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Business Law
First edition published by

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Emile Woolf International, November 2013

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Emile Woolf International
ii
The Institute of Chartered Accountants of Pakistan
Certificate in Accounting and Finance

Business Law
C
Contents
Page
Question and Answers Index
Questions
Section A
Multiple choice questions
Section B
Part A
Mercantile Law - Objective test and long-form questions
11
Part B
Company Law - Objective test and long-form questions
21
Answers
Section C
Multiple choice answers
33
Section D
Part A
Mercantile Law - Objective test and long-form answers
37
Part B
Company Law - Objective test and long-form answers
67
iii
Business Law
iv

Business Law
I
Index to Objective test and long-form
questions and answers
Question
page
Answer
page
Mercantile Law
Chapter 1 - Introduction to the legal
system
1
Federal Shariat Court
11
37
Courts
11
37
Binding precedent
11
38
High courts
11
38
Civil law and criminal law
11
38
Process of legislation
11
39
11
39
Chapter 2 - Introduction to law of contract

7
Essential elements of a contract
Chapter 3 - Offer and acceptance

8
Acceptance
12
41
Lapse of an offer
12
41
10
Revocation of proposal
12
42
Business Law
Question
page
Answer
page
12
42
Chapter 4 - Capacity of parties

11
Minor
Chapter 5 - Consideration
12
Consideration
12
43
13
Consideration
12
43
Chapter 6 Free consent

14
Coercion
12
43
15
Fraud
12
44
16
Misrepresentation
12
44
17
Mistake
13
45
Chapter 7 - Legality of Object etc.

18
Legality of object
13
45
19
Opposed to public policy
13
45
Chapter 8 Void agreement

20
Legality of consideration
13
46
21
Exceptions of void agreements
13
46
Chapter 9 Contingent contracts

22
Contingent contracts
13
47
23
Rules of contingent contracts
13
47
Chapter 10 Quasi contracts

24
Quasi contracts
13
48
25
Quasi contracts
14
48
Chapter 11 Performance of a contract

26
Tender and essentials of tender
14
49
27
Time and place of performance
14
50
28
Devolution of liabilities
14
50
vi
Index to questions and answers
Question
page
Answer
page
29
Joint promisor and promisee
14
50
30
Reciprocal promises
14
51
31
Appropriation
15
51
Chapter 12 Discharge of a contract

32
Discharge by mutual agreement
15
51
33
Supervening impossibility
15
51
Chapter 13 Remedies for breach of contract

34
Remedies for breach of contract
15
52
35
Damages
16
52
Chapter 14 Indemnity and guarantee

36
Indemnity
16
52
37
Guarantee
16
52
38
Guarantee
16
52
39
Guarantee
16
53
40
Guarantee
16
53
Chapter 15 Bailment and pledge

41
Duties of bailor
16
54
42
Particular lien
17
54
43
Termination of bailment
17
54
44
Finder of goods
17
54
45
Pledge
17
55
46
Pledge
17
55
47
Rights of pawner
17
56
Chapter 16 - Agency
48
Ratification
17
56
49
Duties of an agent
17
57
vii
Business Law
Question
page
Answer
page
50
Duties of agent toward principal
18
57
51
Rights
18
58
52
Misconduct by agent
18
58
53
Substituted agent
18
58
54
Irrevocable agency
18
58
Chapter 17 Partnership Act

55
Duties of partner
18
59
56
Rights of outgoing partner
18
59
57
Mutual rights and liabilities
18
59
58
Liabilities
19
60
59
Implied authority
19
60
60
Holding out
19
61
61
Transfer of interest
19
61
62
Partnership property
19
62
63
Minor
19
62
Chapter 18 Negotiable instruments Act

64
Promissory notes
19
62
65
Presumptions of negotiable
instrument
20
62
66
Inchoate stamped instrument
20
63
67
Ambiguous Instruments
20
63
68
Payment in due course
20
64
69
Cheque
20
64
70
Bill of Exchange
20
65
71
Holder / Holder in due course /

20
65
72
Material alteration
20
65
viii
Question
page
Answer
page
Company Law
Chapter 19 - Company
73
Subsidiary and holding co.
21
67
74
Association NFP
21
67
75
Private company
21
68
76
KRL
21
68
Chapter 20 Incorporation of company

77
Fajita
22
68
78
Zouk
22
69
79
Company registration exceptions
22
69
80
Commencement of business
22
69
81
MOA object and registered office
22
70
82
MOA alteration
22
70
83
Articles of association
23
71
84
MOA Nil capital
23
71
85
MOA Alteration (office and objects)
23
72
86
Incorporation
23
72
87
Name
23
73
88
Disallowed name
23
73
Chapter 21 Share capital types and variations

89
Increase in authorized capital
23
73
90
Variation of shareholders rights
23
73
91
Purchase of own shares
24
74
92
Objections
24
74
24
74
Chapter 22 Share capital prospectus

93
Prospectus - consent of expert
ix
Business Law
Question
page
Answer
page
94
Prospectus publication and

availability
24
75
95
Prospectus registration
24
75
96
Prospectus relief from liability
24
75
97
Minimum subscription
25
76
98
Face of prospectus
25
76
Chapter 23 Mortgages and charges

99
Mortgages and charges 1
25
76
100
25
77
Chapter 24 Meetings
101
AGM timeline
25
77
102
Ordinary vs. special
25
77
103
AGM and EGM
25
78
104
Polling
26
78
105
Minutes
26
78
106
Meetings commencement and EGM
26
79
107
Quorum
26
79
108
Members and meetings
26
79
109
Circulation
27
80
110
Representation and proxy
27
81
111
EOGM and special business
27
81
112
Special resolutions
27
82
113
Auditors certificate
27
82
114
Commission GM
27
82
Chapter 25 Management
115
Subsequent CEO
27
82
116
CEO removal and competitors
28
83
Question
page
Answer
page
117
Casual vacancy
28
83
118
Election
28
83
119
Presence
28
84
120
Number, remuneration and

assignment
28
84
121
Fresh elections
29
85
122
Loans
29
85
123
Power
29
85
124
Number and casual vacancy
29
86
125
First and subsequent
29
86
126
Removal
30
87
127
Loan repayment
30
87
128
General notice of interest
30
87
Chapter 26 Investments and dividends

129
Associated company
30
88
130
Dividend restriction
30
88
131
Investment restriction
30
89
132
Payment of dividend
31
89
133
Dividend amendment
31
89
Chapter 27 Accounts and audit

