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PAPER – 2:
BUSINESS LAWS

QUESTIONS

Indian Regulatory Framework

1. What is the significance of the Supreme Court and High Court in the
Indian judiciary?
The Indian Contract Act, 1872
2. Mr. Sohan, a wealthy individual provided a loan of ` 80,000 to
Mr. Mukesh on 26th February, 2023. The borrower, Mr. Mukesh asked for
a further loan of ` 1,50,000.
Mr. Sohan agreed but provided the loan in parts on different dates. He
provided ` 1,00,000 on 28th February, 2023 and remaining ` 50,000 on
3rd March, 2023.
On 10th March, 2023 Mr. Mukesh while paying off part ` 75,000 to Mr.
Sohan insisted that the lender should adjust ` 50,000 towards the loan
taken on 3rd March, 2023 and balance as against the loan on
26th February, 2023.
Mr. Sohan objected to this arrangement and asked the borrower to
adjust in the order of date of borrowal of funds.
Now you decide:
(i) Whether the contention of Mr. Mukesh correct or otherwise as per
the provisions of the Indian Contract Act, 1872?
(ii) What would be the answer in case the borrower does not insist on
such order of adjustment of repayment?

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(iii) What would be the mode of adjustment/appropriation of such part

payment in case neither Mr. Sohan nor Mr. Mukesh insist on any
order of adjustment on their part?
3. Rama directs Shyam to sell laptops for him and agrees to give Shyam
eleven percent (11%) commission on the sale price fixed by Rama for
each laptop. As Government of India put restrictions on import of
Laptops, Rama thought that the prices of laptops might go up in near
future and he revokes Shyam's authority for any further sale. Shyam,
before receiving the letter at his end sold 5 laptops at the price fixed by
Rama. Shyam asked for 11% commission on the sale of 5 Laptops for ` 1
lakh each. Explain under the provisions of the Indian Contract Act, 1872:
(i) Whether sale of laptops after revoking Shyam's authority is binding
on Rama?
(ii) Whether Shyam will be able to recover his commission from Rama, if
yes, what will be the amount of such commission?
4. Rohan found a wallet in a restaurant. He enquired all the customers
present there but the true owner could not be found. He handed over
the same to the manager of the restaurant to keep the wallet till the true
owner is found. After a week, Rohan went back to the restaurant to
enquire about the wallet. The manager refused to return it to Rohan,
saying that it did not belong to him. In the light of the Indian Contract
Act, 1872, can Rohan recover the wallet from the Manager?
5. Paridhee, a minor, falsely representing her age, enters into an agreement
with an authorised Laptop dealer Mr. Mittal, owner of MP Laptops, for
purchase of Laptop on credit amounting ` 60,000/- on 1st August 2022.
She promised to pay back the outstanding amount with interest @ 16%
p.a. by 31st July 2023. She told him that in case she won’t be able to pay
the outstanding amount, her father Mr. Ram will pay back on her behalf.
After One year, when Paridhee was asked to pay the outstanding
amount with interest she refused to pay the amount and told the owner
that she is minor and now he can't recover a single penny from her.
She will be a major on 1st January 2025 and only after that agreement
can be ratified. Explain by which of the following ways, Mr. Mittal will

2 JANUARY 2025 EXAMINATION

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succeed in recovering the outstanding amount with reference to the

Indian Contract Act, 1872.
(i) By filing a case against Paridhee, a minor for recovery of outstanding
amount with interest?
(ii) By filing a case against Mr. Ram, father of Paridhee for recovery of
outstanding amount?
(iii) By filing a case against Paridhee, a minor for recovery of outstanding
amount after she attains majority?
6. State with reason(s) whether the following agreements are valid or void
as per the Indian Contract Act, 1872:
(i) Where two courts have jurisdiction to try a suit, an agreement
between the parties that the suit should be filed in one of those
courts alone and not in the other.
(ii) X offers to sell his Maruti car to Y. Y believes that X has only Wagon R
Car but agrees to buy it.
(iii) X, a physician and surgeon, employs Y as an assistant on a salary of
` 75,000 per month for a term of two years and Y agrees not to
practice as a surgeon and physician during these two years.
7. R owns an electronics store. P visited the store to buy a water purifier
priced at ` 54,000/. He specifically requested R for a purifier with a
copper filter. As P wanted to buy the purifier on credit, with the
intention of paying in 9 equal monthly instalments, R demands a
guarantor for the transaction. S (a friend of P) came forward and gave
the guarantee for payment of water purifier. R sold P, a water purifier of
a specific brand. P made payment for 4 monthly instalments and after
that became insolvent. Explain with reference to the Indian Contract Act,
1872, the liability of S as a guarantor to pay the balance price of water
purifier to R.
What will be your answer, if R sold the water purifier misrepresenting it
as having a copper filter, while it actually has a normal filter? Neither P
nor S was aware of this fact and upon discovering the truth, P refused to
pay the price. In response to P's refusal, R filed the suit against S, the

