads: “I promise to pay Rs. 1,000 to B, 30 days after his marriage with
C.
(iii) An instrument that reads: “I promise to pay Rs 5,000 and a diamond necklance to Amit
after 3 months from date. (3 marks)
A. (i) The given problem is based on Bal Mukand Vs LalRaamjiLal case. The position of law is
that the instant instrument is not a promissory note as it does not contain an express
undertaking to pay the amount mentioned in it.
(ii) This is not a promissory note as it is probable that B may marry somebody other than C or
may not marry at all.
(iii) Its not a promissory note. Because promissory note is a promise to pay money only. In this
there is a promise to pay Rs 5,000/- and a diamond necklace, thus it is invalid.

d) When there is a dispute between citizens or between citizens and the Government, these
disputes are resolved by the judiciary. What are the functions of judiciary system. And also
explain the hierarchy of court in India in brief. (3 marks)
A. When there is a dispute between citizens or between citizens and the Government, these
disputes are resolved by the judiciary.
The functions of judiciary system of India are:
♦ Regulation of the interpretation of the Acts and Codes,
♦ Dispute Resolution,
♦ Promotion of fairness among the citizens of the land.
In the hierarchy of courts, the Supreme Court is at the top, followed by the High Courts and
District Courts. Decisions of a High Court are binding in the respective state but are only
 persuasive in other states. Decisions of the Supreme Court are binding on all High Courts under
Article 141 of the Indian Constitution. In fact, a Supreme Court decision is the final word on the
matter.

Q.7. a) Ram has sold certain goods to Kunal but he has not been paid price of the goods even after the
price falls due Ram informed Kunal that he doesn’t pay the price within a week he will sell off
the goods to someone else. Ram waited for 2 weeks but Kunal didn’t pay the price finally, Ram
sold the goods and realised price equal to 90% of contract price is the sale of goods by Ram
valid and can ram recover the loss from Kunal? (6 marks)
A. According to section 45(1) of the Sale of Goods Act, 1930, the seller of goods is deemed to be
an‘Unpaid Seller’ when-
a) The whole of the price has not been paid or tendered and the seller had an immediate right
of action for the price.
b) When a bill of exchange or other negotiable instrument has been received as conditional
payment and the condition on which it was received has not been fulfilled by reason of the
dishonor of the instrument or otherwise. The unpaid seller has several rights to exercise.
One of the rights is right to re-sale. As per section 54 of the act, the right of resale is a very
valuable right given to an unpaid seller. He can exercise the right to re-sell the goods, where
the goods are of perishable nature there is no need to inform the intention of resale to buyer.
Where he gives notice to the buyer of his intention to re-sell the goods and even after the
receipt of such notice the buyer fails within a reasonable time to pay or tender the price, the
seller may resell the goods. Also, on the resale of the goods, the seller is entitled to recover
the difference between the contract price and resale price, from the original buyer, as
damages or retain the profit if the resale price is higher than the contract price.
In the given case, Mr. Ram sold goods to Mr. Kunal but he failed to pay price of the goods even
after due date. Thus, Mr. Ram gave notice to Mr. Kunal stating that if he doesn’t pay the price
within a week he will sell off the goods to someone else. Mr. Ram waited for 2 weeks but still
Mr.Kunal didn’t pay the price. So, finally he sold the goods and realized about 90% of the
contract price.
Here, Mr. Ram, being an unpaid seller, has the right to re-sale the goods. Thus, he gave a notice
of his intension to Mr. Kunal to re-sale the goods along with a reasonable period after the notice.
Therefore, the re-sale of goods made by Mr. Ram is valid. Also, in fact, he can recover the loss
that he had suffered by selling the goods at lower price than that of the contracted price due to
Mr.Kunal’s failure to pay the amount for goods.

b) What are the consequences of Non-Registration of a Partnership Firm? Discuss.

(6 marks)
A. Consequences of Non-Registration of a Partnership Firm [Section 69 of the Indian Partnership
Act, 1932]: Although registration of firms is not compulsory, yet the consequences or
disabilities of non-registration have a persuasive pressure for their registration. These
disabilities briefly are as follows:
i) No suit in a civil court by firm or other co-partners against third party: The firm or
any other person on its behalf cannot bring an action against the third party for breach of
contract entered into by the firm, unless the firm is registered and the persons suing are or
have been shown in the register of firms as partners in the firm.
ii) No relief to partners for set-off of claim: If an action is brought against the firm by a third
party, then neither the firm nor the partner can claim any set-off, if the suit be valued for
more than Rs100 or pursue other proceedings to enforce the rights arising from any
contract.
iii) Aggrieved partner cannot bring legal action against other partner or the firm: A
partner of an unregistered firm (or any other person on his behalf) is precluded from
bringing legal action against the firm or any person alleged to be or to have been a partner
in the firm. But, such a person may sue for dissolution of the firm or for accounts and
realization of his share in the firm’s property where the firm is dissolved.
 iv) Third party can sue the firm: In case of an unregistered firm, an action can be brought
against the firm by a third party.

c) Explain the meaning of Guarantee Company? State the similarities and dissimilarities between a
‘Guarantee Company’ and ‘Company Limited by Shares’ (4 marks)
A. Meaning of Guarantee Company:Section 2(21) of the Companies Act, 2013 defines a Company
Limited by Guarantee as a company having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake to contribute to the
assets of the company in the event of its being wound up. Thus, the liability of the members of a
guarantee company is limited to a stipulated amount in terms of individual guarantees given by
members and mentioned in the memorandum. The members cannot be called upon to contribute
more than such stipulated amount for which each member has given a guarantee in the
memorandum of association.
Similarities and dis-similarities between the Guarantee Company and the Company limited by
shares: The common features between a “guarantee company” and the “company limited share”
are legal entity and limited liability. In case of a company limited by shares, the liability of its
members is limited to the amount remaining unpaid on the shares held by them. Both these type
of companies have to state this fact in their memorandum that the members’ liability is limited.
However, the dissimilarities between a ‘guarantee company’ and ‘company limited by shares’ is
that in the former case the members will be called upon to discharge their liability only after
commencement of the winding up of the company and only to the extent of amounts guaranteed
by them respectively; whereas in the case of a company limited by shares, the members may be
called upon to discharge their liability at any time, either during the life of the company or
during the course of its winding up.

***ALL THE BEST***