134
Qualification
31
89
135
Removal representation
31
89
136
Removal change of auditor
31
89
137
Books of accounts
31
90
138
Registrar and the directors report
32
90
139
Signing the accounts
32
91
140
The auditors report
32
91
xi
Business Law
Question
page
Answer
page
141
Appointment of auditor
32
91
142
Auditor and the AGM
32
92
143
Auditor disqualication
32
92
144
Appointment by SECP
32
93
xii
SECTION

Business Law
Multiple choice questions

1
Based on the Legal System of Pakistan, identify the correct answer of the following:
(1)
(2)
(3)
District magistrate is appointed by the:

(a)
President
(b)
chief justice
(c)
federal government
(d)
provincial government
The Civil Court does NOT have jurisdiction over:

(a)
contract and tort claims
(b)
disputes concerning land
(c)
blackmailing cases
(d)
bankruptcy cases
Choose the INCORRECT statement:

Following must be considered when examining a precedent before it can be
applied to a case:
(a)
the precedent must be a proposition of law
(b)
the precedent must form part of the obiter dicta of the case
(c)
the material facts of each case must be the same
(d)
the preceding court must have had a superior status to the later court, such
that its decisions are binding on the later court
Business Law
(4)
(5)
(6)
(7)
(8)
The family courts deal with:

(a)
divorce cases.
(b)
family property cases.
(c)
proceedings relating to wardship, guardianship, adoption, etc.
(d)
all of the above.
The federal Shariat court consists of:

(a)
at least eight Muslim Judges including the Chief Justice and out of these,
not more than three shall be Ulema who should be well versed in Islamic
Law.
(b)
not more than eight Muslim Judges including the Chief Justice who are
appointed by the President. Out of the number of Judges not more than
three shall be Ulema having at least fifteen years of experience.
(c)
eight Muslim Judges including the Chief Justice and all of them shall be
Ulema who should be well versed in Islamic law.
(d)
not more than eight Judges including the Chief Justice who are appointed
by the President. Out of the number of judges not more than three shall be
Ulema who should be well versed in Islamic law.
The Federal Shariat court examines and decides the question whether or not any
law or provision of law is repugnant to the Injunctions of Islam on:
(a)
its own motion.
(b)
the petition of a citizen of Pakistan.
(c)
the petition of Federal/Provincial Government.
(d)
initiation from any of the above.
A court of first instance is the court:

(a)
where the case is originally heard in full.
(b)
which has given its first verdict.
(c)
where the original decision is reversed.
(d)
of magistrates.
A High Court has a supervisory role over other courts subordinate to it. It may
issue a writ of habeas corpus which is an order:
(a)
to prevent a court or tribunal from exceeding its jurisdiction.
(b)
to submit the record of the subordinate courts proceedings to the High

Court for review.
(c)
for the release of a person wrongfully detained.
(d)
to carry out a public duty.
Section A
Question bank: Multiple choice questions
In view of the provisions of Contract Act, 1872 identify the correct answer:
(1)
(2)
Wasi, with intent to deceive Tipu, falsely represented that twenty thousand
motorcycles are manufactured annually at his factory and induced him to buy the
factory. The contract is:
(a)
void
(b)
voidable
(c)
illegal
(d)
valid
The term Quid pro quo means:
(3)
(4)
(5)
(a)
something in return
(b)
something important
(c)
something of value
(d)
something relevant
Which of the following is not an essential element of a valid contract:

(a)
adequacy of consideration
(b)
capacity to contract
(c)
free consent
(d)
none of the above
If a contract provides for the payment of a certain amount on breach of a

contract, such payment is termed as:
(a)
special damages
(b)
nominal damages
(c)
liquidated damages
(d)
compensatory damages
Karim borrowed Rs. 500,000 from Bashir in 2002. The debt became time-barred
under the limitation law. However, Karim met Bashir in 2009 and verbally
acknowledged his liability to the extent of Rs. 300,000. Can Bashir hold Karim
liable?
(a)
No, the promise should be for entire debt.
(b)
Yes, the promise is valid as an exception to agreement without

consideration.
(c)
No, because it is not a written and signed promise.
(d)
Yes, he admitted his liability partly in satisfaction of whole debt.
Business Law
(6)
(7)
(8)
(9)
The effect of refusal to accept a properly made offer of performance is that:

(a)
the promisor is not responsible for non-performance and can sue the
promisee for the breach of contract.
(b)
such offer lapses on rejection by the offeree.
(c)
the contract is rendered voidable at the option of promisor.
(d)
the contract is discharged by anticipatory breach.
A surety is NOT discharged from his liability:

(a)
if terms of contract are varied without his consent.
(b)
if the creditor gives time to the principal debtor without his consent.
(c)
if the creditor releases the other co-surety.
(d)
if the creditor releases the principal debtor.
Which of the following case is not covered by the concept of supervening

impossibility?
(a)
Destruction of subject matter
(b)
Death or incapacity of the promisor
(c)
Outbreak of war
(d)
Difficulty of performance
Abdul Majid contracted to supply a specialized machine at Sultans factory in

Lahore. Sultan informed him that if the machine does not reach his factory on
time, he will incur an average loss of Rs. 20,000 per day. Abdul Majid delivered
the machine a week after the agreed time owing to his other commitments. Due
to this delay, Sultan lost a contract which could have generated a profit of Rs.
250,000. Sultan is entitled to receive from Abdul Majid a compensation of:
(a)
Rs. 250,000
(b)
Rs. 140,000
(c)
Rs. 390,000
(d)
any amount which the Court deems fit subject to a maximum of Rs.
390,000
(10) In which of the following circumstances a contract can be treated as discharged

under the concept of supervening impossibility?
(a)
spurt in prices
(b)
change in import policy
(c)
non-receipt of raw material from the supplier
(d)
shortage of working capital
Section A
(11) Under the Contract Act, 1872 a person is said to be of sound mind for the
purpose of making a contract if:
(a)
he is not illiterate and can read and understand the terms of the contract.
(b)
he is capable of understanding the contract and forming a rational

judgement as to its effect upon his interests.
(c)
he is of the age of majority and is not disqualified from contracting by any

law to which he is subject.
(d)
he is not suffering from any mental disease or distress.
(12) Pervaiz contracted with Dilbar, a comedian, for performance in a live show and
paid Rs. 200,000 in advance. Before the show, Dilbar had an accident and was
hospitalized. He could not appear in the show due to which Pervaiz suffered a
loss of Rs. 500,000. Dilbar is liable to pay Pervaiz:
(a)
Rs. 200,000
(b)
Rs. 500,000
(c)
Rs. 700,000
(d)
nothing as his absence was not wilful.
(13) A positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true is said to be a:
(a)
fraud
(b)
misrepresentation
(c)
mistake
(d)
misinterpretation
(14) A minor can:

(a)
be an agent
(b)
be a principal
(c)
both
(d)
none
(15) The consent is said to be free when:

(a)
two or more persons agree upon same thing in the same sense.
(b)
all parties to the contract benefit from the contract.
(c)
it is not the result of coercion or undue influence or fraud or

misrepresentation or mistake.
(d)
all of the above.
Business Law
(16) Liquidated damages mean:

(a)
A sum calculated at the time of breach of contract, equivalent to difference

between the contract price and market price, at the place of performance.
(b)
A sum fixed at the time of entering into a contract which compensates the
aggrieved party for direct/indirect loss arising from the breach.
(c)
A sum fixed as compensation for any loss or damage which the parties
knew, when they made the contract, to be the likely result from the breach
of contract.
(d)
None of the above.
(17) The fundamental principle of awarding damages is:

(A)
to punish the guilty party for breach of contract.
(B)
to compensate the innocent party.
(C)
to put the innocent party in the same position as if the contract had been
carried out correctly.
(a)
(B) only.
(b)
(C) only.
(c)
(B) and (C).
(d)
(A), (B) and (C).
(18) C refused to sell certain goods to D at the previously agreed price of Rs. 240
thousand. D sued C for breach of contract. If identical goods are readily available
in the market at a price of Rs. 220 thousand, which one of the following is
correct?
(a)
D is entitled to an order of specific performance, forcing C to carry out the

contract.
(b)
D is entitled to damages of Rs. 20,000.
(c)
D is entitled to nominal damages only.
(d)
D is not entitled to damages.
(19) A owns some land, part of which is woodland. He sells the land to B who
covenants in the contract that he will not cut down the trees. One year later, B
prepares to cut down the trees. What remedy can A seek?
(a)
damages.
(b)
specific performance.
(c)
injunction.
(d)
rescission.
Section A
(20) Which of the following may employ an agent?

(a)
any person who is capable of understanding the contract and forming a

rational judgment as to its effect upon his interest.
(b)
any person who is engaged in business or profession.
(c)
any person who is of the age of majority according to the law to which he is
subject and who is of sound mind.
(d)
all of the above.
(21) Choose the incorrect statement:

To constitute a wager, following elements should be present in the agreement:
(a) Uncertain event
(b) Each party must pay in a win or lose situation
(c) Neither party should have any contract over the event
(d) There should be a promise to pay money only
In the light of the provisions of Partnership Act, 1932 select the correct answer:
(1)
Public notice is NOT required to be given in case of:
(2)
(3)
(a)
insolvency of a partner
(b)
retirement of a partner
(c)
expulsion of a partner
(d)
dissolution of a registered firm.
X and Y formed a partnership firm to undertake construction of a shopping plaza.

Such a partnership is called:
(a)
limited partnership
(b)
particular partnership
(c)
partnership at will
(d)
implied partnership
The implied authority of a partner does NOT empower him to:

(a)
submit a business dispute to arbitration
(b)
withdraw a suit filed on behalf of the firm
(c)
open a banking account on behalf of the firm
(d)
all the above
Business Law
(4)
Choose the INCORRECT statement:

In the absence of a contract to the contrary,
(5)
(6)
(7)
(8)
(a)
a partner is not entitled to receive remuneration for taking part in the

conduct of the business
(b)
the partners are entitled to share profits equally
(c)
the partners are entitled to interest on capital subscribed by them
(d)
a partner shall indemnify the firm for any loss caused to it by his wilful
neglect
Where a partner has paid a premium on entering into partnership for a fixed term
and the firm is dissolved before the expiration of that term, such partner shall
NOT be entitled to repayment of the premium if the dissolution is:
(a)
mainly due to his own misconduct
(b)
in pursuance of an agreement between all the partners, containing no

provision for the return of the premium
(c)
caused by the death of the partner
(d)
all the above
On dissolution of a firm, where there are joint debts due from the firm and also
separate debts due from any partner, the separate property of a partner:
(a)
shall be applied proportionately in the payment of the firms debts and his
separate debts
(b)
cannot be used in the payment of the firms debts
(c)
shall be applied, in the first instance, in payment of the firms debts and the
surplus, if any, in payment of his separate debts
(d)
shall be applied first in the payment of his separate debts and the surplus, if
any, in the payment of the firms debts
A firm is liable to make good the loss of third party if:

(a)
one of the partners acting within his apparent authority misapplies

the money or property received from a third party.
(b)
one of the partners misapplies the money or property received from a third
party by the firm in the course of its business while it is in the custody of the
firm.
(c)
by the wrongful act or omission of a partner acting in the ordinary course of

the business of a firm, loss or injury is caused to any third party.
(d)
all of the above.
The conclusive evidence of a partnership is:

(a)
mutual agency
(b)
sharing of profit and loss
(c)
mutual understanding
(d)
capital contribution
Section A
(9)
Subject to contract between the partners, a change may be made in the nature
of business of the firm:
(a)
with the consent of active partners managing the business.
(b)
with the consent of majority of partners.
(c)
with the consent of all the partners.
(d)
with the consent of all the partners and Registrar of Firms.
(10) In a partnership at will, a partner may retire:

(a)
with the consent of all other partners.
(b)
in accordance with an express agreement between the partners.
(c)
by giving notice in writing to all the other partners, of his intention to retire.
(d)
in any one of the manners described above.
(11) Emmad and Faraz are partners in cloth trading business. In the presence of
Faraz, his friend Ghalib boasted that he is also a partner in the business, in front
of Haroon, a customer. Haroon gave this information to Ismail and on this belief,
Ismail supplied cloth on credit to the firm. Can Ismail make Ghalib liable for the
unpaid amount in this transaction?
(a)
No, as Ghalib did not present himself as a partner, in front of Ismail.
(b)
Yes, as Ismail gave credit to the firm on the faith of Ghalibs representation.
(c)
No, as Ghalib is not a partner in the firm.
(d)
Yes, as Ghalib did it intentionally to deceive others.
(12) Partnership is:
(a)
the relationship between persons who have agreed to share the profits of
jointly owned property managed by all or any of them acting for all.
(b)
the relationship created by an agreement between a banking company and

person(s) providing for sharing of profit and loss arising from the finance
provided to such person(s).
(c)
both of the above.
(d)
the relation between persons arising from a contract who have agreed to
share the profits of a business carried on by all or any of them acting for all.
In the light of the provisions of Negotiable Instruments Act, 1881 select the correct
answer:
(1)
Which of the following is NOT a material alteration of a negotiable instrument?