3 JANUARY 2025 EXAMINATION

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guarantor. Explain with reference to the Indian Contract Act, 1872,

whether S is liable to pay the balance price of water purifier to R?
8. What are the conditions need to be fulfilled to make the following
agreements valid without consideration as per the provisions of the
Indian Contract Act, 1872?
(A) Agreement made based on natural love and affection
(B) Promise to pay time-barred debts
The Sale of Goods Act, 1930
9. What are the consequences of the destruction of specified goods,
before making of contract and after the agreement to sell under the Sale
of Goods Act, 1930.
10. What are the implied conditions in a contract of 'Sale by sample' under
the Sale of Goods Act, 1930? Also state the implied warranties operative
under the Act.
11. Shubhangi went to a Jewellery shop and asked the salesgirl to show her
diamond necklace with Sapphire stones. The Jeweller told her that we
have a lot of designs of diamond necklace but with blue stones. If she
chooses for herself any special design of diamond necklace with blue
stones, they will replace blue stones with Sapphire stones. But for the
Sapphire stones they will charge some extra cost. Shubhangi selected a
beautiful designer necklace and paid for it. She also paid the extra cost
of Sapphire stones. The Jeweller requested her to come back a week
later for delivery of that necklace. When she came after a week to take
delivery of necklace, she noticed that due to Sapphire stones, the design
of necklace had been completely disturbed. Now, she wants to terminate
the contract and thus, asked the manager to give her money back, but
he denied for the same. Answer the following questions as per the Sale
of Goods Act, 1930.
(i) State with reasons whether Shubhangi can recover the amount from
the Jeweller.
(ii) What would be your answer if Jeweller says that he can change the
design, but he will charge extra cost for the same?

4 JANUARY 2025 EXAMINATION

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12. J, a wholesaler of premium Basmati rice delivered on approval 100 bags

of rice of 10 kg each to a local retailer, on sale or returnable basis within
a month of delivery. The next day the retailer sold 5 bags of rice to a
regular customer K. A week later K informed the retailer that the quality
of rice was not as per the price.
The retailer now wants to return all the rice bags to J, including the 4
bags not used by K. Can the retailer do so?
Also briefly describe the provisions underlying in this context of the Sale
of Goods Act, 1930.
13. Mrs. Kanchan went to the local rice and wheat wholesale shop and asked
for 100 kgs of Basmati rice. The Shopkeeper quoted the price of the
same as ` 125 per kg to which she agreed. Mrs. Kanchan insisted that
she would like to see the sample of what would be provided to her by
the shopkeeper before she agreed upon such purchase.
The shopkeeper showed her a bowl of rice as sample. The sample exactly
corresponded to the entire lot.
Mrs. Kanchan examined the sample casually without noticing the fact
that even though the sample was that of Basmati Rice but it contained a
mix of long and short grains.
The cook on opening the bags complained that the dish if prepared with
the rice would not taste the same as the quality of rice was not as per
requirement of the dish.
Now Mrs. Kanchan wants to file a suit of fraud against the seller alleging
him of selling a mix of good and cheap quality rice. Will she be
successful?
What would be your answer in case Mrs. Kanchan specified her exact
requirement as to length of rice?
14. Ravi sold 500 bags of wheat to Tushar. Each bag contains 50 Kilograms
of wheat. Ravi sent 450 bags by road transport and Tushar himself took
remaining 50 bags. Before Tushar receives delivery of 450 bags sent by
road transport, he becomes bankrupt. Ravi being still unpaid, stops the
bags in transit. The official receiver, on Tushar's insolvency claims the