(a)
A new party is added to the instrument.
(b)
The sum payable is changed in the instrument.
(c)
The crossing of an uncrossed cheque.
(d)
Tearing off the material part of the instrument.
Business Law
(2)
(3)
(4)
An instrument is said to be ambiguous if:

(a)
no time for payment is specified in it.
(b)
it may be construed either as a promissory note or a bill of exchange.
(c)
the amount in figures differs from the amount in words.
(d)
all of the above.
Sohail issued a cheque of Rs. 500,000 payable to Tanveer at sight. Sohail had
sufficient funds at the bank to meet this payment. However, Tanveer presented
the cheque at the bank after two weeks by which time the bank had failed. Can
Tanveer recover the amount from Shoail?
(a)
Yes, as the debt is not discharged.
(b)
Yes, as Sohail has not suffered actual damage through any delay in
presenting the cheque.
(c)
Yes, as Sohail did not advise Tanveer to encash the cheque immediately.
(d)
No, Sohail is discharged and Tanveer can now claim the amount of cheque
from the bank.
Ghalib accepted for honour a bill of exchange which has been noted and
protested for non-acceptance. If his acceptance does not express for whose
honour it is made, then such acceptance is:
(a)
invalid.
(b)
deemed to be made for the honour of the drawee.
(c)
deemed to be made for the honour of the drawer.
(d)
for the honour of any party to the bill
10
SECTION

Business Law
Part A - Mercantile Law

Objective test and
long-form questions
CHAPTER 1 INTRODUCTION TO THE LEGAL SYSTEM
1

Briefly describe the kind of cases handled by the Federal Shariat Court and
the procedures followed in the discharge of these cases.
(07)
Courts
(a)
What is the composition and tenure of Federal Shariat Court?
(b)
What does court of first instance mean? List the areas of jurisdiction of the High
Court.
(03)
Binding precedent
What are the requisites of a binding precedent?
(04)
High courts
How does the High Court exercise its supervisory role over subordinate courts?
Describe the three types of prerogative orders that it may issue.
(05)

Distinguish between civil law and criminal law giving two examples of each.
(03)
(06)
How is a law promulgated when national assembly is not in session? Is such law in
any way different from an Act of parliament? What is its tenure?
(05)
CHAPTER 2 INTRODUCTION TO LAW OF CONTRACT

7

What are the essential elements of a valid contract?
11
(05)
Business Law
CHAPTER 3 OFFER AND ACCEPTANCE

8
Acceptance
Briefly describe the essential conditions for the acceptance of an offer to be valid,
under the Contract Act, 1872.
(07)
Lapse of an offer
Discuss the circumstances under which an offer lapses and stands revoked
10
(07)
Identify the circumstances under which a proposal may be revoked under the
Contract Act, 1872.
(07)
CHAPTER 4 CAPACITY OF PARTIES

11
Minor
Discuss the position of agreements by a minor.
(05)
CHAPTER 5 - CONSIDERATION
12
Consideration
Mohsin promised Ahsan that he will pay his university fee. Later Mohsin suffered
losses in his business and refused to pay the fee. Mohisn is of the view that since the
agreement was without consideration, it does not constitute a valid contract.
However, Ahsan believes that the agreement is enforceable under law as it meets
certain other conditions.
You are required to narrate the conditions which Ahsan may be referring to.
13
(04)
Consideration
Describe the circumstances under which an agreement made without
consideration is considered valid and binding under the Contract Act, 1872.
(07)
CHAPTER 6 FREE CONSENT

14
Coercion
Arif told Bano, his wife, that he would divorce her, if she does not transfer her
personal assets to him. She agreed to transfer her assets to him. Can Bano avoid the
contract?
(03)
15
Fraud
What constitutes fraud under the provisions of Contract Act, 1872?
16
(04)
Misrepresentation
Explain the acts which constitute misrepresentation under the contract act, 1872 and
describe the circumstances in which the party whose consents is obtained by
misrepresentation loses right of rescission of contract?
(05)
12
Section B: Part A - Mercantile Law
17
Question bank: Objective test and long-form questions
Mistake
Explain what effects following have on the validity of the contract:
(a)
Unilateral mistake of law in force in Pakistan
(b)
Unilateral mistake as to matter of fact
(c)
Mutual mistake of foreign law
(05)
CHAPTER 7 LEGALITY OF OBJECT ETC.

18
Legality of object
What is an agreement? When is an agreement considered to be void? State the
circumstances under which the object of an agreement is considered to be unlawful.(05)
19

Enumerate the agreements which are opposed to public policy
(05)
CHAPTER 8 VOID AGREEMENT

20
Asif stole cash and merchandise from the ABC Store. Basit, the owner of store,
initiated legal proceedings against him. Asif contacted Basit with an offer to return the
stolen cash and merchandise if Basit withdraws the suit. Basit accepted the offer.
Is it a valid agreement? Discuss.
(02)
21

Certain agreements have expressly been declared to be void under the Contract
Act, 1872. List such agreements along with exceptions, if any.
(08)
CHAPTER 9 CONTINGENT CONTRACTS

22
Asim agreed to construct a bungalow for Ali at a cost of Rs. 50 million. However, it was
agreed that payment would only be made on completion of the project. Is this a
contingent contract under the Contract Act, 1872? Give reasons. Also list the requisite
characteristics of a contingent contract.
(03)
23

Discuss the rules regarding the performance of the contingent contracts
(05)
CHAPTER 10 QUASI CONTRACTS

24
Quasi contracts
Sami rented his house to Qurban for a period of one year at an agreed sum of Rs.
10,000 per month. After the first two months, Qurban defaulted in making payment of
the rent. Baqir, a neighbour, being concerned with the strained relationship between
Sami and Qurban, paid the rent with good intention. Subsequently, on Qurbans
refusal to reimburse the amount, Baqir filed a suit against him on the grounds that he
13
Business Law
made the payment to Sami which Qurban was legally bound to make and being a quasi
contract Baqir is entitled to the reimbursement.
Explain whether Baqir is justified in his suit.
25
(04)
Quasi contracts
Explain the term Quasi contract. Briefly describe different types of relationships
commonly referred to as quasi contracts under the Contract Act, 1872.
(10)
CHAPTER 11 PERFORMANCE OF A CONTRACT

26

Mehboob, a promisor and Saulat, a promisee, entered into a valid contract. However,
when Mehboob made an offer of performance, Saulat refused to accept the same.
Briefly state the rights and responsibility of Mehboob against such refusal. Also state
the essentials of a valid offer of performance under the provisions of Contract Act,
1872.
(05)
27

Briefly describe the rules specified in the Contract Act, 1872 in respect of the following.
(a)
28
Time and place for performance where these have not been specified in the
contract;
(03)
(b)
Order of performance of reciprocal promises; and
(02)
(c)
Effect of release by promisee of one of the joint promisors.
(02)
Sohail and Afaq lent Rs. 2.0 million to Mohsin, Laila and Faizan jointly. On due date
Laila became insolvent. Without informing Sohail, Afaq wants Mohsin to repay the
full amount to him.
Under the provisions of Contract Act, 1872 explain:
29
(a)
whether Mohsin can be compelled to pay the full amount to Afaq.
(b)
what rights are available to Mohsin, if he repays the full amount.
(05)

Binyamin borrowed Rs. 1 million from Hatim and Tahir jointly and promised to repay
the amount on March 1, 2011. With reference to the Contract Act, 1872, state who can
claim performance in the following situations.
30
(a)
Both Hatim and Tahir are alive on due date
(b)
Hatim dies before due date
(c)
Both Hatim and Tahir die before the due date
(02)
Reciprocal promises
Maimar promised to manufacture and deliver to Nasir, remote-controlled toy
helicopters of agreed specifications in first week of March 2011. Nasir in turn
promised to pay for them by second week of March 2011. Maimar did not deliver
the toys according to his promise. Should Nasir keep his promise and what remedy, if
any, is available to him?
(02)
14
31
Appropriation
(a)
Following is the statement on August 4, 2011 of sums payable by Ubaid on

account of cloth supplied by Bilal:
Date of transaction
01/01/2008
02/03/2009
30/08/2010
28/04/2011
Rupees Remarks
37,000 Time barred under Limitation Act.
20,000
50,000 Guaranteed by Wasim.
63,000
170,000
Ubaid sent a cheque for Rs. 70,000 on August 5, 2011. There being no
instructions from Ubaid, Bilal adjusted the payment against the following:
Date of transaction
01.1.2008
02.3.2009
28.4.2011
Rupees
37,000
20,000
13,000
70,000
The guarantor (Wasim) objected to such appropriation and claimed that since
the amount of Rs. 37,000 was time barred, it should not be adjusted and the full
amount guaranteed by him should be fully adjusted. Is the objection of Wasim
valid?
(05)
(b)
Discuss how the above payment of Rs. 70,000 should be applied under
each of the following independent circumstances, according to the
provisions of the Contract Act, 1872:
(a)
The following words were written on the back of the cheque:

(20,000 + 50,000 = 70,000)
(b)
(02)
No instructions about appropriation of payment were given by Ubaid. Bilal

did not make any appropriation either.
(02)
CHAPTER 12 DISCHARGE OF A CONTRACT

32

Talib was indebted to Bashir for Rs. 10,000. On Talibs request Bashir agreed to accept
Jahangir as his debtor, in place of Talib. Jahangir failed to make payment on due date.
Under the provisions of Contract Act, 1872 you are required to explain whether Bashir
can now demand payment from Talib.
(02)
33
State the grounds in which a contract is discharged by supervening impossibility.
CHAPTER 13 REMEDIES FOR BREACH OF CONTRACT

34

Bushra entered into a contract with Akhtar, the manager of a radio programme, to
conduct a show, twice a week, during the next three months. Bushra did not appear for
the sixth show. She conducted the next show but soon thereafter Akhtar rescinded the
contract and informed her that her services were no longer required as she failed to
conduct the sixth show.
15
Business Law
Narrate the rights of Akhtar and Bushra in the above situation.
35
(05)
Damages
Describe the principles of determining compensation for loss or damages caused due to
breach of contract.
(04)
CHAPTER 14 INDEMNITY AND GUARANTEE

36
Indemnity
What is a contract of indemnity as defined under the Contract Act, 1872?
37
(02)
Guarantee
Bashir supplies goods worth Rs. 100,000 each month to Anwar under a contract
which is due to expire on December 31, 2009. Ameen has guaranteed that he will
compensate Bashir in case of default by Anwar.
On August 29, 2008 the amount due to Bashir is Rs. 325,700. Ameen intends to
revoke his guarantee. Can he do so? Discuss.
(03)
38
Guarantee
Raheel leased a building from Atif, on five years term, for a rent of Rs. 200,000 per
annum and the payment was guaranteed by Kamal. Raheel defaulted in payment of
the rent in the third year. Atif sued Kamal and recovered the rent from him. Later,
Kamal gave a notice to Atif for revoking his guarantee for the remaining period of lease.
Under the Contract Act, 1872 discuss whether Kamal is justified in doing so.
39
(04)
Guarantee
Amin, Imran and Shahid agreed to act as sureties for Emmad to Saleem and agreed to
pay Rs. 20,000, Rs. 30,000 and Rs. 40,000 respectively in case of default by Emmad.
On such surety Saleem lent Rs. 90,000 to Emmad. Emmad repaid Rs. 6,000 only.
Saleem called upon the sureties to pay the balance of Rs. 84,000. Discuss keeping
(03)
in view the Contract Act, 1872 how much should each surety pay.
40
Guarantee
(a)
Faiz had sold goods on credit to Gulzar for Rs. 5 million on guarantee of
Haseeb. Gulzar has also mortgaged his shop as a security against the above
amount. Haseeb was unaware of this mortgage and honoured his guarantee
when Gulzar failed to make the payment. What rights are available to Haseeb
under the Contract Act, 1872?
(04)
(b)
When and how a continuing guarantee is revoked?
(06)
CHAPTER 15 BAILMENT AND PLEDGE