5 JANUARY 2025 EXAMINATION

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bags. Decide the case with reference to the provisions of the Sale of
Goods Act, 1930.
The Indian Partnership Act, 1932
15. (i) What do you mean by 'Partnership for a fixed period' as per the
Indian Partnership Act, 1932?
(ii) When the continuing guarantee can be revoked under the Indian
Partnership Act, 1932?
(iii) What do you mean by Goodwill as per the provisions of Indian
Partnership Act, 1932?
16. P, Q and R formed a partnership agreement to operate motor buses
along specific routes for a duration of 12 years. After operating the
business for four years, it was observed that the business incurred losses
each year. Despite this, P is determined to continue the business for the
remaining Period. Examine with reference to the Indian Partnership Act,
1932, can P insist to continue the business? If so, what options are
available to Q and R who are reluctant to continue operating the
business?
17. With reference to the provisions of Indian Partnership Act, 1932 explain
the various effects of insolvency of a partner.
18. Ram and Shyam are partners in a partnership firm styled as RS & Co.
(the firm). Gopal, a renowned businessman, is their common friend. Ram
introduced Gopal to Sundar, a supplier to the firm, as his newly joined
partner. Gopal knowing that he is not a partner preferred to keep quiet
on such an introduction. This information about Gopal, being a partner
of the firm, was shared by Sundar with another businessman Madhav.
Next day, Sundar supplied the raw material on credit and Madhav lent `
5 lakhs to the firm for a short period on the understanding that Gopal is
a partner of the firm. On due dates, the firm failed to discharge its
liability towards both. Advise Gopal, whether he is liable to Sundar and
Madhav for the aforesaid liability of the firm.

6 JANUARY 2025 EXAMINATION

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The Limited Liability Partnership Act, 2008

19. A LLP is a new form of legal business entity with limited liability. It's an
alternative corporate business vehicle that only gives the benefits of
limited liability at low compliance cost but allows its partners the
flexibility of organizing their internal structure as a traditional
partnership. Keeping in view of above, define the following
characteristics of LLP.
(i) Body Corporate
(ii) Mutual Agency
(iii) Foreign LLPs
(iv) Artificial legal person
The Companies Act, 2013
20. BC Private Limited and its subsidiary KL Private Limited are holding
90,000 and 70,000 shares respectively in PQ Private Limited. The paid-up
share capital of PQ Private Limited is ` 30 Lakhs (3 Lakhs equity shares
of ` 10 each fully paid). Analyse with reference to provisions of the
Companies Act, 2013 whether PQ Private Limited is a subsidiary of BC
Private Limited. What would be your answer if KL Private Limited is
holding 1,60,000 shares in PQ Private Limited and no shares are held by
BC Private Limited in PQ Private Limited?
21. Narendra Motors Limited is a Government Company. Shah Auto Private
Limited have share capital of ` 10 crore in the form of 10,00,000 shares
of ` 100 each. Narendra Motors Limited is holding 5,05,000 shares in
Shah Auto Private Limited. Shah Auto Private Limited claimed the status
of Government Company. Advise as legal advisor, whether Shah Auto
Private Limited is Government Company under the provisions of
Companies Act, 2013?
22. XYZ is a company incorporated under the Companies Act, 2013.
The paid up share capital of the company is held by others as on
31.03.2024 in as under:
(1) Government of India 20%
(2) Life Insurance Corporation of India (Public Institution) 8%

7 JANUARY 2025 EXAMINATION

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(3) Government of Tamil Nadu 10%

(4) Government of Rajasthan 10%
(5) ABC Limited (owned by Government Company) 15%
As per the above shareholding, state whether XYZ limited be called a
government company under the provisions of the Companies Act, 2013.
The Negotiable Instruments Act, 1881
23. Mr. Y issued a cheque for ` 10,000 to Mr. Z which was dishonoured by
the Bank because Y did not have enough funds in his account and has
no authority to overdraw. Examine as per the provisions of the
Negotiable Instruments Act, 1881 whether-
(i) Mr. Y is liable for dishonour of cheque, if yes, what are the
consequences for such an offence?
(ii) What would be your answer if Y issued a cheque as a donation to
Mr. Z?
24. Reliable Limited, an Indian company, is a global leader in Petrochemical
products. For payment of the sale price of machinery imported from
Alex Manufacturing Limited, a USA based company (the exporter), the
Indian company drew a bill of exchange on Manish, a resident of
Mumbai (India) who accepted the bill at Mumbai payable to the exporter
in Los Angeles, USA. Decide whether the bill of exchange is an inland
instrument or a foreign instrument. Assume that the bill of exchange
was signed by the authorised person for the drawer company.