41
Duties of bailor
Sara planned to spend her vacations in Islamabad with her parents. She therefore,
requested her neighbour, Farha to take care of her pet cat during this period. On her
return from vacations, Farha informed Sara that she had to spend Rs. 500 on usual
feeding and grooming of the cat and Rs. 1,000 on medical expenses as the cat fell sick,
without any negligence on Farhas part.
16
You are required to state the amount, if any, which Sara needs to reimburse to Farha in
each of the situations given below. Justify your answer with reasons under the
provisions of Contract Act, 1872.
42
(a)
No remuneration was agreed to be paid to Farha for the safe custody of the pet.
(b)
Sara had agreed to remunerate Farha for her services.
(04)
Particular lien
Majid gave a piece of fabric to Stylish Suiting for sewing a coat at a consideration of
Rs. 5,000. On completion, Majid paid the whole amount; however, Stylish Suiting
refused to deliver the coat until the payment of previous dues of Rs. 3,000.
Explain under the provisions of Contract Act, 1872, whether Stylish Suiting is
justified in refusing to deliver the coat.
(02)
43
Under what circumstances a contract of bailment may be terminated?
44
Finder of goods
Discuss the rights of the finder of goods under the Contract Act, 1872.
45
(05)
(04)
Pledge
Explain the term pledge. Identify the circumstances under which a pledge made by
a non-owner will be considered valid even if the owner has not authorized him to pledge
the goods.
(07)
46
Pledge
Shahid pledged gold with Mehreen against a loan of Rs. 100,000 at a markup of
15% per annum. Being concerned with the growing incidences of burglary in the
city, Mehreen insured the gold. At the time of repayment, Mehreen claimed the cost of
insurance cover in addition to the principal sum due and interest thereon.
In the light of Contract Act, 1872 briefly explain whether Mehreen is justified in her
claim.
(02)
47
Rights of pawner
Ramla borrowed Rs. 100,000 from Ovais for a period of three months and kept her
jewellery with Ovais as a security. On due date, Ramla defaulted in repayment. In
view of the provisions of Contract Act, 1872 describe the remedies available to Ovais
under the circumstances.
(04)
CHAPTER 16 - AGENCY
48
49
Ratification
(a)
Explain the term ratification in relation to the contract of agency under the
Contract Act, 1872. What is the effect of a valid ratification?
(03)
(b)
List down the conditions necessary for a valid ratification.
(04)
Duties of an agent
Briefly state the duties of an agent towards his principal.
17
(05)
Business Law
50

Narrate the duties of an agent towards his principal as specified in the Contract Act,
1872.
(10)
51
Rights
Explain the following as described under the Contract Act, 1872.
52
(a)
Agents authority in an emergency
(b)
Agents right of retainer
(c)
Agents right of lien
(07)
Misconduct by agent
Aslam appointed Zakir to recover Rs. 7.0 million from Naveed. Zakir misbehaved with
Naveed as a result of which Naveed sued Aslam. Later, Aslam sued Zakir
claiming reimbursement of the cost incurred by him in defending the suit filed by
Naveed. Explain whether Aslam is justified in his claim.
(02)
53
Substituted agent
Briefly explain the term substituted agent in the light of Contract Act, 1872. Is
the (original) agent responsible to the principal for the acts of a substituted agent? (05)
54
Irrevocable agency
When may an agents authority be revoked by the principal under the Contract Act,
1872? Also narrate the exceptions to the above provision.
(05)
CHAPTER 17 PARTNERSHIP ACT

55
Duties of partner
Sohail, Talha, Umair & Co., a partnership concern is engaged in trading of cloth. The
firm bought a plot of land from Shining Star Limited. After some time Talha and
Umair on their own account bought three more plots of land in the same locality and
made good profits. Sohail on becoming aware of such profits sued Talha and Umair
for his share.
Under the provisions of Partnership Act 1932, explain whether Talha and Umair are
liable to share such profits with Sohail.
(04)
56

Obaid, Raheel and Pervez were partners in a firm. On September 1, 2009 Pervez
retired from the partnership. The remaining partners continued the business, with the
property of the firm, without final settlement of accounts as between them and Pervez.
In the light of the Partnership Act, 1932, describe the rights of Pervez, in the above
circumstances.
(04)
57

Rafiq, Bari and Furqan have decided to establish a partnership business for trading in
medical equipments. In the absence of any express contract, advise them of their
mutual rights and liabilities under the provisions of the Partnership Act, 1932.
(09)
18
58
Liabilities
Describe the liabilities of:
59
(a)
a partner for the acts of the firm.
(b)
the firm for wrongful acts of a partner.
(c)
the firm for misapplication of money or property by a partner.
(08)
Implied authority
The authority of a partner to bind the firm is called Implied Authority. List the acts
which cannot be exercised by a partner as his implied authority.
(04)
60
Holding out
Explain the concept of Holding out as described in the Partnership Act, 1932.
61
(04)
Sameer, Fauzia and Sualat are partners in a firm. Fauzia transferred her interest in
the firm absolutely to her son Adil. In the light of the provisions of Partnership Act,1932
would Adil be considered a new partner in the firm? Also describe the rights and
restrictions on Adil in view of such transfer.
(06)
62
Kashif, Irfan and Shujaat are partners in a firm. Irfan bought a shop in his own name.
He issued a cheque from the partnership account and debited his account with the
purchase price. He rented out the shop and credited the receipts of rent in his capital
account. Kashif has objected to this practice and asked Irfan to register the shop in the
firms name contending that the shop is partnerships property. Irfan disagrees.
Explain what constitutes partnership property under the Partnership Act, 1932 and
whether the shop is partnership property or not.
(07)
63
Minor
A, B and C, partners of a firm, admitted D, a minor to the benefits of the firm. D
attained majority on 6th March 2007. He became aware of the fact that he has been
admitted to the benefits of the firm on 16th August 2007. Being undecided about the
situation he preferred to wait for some time before announcing his decision about
joining the firm. On 27th February 2008, the firm suffered heavy losses due to an
unforeseen event. A, B and C informed D that on account of such losses, his capital in
the firm has been reduced by 40%. Discuss the rights and liabilities of D in the above
situation.
(06)
CHAPTER 18 NEGOTIABLE INSTRUMENTS ACT

64
Promissory notes
Based on the provisions of Negotiable Instruments Act, 1881 briefly explain
whether the following are promissory notes or not.
(i)
I promise to pay Rahat on demand Rs. 5,000 at my convenience.
(ii)
On demand, I promise to pay Sonu or order Rs. 5,000, for value received.
(iii)
I promise to pay Adil or order Rs. 5,000 and 500 shares of Sigma Limited.
19
Business Law
(iv)
I promise to pay Mahi or order Rs. 5,000 with interest calculated at quarterly rests.
(v)
I promise to pay you or your successors on demand Rs. 10,000.
(vi)
I promise to pay Rafi or order Rs. 10,000 seven days after Saliks death.
(vii) I am liable to pay Ahmad Rs. 5,000.
65
(07)
Presumptions of negotiable instrument

State the presumptions that are applicable to all negotiable instruments unless the
contrary is proved.
(07)
66