SUGGESTED ANSWERS/HINTS

1. (i) Supreme Court

The Supreme Court is the apex body of the judiciary. It was
established on 26th January 1950. The Chief Justice of India is the
highest authority appointed under Article 126. The principal bench
of the Supreme Court consists of seven members including the
Chief Justice of India. Presently, the number has increased to 34

8 JANUARY 2025 EXAMINATION

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including the Chief Justice of India due to the rise in the number of
cases and workload. An individual can seek relief in the Supreme
Court by filing a writ petition under Article 32.
(ii) High Court
The highest court of appeal in each state and union territory is the
High Court. Article 214 of the Indian Constitution states that there
must be a High Court in each state. The High Court has appellant,
original jurisdiction, and Supervisory jurisdiction. However, Article 227
of the Indian Constitution limits a High Court’s supervisory power. In
India, there are twenty-five High Courts, one for each state and union
territory, and one for each state and union territory. Six states share a
single High Court. An individual can seek remedies against violation
of fundamental rights in High Court by filing a writ under Article 226.
2. Appropriation of Payments: In case where a debtor owes several debts
to the same creditor and makes payment, which is not sufficient to
discharge all the debts, the payment shall be appropriated (i.e. adjusted
against the debts) as per the provisions of Section 59 to 61 of the Indian
Contract Act, 1872.
(i) As per the provisions of 59 of the Act, where a debtor owing several
distinct debts to one person, makes a payment to him either with
express intimation or under circumstances implying that the payment
is to be applied to the discharge of some particular debt, the
payment, if accepted, must be applied accordingly.
Therefore, the contention of Mr. Mukesh is correct, and he can
specify the manner of appropriation of repayment of debt.
(ii) As per the provisions of 60 of the Act, where the debtor has omitted
to intimate and there are no other 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, where its recovery is or is not barred by the law in force
for the time being as to the limitation of suits.
Hence in case Mr. Mukesh fails to specify the manner of
appropriation of debt on part repayment, Mr. Sohan the creditor,
can appropriate the payment as per his choice.

9 JANUARY 2025 EXAMINATION

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(iii) As per the provisions of 61 of the Act, where neither party makes any
appropriation, the payment shall be applied in discharge of the debts
in order of time, whether they are or are not barred by the law in
force for the time being as to the limitation of suits. If the debts are
of equal standing, the payments shall be applied in discharge of each
proportionately.
Hence in case where neither Mr. Mukesh nor Mr. Sohan specifies the
manner of appropriation of debt on part repayment, the
appropriation can be made in proportion of debts.
3. When termination of agent’s authority takes effect as to agent, and
as to third persons [Section 208 of the Indian Contract Act, 1872]:
The termination of the authority of an agent does not, so far as regards
the agent, take effect before it becomes known to him, or, so far as
regards third persons, before it becomes known to them.
In the instant case,
(i) The revocation of Shyam's authority becomes effective only when it is
communicated to and received by Shyam. Since Shyam had not
received the revocation letter at the time of selling the laptops, his
authority to sell on behalf of Rama was still valid. Hence, the sale of
laptops conducted by Shyam is binding on Rama.
(ii) Shyam is entitled to receive his commission for the sales made while
he still had the authority to sell. Since he sold the laptops before
receiving the revocation, he is entitled to his commission as per the
initial agreement with Rama.
Amount of Commission: Shyam sold 5 laptops at the price fixed by
Rama, which is `1 lakh each. The total sales amount to `5 lakh. The
agreed commission rate is 11% i.e. ` 55,000.
4. Responsibility of finder of goods (Section 71 of the Indian Contract
Act, 1872): A person who find goods belonging to another and takes
them into his custody is subject to same responsibility as if he were a
bailee.

10 JANUARY 2025 EXAMINATION

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Thus, a finder of lost goods has:

(i) to take proper care of the property as man of ordinary prudence
would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the wallet
to Rohan, since Rohan is entitled to retain the wallet found against
everybody except the true owner.
5. A contract made with or by a minor is void ab-initio: Pursuant to
Section 11 of the Indian Contract Act, 1872, a minor is not competent to
contract and any agreement with or by a minor is void from the very
beginning.
(i) By following the above provision, Mr. Mittal will not succeed in
recovering the outstanding amount by filing a case against
Paridhee, a minor.
(ii) Minor cannot bind parent or guardian: In the absence of
authority, express or implied, a minor is not capable of binding his
parent or guardian, even for necessaries. The parents will be held
liable only when the child is acting as an agent for parents.
In the instant case, Mr. Mittal will not succeed in recovering the
outstanding amount by filing a case against Mr. Ram, father of
Paridhee.
(iii) No ratification after attaining majority: A minor cannot ratify
the agreement on attaining majority as the original agreement is
void ab initio and a void agreement can never be ratified.
Hence, in this case also, Mr. Mittal will not succeed in recovering
the outstanding amount by filing a case against Paridhee, after she
attains majority.
6. (i) The given agreement is valid.
Reason: An agreement in restraint of legal proceeding is the one by
which any party thereto is restricted absolutely from enforcing his
rights under a contract through a Court (Section 28 of the Indian

11 JANUARY 2025 EXAMINATION

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Contract Act, 1872). A contract of this nature is void. However, in the

given statement, no absolute restriction is marked on parties on filing
of suit. As per the agreement, suit may be filed in one of the courts
having jurisdiction.
(ii) The said agreement is void.
Reason: This agreement is void as the two parties are thinking about
different subject matters so that there is no real consent, and the
agreement may be treated as void because of mistake of fact as well
as absence of consensus.
(iii) The said agreement is valid.
Reason: An agreement by which any person is restrained from
exercising a lawful profession, trade or business of any kind, is to that
extent void (Section 27). But, as an exception, agreement of service
by which an employee binds himself, during the term of his
agreement, not to compete with his employer is not in restraint of
trade.
7. As per section 126 of the Indian Contract Act, 1872, the contract of
guarantee is defined as a contract to perform the promise or discharge
the liability of a third person in case of his default.
In this case, S has given a guarantee for P's payment obligation towards
R. When P defaulted after making four monthly instalments and became
insolvent, S's liability as a guarantor will come into existence.
According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise
provided by the contract.
Since P failed to pay the remaining instalments due to insolvency, S, as
the guarantor, is liable to pay the balance price of the water purifier to
R. In the given situation, S will have to pay the balance amount of
` 30,000 to R. [54,000-(4x6,000)]
In the second situation, R sold the water purifier misrepresenting it as
having a copper filter, while it actually has a normal filter; this changes
the situation significantly.

12 JANUARY 2025 EXAMINATION

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According to Section 142 of the Act, any guarantee which has been
obtained by means of misrepresentation made by the creditor, or with
his knowledge and assent, concerning a material part of the transaction,
is invalid. Here, guarantee is obtained by means of misrepresentation
made by the creditor (R), and therefore the guarantee is invalid.
Furthermore, under Section 143, any guarantee which the creditor has
obtained by means of keeping silence as to material circumstances, is
invalid.
Here R misrepresented the filter type and both P and S were unaware of
this fact. The creditor (R) has obtained the guarantee by remaining silent
as to material circumstances. Therefore, the guarantee obtained from S
will be considered to be invalid.
Consequently, S cannot be held liable to pay the balance price of the
water purifier to R.
8. (A) Agreement made based on natural love and affection: Conditions
to be fulfilled under section 25(1) of the Indian Contract Act, 1872
(i) It must be made out of natural love and affection between
the parties.
(ii) Parties must stand in near relationship to each other.
(iii) It must be in writing.
(iv) It must also be registered under the law.
A written and registered agreement based on natural love and
affection between the parties standing in near relation (e.g., husband
and wife) to each other is enforceable even without consideration.
(B) Promise to pay time barred debts: Where a promise in writing
signed by the person making it or by his authorised agent, is made to
pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
9. (i) Goods perishing before making of Contract (Section 7 of the Sale
of Goods Act, 1930): In accordance with the provisions of the Sale of
Goods Act, 1930 as contained in Section 7, a contract for the sale of
specific goods is void, if at the time when the contract was made; the

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goods without the knowledge of the seller, perished or become so

damaged as no longer to answer to their description in the contract,
then the contract is void ab initio.
(ii) Goods perishing before sale but after agreement to sell (Section
8 of the Sale of Goods Act, 1930): Where there is an agreement to
sell specific goods, and subsequently the goods without any fault on
the part of the seller or buyer perish or become so damaged as no
longer to answer to their description in the agreement before the risk
passes to the buyer, the agreement is thereby avoided or becomes
void.
10. (i) Sale by sample [Section 17 of the Sale of Goods Act, 1930]: In a
contract of sale by sample, there is an implied condition that
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample,
(c) the goods shall be free from any defect rendering them un-
merchantable, which would not be apparent on reasonable
examination of the sample. This condition is applicable only
with regard to defects, which could not be discovered by an
ordinary examination of the goods. If the defects are latent,
then the buyer can avoid the contract. This simply means
that the goods shall be free from any latent defect i.e. a
hidden defect.
(ii) The following are the implied warranties operative under the
Act:
1. Warranty as to undisturbed possession [Section 14(b)]:
An implied warranty that the buyer shall have and enjoy
quiet possession of the goods. That is to say, if the buyer
having got possession of the goods, is later on disturbed in
his possession, he is entitled to sue the seller for the breach
of the warranty.
2. Warranty as to non-existence of encumbrances [Section
14(c)]: An implied warranty that the goods shall be free from