In the light of Negotiable Instruments Act, 1881 explain the provisions relating to the
enforceability of inchoate stamped instruments. Also discuss the extent to which the
person signing the instrument is liable upon such instrument.
(06)
67
Explain the term ambiguous instruments giving at least two examples. Can such
instruments be negotiated?
(04)
68

A cheque is drawn payable to 'B or order'. It is stolen and B's endorsement is forged.
The banker pays the cheque in due course. Is the banker discharged from liability?
Would it make any difference if the drawer's signature were forged?
(03)
69
70
Cheque
(a)
Explain the term Cheque as defined in the Negotiable Instruments Act, 1881
and list down the essential elements of a valid cheque.
(07)
(b)
Who can cross the cheque after its issue? Also describe the manner in which it
can be crossed.
(04)
Bill of Exchange
What liabilities does the drawer of a bill of exchange incur under the
Negotiable Instruments Act, 1881?
71
(03)
Holder / Holder in due course / Payment in due course

Explain the following terms as given in the Negotiable Instrument Act, 1881:
72
(a)
payment in due course
(b)
holder
(c)
holder in due course
(08)
Material alteration
Any material alteration to a negotiable instrument renders the instrument void. What
are the exceptions to this rule?
(07)
20
SECTION

Business Law
Part B - Company Law

Objective test and
long-form questions
CHAPTER 19 COMPANY
73

Identify the situations specified under the Companies Ordinance, 1984 in which a
company shall be considered to be a subsidiary of another company.
74
(04)
Association NFP
Alfalah Associates is an association of persons. It wants to register itself as a limited
company but does not wish to include the word Limited in its name.
In view of the provisions of the Companies Ordinance, 1984 you are required to explain
the conditions:
75
(a)
that need to be satisfied before the Commission may issue it a licence and allow
it to dispense with the word Limited from its name.
(07)
(b)
under which the licence may be revoked and its consequences.
(04)
Private company
State the conditions which make a company a private company or a public company
under the Companies Ordinance 1984
(04)
76
KRL
Kaghan Resham Limited (KRL) holds 60 percent shares out of total paid up capital of
another public company named Narran Silk Limited (NSL). NSL further owns 14
percent shares of Thandiyani Ice-creams Limited (TIL). NSL has also entered into an
agreement with other shareholders of TIL to appoint four out of seven directors on the
board of directors of TIL.
Explain their relationships with each other under Companies Ordinance 1984.
21
(04)
Business Law
CHAPTER 20 INCORPORATION OF COMPANY

77
Fajita
Fajita Specialists is a joint family business of Warsi family. The business has grown up
in a very short time and there are more than 50 branches of it in the city. You being the
corporate advisor, have been approached by the family to give an opinion on whether
or not the business is required to get itself registered as a limited liability company.
Advise them under the relevant provisions of Companies Ordinance 1984.
(05)
78
Zouk
Mr. Zouk is an employee in a brokerage house and he wants to prepare some reports
on request of some potential investors for a company named as Arizona Grill Limited.
For the preparation of the report he requires Memorandum & Articles of association of
the company.
State whether he can obtain such copies of Memorandum & Articles of Association
from Arizona Grill Limited and explain why?
(03)
79

Any association, partnership or company consisting of more than twenty persons,
cannot be formed for the purpose of carrying on any business for acquisition of gain
unless it is registered as a company under the Companies Ordinance, 1984.
You are required to list down the exceptions to the above rule.
80
Explain the provisions specified in the Companies Ordinance, 1984 relating to
requirements to be completed before the commencement of business by a public
company.
81
82
(07)
(06)

(a)
Briefly describe the provisions of Companies Ordinance, 1984 relating to

alteration of the objects of a company.
(08)
(b)
In the annual general meeting of Paramount Limited, a shareholder objected to

the shifting of the registered office from Multan to Lahore without obtaining
confirmation from the Commission. Explain whether the objection is valid.
(02)
MOA alteration
The alteration in the memorandum shall not take effect until it is confirmed by the
Commission. State the conditions a company is required to fulfill in order to obtain
confirmation from the Commission and the procedure to be followed on confirmation.(04)
22
Section B: Part B - Company Law
83
A Malaysian company is interested in incorporating a limited liability company in
Pakistan.
Discuss provisions of the Companies Ordinance, 1984, relating to the following:
84
(a)
Contents, printing and signature of the Articles of Association
(05)
(b)
Registration of the Articles of Association
(02)
(c)
Alteration of the Articles of Association after its registration
(04)
MOA Nil capital

What are the main clauses of a Memorandum of Association of a company limited by
guarantee and not having a share capital?
(06)
85

What are the main reasons that a company may proceed to alter the conditions of its
Memorandum as to the registered ofce of the company, or as to the objective of the
company?
(07)
86
Incorporation
What are the criteria based on which the registrar shall incorporate any company and
grant a certicate of incorporation?
(05)
87
Name
Certain names cannot be given to the company. Explain what such names are and
explain who the nal authority is, regarding allowance of disallowance, of any name
given to a company.
(05)
88
Disallowed name
Discuss the powers of registrar when a company is registered with a name not allowed
by the Ordinance.
(03)
CHAPTER 21 SHARE CAPITAL TYPES AND VARIATIONS

89

The directors of Sherwani Limited wish to increase the authorized capital of the
company from Rs 100 million to Rs 200 million. You are required to inform them about
the relevant provisions regarding increase in authorized capital, contained in the
Companies Ordinance, 1984.
(07)
90

Paradise Limited, upon passing a special resolution on August 20, 20X3 made
amendments in its Articles of Association affecting substantial rights associated with
class B shares of the company. Few aggrieved shareholders having objection on the
special resolution intend to le an application in the Court, for the cancellation of the
above resolution.
Discuss the relevant provisions of the Companies Ordinance, 1984 specifying the
following:
23
The Institute of C hartere d Accountants of Pakistan
Business Law
91
(a)
The conditions which the aggrieved shareholders will have to comply with, to be
eligible for filing an application in the court for the cancellation of the above
resolution.
(02)
(b)
The matters which the Court would consider while making a decision on the
above application.
(02)

Companies are not allowed to purchase their own shares nor the shares of their
holding companies - explain.
92
(03)
Objections
Who has the right to object to resolutions passed for variation in rights of any particular
class of the shareholders and what shall the procedure be for lodging such an
objection?
(05)
CHAPTER 22 SHARE CAPITAL PROSPECTUS

93
Prospectus consent of expert

Quite often, a prospectus inviting persons to subscribe for shares in a company
contains a statement from person(s) who are experts in their respective fields.
94
95
(a)
Describe the term Expert as explained in Companies Ordinance, 1984 in the

above context.
(02)
(b)
Narrate the conditions that a company should comply with if its prospectus
contains a statement by an expert.
Prospectus publication and availability