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any charge or encumbrance in favour of any third party not

declared or known to the buyer before or at the time the
contract is entered into.
3. Warranty as to quality or fitness by usage of trade
[Section 16(3)]: An implied warranty as to quality or fitness
for a particular purpose may be annexed or attached by the
usage of trade.
Regarding implied condition or warranty as to the quality or
fitness for any particular purpose of goods supplied, the rule
is ‘let the buyer beware’ i.e., the seller is under no duty to
reveal unflattering truths about the goods sold, but this rule
has certain exceptions.
4. Disclosure of dangerous nature of goods: Where the
goods are dangerous in nature and the buyer is ignorant of
the danger, the seller must warn the buyer of the probable
danger. If there is a breach of warranty, the seller may be
liable in damages.
11. As per Section 4(3) of the Sale of Goods Act, 1930, where under a
contract of sale, the property in the goods is transferred from the seller
to the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to
some condition thereafter to be fulfilled, the contract is called an
agreement to sell and as per Section 4(4), an agreement to sell becomes
a sale when the time elapses or the conditions are fulfilled subject to
which the property in the goods is to be transferred.
(i) On the basis of above provisions and facts given in the question, it
can be said that there is an agreement to sell between Shubhangi
and Jeweller and not a sale. Even though the payment was made by
Shubhangi, the property in goods can be transferred only after the
fulfilment of conditions fixed between the buyer and the seller. As
due to Sapphire Stones, the original design is disturbed, necklace is
not in original position. Hence, Shubhangi has right to avoid the
agreement to sell and can recover the price paid.

15 JANUARY 2025 EXAMINATION

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(ii) If Jeweller offers to bring the necklace in original position by

repairing, he cannot charge extra cost from Shubhangi. Even
though he has to bear some expenses for repair; he cannot charge
it from Shubhangi.
12. According to Section 24 of the Sale of Goods Act, 1930, in case of
delivery of goods on approval basis, the property in goods passes from
seller to the buyer:-
(i) When the person to whom the goods are given either accepts them
or does an act which implies adopting the transaction.
(ii) When the person to whom the goods are given retains the goods
without giving his approval or giving notice of rejection beyond the
time fixed for the return of goods and in case no time is fixed after
the lapse of reasonable time.
In the given case, J (seller) has delivered on approval 100 bags of rice of
10 kg each to local retailer (buyer) on sale or returnable basis within a
month of delivery. Out of these 100 bags, the local retailer sold 5 bags
to K (customer). It implies that the local retailer has accepted 5 bags out
of 100.
A week later, local retailer received the complaint of some defect in the
rice bags, so, he wanted to return all the bags to the J (seller).
According to the above provisions, the local retailer is entitled to return
only 95 bags to the J (seller) and not those 4 bags which are not used by
K. Because, as per clause (i) above, the local retailer has already sold 5
bags, signifying that he has done an act which implies adopting the
transaction relating to those 5 bags.
13. (i) As per the provisions of Sub-Section (2) of Section 17 of the Sale of
Goods Act, 1930, in a contract of sale by sample, there is an implied
condition that:
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In the instant case, in the light of the provisions of Sub-Clause (b) of
Sub-Section (2) of Section 17 of the Act, Mrs. Kanchan will not be

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successful as she casually examined the sample of rice (which exactly

corresponded to the entire lot) without noticing the fact that even
though the sample was that of Basmati Rice but it contained a mix of
long and short grains.
(ii) In case Mrs. Kanchan specified her exact requirement as to length of
rice, then there is an implied condition that the goods shall
correspond with the description. If it is not so, the seller will be held
liable.
14. Right of stoppage in transit (Section 50 of the Sale of Goods Act,
1930):
Subject to the provisions of this Act, when the buyer of goods becomes
insolvent, the unpaid seller who has parted with the possession of the
goods has the right of stopping them in transit, that is to say, he may
resume possession of the goods as long as they are in the course of
transit and may retain them until paid or tendered price of the goods.
When the unpaid seller has parted with the goods to a carrier and the
buyer has become insolvent, he can exercise this right of asking the
carrier to return the goods back, or not to deliver the goods to the
buyer.
In the instant case, Tushar, the buyer becomes insolvent, and 450 bags
are in transit. Ravi, the seller, can stop the goods in transit by giving a
notice of it to Tushar. The official receiver, on Tushar’s insolvency cannot
claim the bags.
15. (i) Partnership for a fixed period (Indian Partnership Act, 1932):
Where a provision is made by a contract for the duration of the
partnership, the partnership is called ‘partnership for a fixed
period’. It is a partnership created for a particular period of time.
Such a partnership comes to an end on the expiry of the fixed
period.
(ii) Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932): According to section 38, a continuing
guarantee given to a firm or to third party in respect of the
transaction of a firm is, in the absence of an agreement to the
contrary, revoked as to future transactions from the date of any

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change in the constitution of the firm. Such change may occur by

the death, or retirement of a partner, or by introduction of a new
partner.
(iii) Goodwill: The term “Goodwill” has not been defined under the
Indian Partnership Act, 1932. Section 14 of the Act lays down that
goodwill of a business is to be regarded as a property of the firm.
Goodwill may be defined as the value of the reputation of a
business in respect of profits expected in future over and above
the normal level of profits earned by undertaking belonging to the
same class of business.
16. Section 40 of the Indian Partnership Act, 1932, gives right to the
partners to dissolve the partnership by agreement with the consent of
all the partners or in accordance with a contract between the partners.
‘Contract between the partners’ means a contract already made.
Also, according to section 44, the Court may, at the suit of a partner,
may dissolve a firm on various grounds including where the business of
the firm cannot be carried on except at a loss (in future also).
In the instant case, P wants to continue the partnership business despite
the losses incurred over the past four years and Q and R are reluctant to
continue operating the business due to continuous losses.
Here, P can insist on continuing the business if the partnership
agreement does not specifically provide such a right to one or more
partner / partners since Section 40 specifies that with the consent of all
the partners or in accordance with a contract between the partners the
firm can be dissolved.
Options available to Q and R
Mutual Agreement to Dissolve the Partnership: Q and R can propose
to P that the partnership be dissolved by mutual agreement. If P agrees,
the partnership can be dissolved amicably.
Dissolution by the Court: If P does not agree to dissolve the
partnership mutually, Q and R can approach the court for an order
under Section 44.

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17. Effects of insolvency of a partner (Section 34 of the Indian

Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.
(ii) He will be ceased to be a partner from the very date on which the
order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of the
firm done after the date of order of adjudication.
(iv) The firm is also not liable for any act of the insolvent partner after
the date of the order of adjudication,
(v) Ordinarily, the insolvency of a partner results in dissolution of a
firm; but the partners are competent to agree among themselves
that the adjudication of a partner as an insolvent will not give rise
to dissolution of the firm.
18. Partner by holding out (Section 28 of the Indian Partnership Act,
1932):
Anyone who by words spoken or written or by conduct represents
himself, or knowingly permits himself to be represented, to be a partner
in a firm, is liable as a partner in that firm to anyone who has on the
faith of any such representation given credit to the firm, whether the
person representing himself or represented to be a partner does or does
not know that the representation has reached the person so giving
credit.
In the instant case, since Gopal allowed himself to be represented as a
partner to the RS & Co. and third parties acted based on this belief and
therefore, Gopal is held liable to Sundar as he represented himself by his
act to be a partner to the RS & Co.
However, Gopal is not liable to Madhav for the liabilities incurred by the
firm. Information of Gopal being a partner to the firm was shared by the
Sundar (Supplier to the firm) which is not falling within the ambit of
doctrine of holding out.
Hence Gopal is liable to Sundar and not to Madhav for the liability of the
Firm.

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19. Body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a LLP
is a body corporate formed and incorporated under this Act and is a
legal entity separate from that of its partners and shall have perpetual
succession. Therefore, any change in the partners of a LLP shall not
affect the existence, rights or liabilities of the LLP.
Section 3 of LLP Act, 2008, provides that a LLP is a body corporate
formed and incorporated under this Act and is a legal entity separate
from that of its partners.
Mutual Agency: No partner is liable on account of the independent or
un-authorized actions of other partners, thus individual partners are
shielded from joint liability created by another partner’s wrongful
business decisions or misconduct. In other words, all partners will be the
agents of the LLP alone. No one partner can bind the other partner by
his acts.
Foreign LLPs: Section 2(1)(m) defines foreign limited liability
partnership “as a limited liability partnership formed, incorporated, or
registered outside India which established as place of business within
India”. Foreign LLP can become a partner in an Indian LLP.
Artificial Legal Person: A LLP is an artificial legal person because it is
created by a legal process and is clothed with all rights of an individual.
It can do everything which any natural person can do, except of course
that, it cannot be sent to jail, cannot take an oath, cannot marry or get
divorce nor can it practice a learned profession like CA or Medicine. A
LLP is invisible, intangible, immortal (it can be dissolved by law alone)
but not fictitious because it really exists.
20. (i) Section 2(87) of the Companies Act, 2013 defines “subsidiary
company” in relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting
power either at its own or together with one or more of its
subsidiary companies:

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For the purposes of this section —

(I) a company shall be deemed to be a subsidiary company of
the holding company even if the control referred to in sub-
clause (i) or sub-clause (ii) is of another subsidiary company
of the holding company;
(II) “layer” in relation to a holding company means its subsidiary
or subsidiaries.
In the instant case, BC Private Limited together with its subsidiary KL
Private Limited is holding 1,60,000 shares (90,000+70,000
respectively) which is more than one half in nominal value of the
Equity Share Capital of PQ Private Limited. Hence, PQ Private Limited
is subsidiary of BC Private Limited.
(ii) In the second case, the answer will remain the same. KL Private
Limited is a holding 1,60,000 shares i.e., more than one half in
nominal value of the Equity Share Capital of PQ Private Limited (i.e.,
holding more than one half of voting power). Hence, KL Private
Limited is holding company of PQ Private Company and BC Private
Limited is a holding company of KL Private Limited.
Hence, by virtue of Chain relationship, BC Private Limited becomes
the holding company of PQ Private Limited.
21. According to the provisions of Section 2(45) of Companies Act, 2013,
Government Company means any company in which not less than 51%
of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more State
Governments, and the section includes a company which is a
subsidiary company of such a Government company.
According to Section 2(87), “subsidiary company” in relation to any
other company (that is to say the holding company), means a company
in which the holding exercises or controls more than one-half of the
total voting power either at its own or together with one or more of its
subsidiary companies.

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By virtue of provisions of Section 2(87) of Companies Act, 2013, Shah

Auto Private Limited is a subsidiary company of Narendra Motors
Limited because Narendra Motors Limited is holding more than one-half
of the total voting power in Shah Auto Private Limited. Further as per
Section 2(45), a subsidiary company of Government Company is also
termed as Government Company. Hence, Shah Auto Private Limited
being subsidiary of Narendra Motors Limited will also be considered as
Government Company.
22. Under the Companies Act, 2013, a Government company is defined in
Section 2(45) as a company in which not less than 51% of the paid-up
share capital is held by:
• The Central Government, or
• Any State Government or Governments, or
• Partly by the Central Government and partly by one or more State
Governments,
And includes a company which is a subsidiary company of such a
Government company.
In the instant case, total Government Shareholding is 40% [i.e. 20%
(Government of India) + 10% (Government of Tamil Nadu) + 10%
(Government of Rajasthan)] = 40%
The holding of the Life Insurance Corporation of India i.e. 8% and ABC
Limited i.e. 15%, total amounting to 23% cannot be taken into account
while counting the prescribed limit of 51%.
Since the total shareholding held by the Central Government and State
Governments combined is 40%, which is less than 51%, XYZ Limited
does not qualify to be a Government company under the provisions of
the Companies Act, 2013.
23. Dishonour of Cheque for Insufficiency, Etc., of funds in the accounts
[Section 138 of the Negotiable Instruments Act, 1881]
Where any cheque drawn by a person on an account maintained by him
with a banker—

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• for payment of any amount of money

• to another person from that account
• for the discharge, in whole or in part, of any debt or other liability,
[A cheque given as gift or donation, or as a security or in discharge
of a mere moral obligation, or for an illegal consideration, would
be outside the purview of this section]
• is returned by the bank unpaid,
• either because of the—
o amount of money standing to the credit of that account is
insufficient to honour the cheque, or
o that it exceeds the amount arranged to be paid from that
account by an agreement made with that bank,
such person shall be deemed to have committed an offence and shall,
be punished with imprisonment for a term which may extend to two
years, or with fine which may extend to twice the amount of the cheque,
or with both.
In the instant case,
(i) Since Y’s cheque was dishonoured by the Bank due to insufficiency of
funds in his account, he shall be deemed to have committed an
offence and shall, be punished with imprisonment for a term which
may extend to two years, or with fine which may extend to Rs. 20,000,
or with both.
(ii) A cheque given as gift or donation, or as a security or in discharge of
a mere moral obligation, or for an illegal consideration, would be
outside the purview of this section. Hence, if Y issued a cheque as a
donation to Mr. Z, he shall not be liable under section 138 of the Act.
24. As per section 11 of the Negotiable Instruments Act, 1881, a
promissory note, bill of exchange or cheque drawn or made in India and
made payable in, or drawn upon any person resident in India shall be
deemed to be an inland instrument.

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In the instant case, the bill of exchange was:

• Drawn in India (since it was drawn by Reliable Limited, an Indian
company).
• Accepted in India (Manish, a resident of Mumbai, accepted the bill in
Mumbai).
• Payable outside India, in Los Angeles, USA.
The bill of exchange in this case is an inland instrument because it was
drawn in India and accepted by a person resident in India, even though
it is payable outside India (Los Angeles, USA).

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