(a)
Deo Limited (DL) has published a prospectus on March 1, 20X4. The

subscription list is due to open on April 5, 20X4. Explain whether the company is
in compliance with the provisions of the Companies Ordinance, 1984 regarding
the publication of its prospectus. What relaxation can DL avail, in this regard? (03)
(b)
Identify the places where DL is required to make available the copies of its
prospectus.
(02)
Prospectus - registration
The registrar shall not register a prospectus unless certain requirements of the
Companies Ordinance, 1984 are complied with. You are required to list such
requirements.
96
(03)
(06)

Mr. Zafar a director of Hilltop Limited, a listed company, has received a notice making
him responsible for incorrect information contained in the prospectus issued by the
company and also on account of the companys failure to meet certain requirements
related to the issue of prospectus.
You are required to list the relevant provisions of the Companies Ordinance, 1984 on
the basis of which Mr. Zafar can claim relief from any liability.
(04)
24
97
Under the second schedule to the Companies Ordinance 1984, what are the contents
of the prospectus as regards minimum subscription?
(05)
98
Face of prospectus
What are the matters to be stated on the face of the prospectus under the Companies
Ordinance 1984?
(04)
CHAPTER 23 MORTGAGES AND CHARGES

99

(a)
List the mortgages and charges which, if not registered by the company, shall be
considered as void.
(06)
(b)
Explain the circumstances under which the registrar has the power to make
entries of satisfaction and release of charge, in the register of mortgages and
charges, without intimation from the company.
(04)
100 Mortgages and charges 2

Explain the procedure described by the Companies Ordinance, 1984 for registration of
payment or satisfaction of mortgage.
(05)
CHAPTER 24 MEETINGS
101 AGM timeline
Explain the exceptions to the following provisions as specified under the Companies
Ordinance, 1984:
Every company shall hold its annual general meeting within a period of four months
following the close of its financial year and not more than fifteen months after the
holding of its last preceding annual general meeting.
(03)
102 Ordinary vs. special

(a)
In a general meeting, ordinary as well as special businesses are put up for

consideration of members. Distinguish between ordinary business as opposed to
special business.
(03)
(b)
State the requirements that a company needs to satisfy, as regards notice of the
meeting, in case a special business is to be transacted at a general meeting of
the company.
(03)
103 AGM and EGM

Briefly explain the exceptions to the following provisions as specified under the
(a)
An annual general meeting shall, in the case of a listed company, be held in the
town in which the registered office of the company is situated.
(02)
(b)
Notice of an extraordinary general meeting shall be sent to the members at least

twenty-one days before the date of the meeting, and in the case of a listed
company shall also be published in the prescribed manner.
(02)
25
Business Law
104 Polling
Mr. Shakeel has significant shareholdings in various public and private companies. He
is not satisfied with some of the resolutions passed by such companies by show of
hands. You are required to advise him as regards the following:
(a)
What conditions would he need to satisfy if Mr. Shakeel wishes to request for a
poll?
(05)
(b)
Explain whether a company is required to oblige him if he wishes to satisfy

himself about the validity of the results of voting by poll.
(02)
105 Minutes
Discuss the provisions contained in the Companies Ordinance, 1984 relating to
maintenance of minutes of the general meetings of the company.
(08)
106 Meetings commencement and EGM

Explain whether or not the following statements are in accordance with the provisions
of the Companies Ordinance, 1984 and support your answer with reasons:
(a)
All limited companies are required to hold statutory meeting within 6 months of
incorporation.
(03)
(b)
Notice of an extraordinary general meeting should always be sent to the

shareholders, at least 21 days before the date of the meeting.
(03)
107 Quorum
The Board of Directors of Classic Paints Limited, a public listed company, has called an
Extraordinary General Meeting on the requisition of the shareholders holding 10% of
the voting power of the company. Approximately twenty minutes before the
commencement of the meeting, the Chairman of the Board of Directors informed the
Company Secretary of his inability to attend the meeting due to the death of a close
relative.
Required:
(a)
What would be the quorum of the above meeting?
(b)
Mention the latest time by which the quorum of the meeting should be present.
What would be the impact if quorum is not present within the prescribed time?
(c)
Who could chair the meeting in the above situation?
(10)
108 Members and meetings

(a)
(b)
Mr. Dinshaw holding 13.5% shares in ABC Limited gave notice of a resolution to
the company on May 17, 20X4, proposing to appoint M & T Associates in place
of the existing share registrar of the company. The resolution was to be
considered at the annual general meeting scheduled for May 30, 20X4. The
company could not circulate the proposed resolution among its members.
(i)
Evaluate the above situation in the light of the provisions of the Companies
Ordinance, 1984.
(04)
(ii)
Explain whether Mr. Dinshaw is entitled to inspect and require the minutes
of general meeting of the company.
(04)
What is the legal status of a resolution passed at any adjourned meeting of the
creditors of a company?
(02)
26
109 Circulation
The annual general meeting of Iqra Industries Limited (IQL), a listed company, is to be
held on October 25, 20X3. In addition to the normal businesses, the company is
planning to discuss a strategic business plan for the approval of the shareholders.
Explain the requirements of Companies Ordinance, 1984 as regards the
circulation of information/documents to various stake holders, prior to the above
meeting.
(11)
110 Representation and proxy

Green Leaf Limited, a listed company, has sent a notice of the forth coming Annual
General Meeting, to the Company Secretary of Red Rose Limited which is also a listed
company. Red Rose Limited has recently acquired 100,000 shares in Green Leaf
Limited and you are required to advise its directors about the following, in the light of
Companies Ordinance, 1984:
(a)
Who can represent Red Rose Limited in the annual general meeting of Green
Leaf Limited?
(03)
(b)
What are the essential characteristics of an instrument of proxy to be submitted

to Green Leaf Limited and what is the deadline for its submission?
(04)
111 EOGM and special business

(a)
(b)
Peach Panther Ltd (PPL) is planning to call an Extra Ordinary General Meeting
(EOGM) to transact certain businesses due to an emergency faced by the
company. You are required to answer the following:
(i)
Which meetings are called EOGM?
(ii)
What is the minimum notice period for calling an EOGM? Can PPL hold
such meeting on a shorter notice?
(05)
Explain the term special business with reference to the Companies Ordinance,
1984. Give at least two examples.
(06)
112 Special resolutions

What do you understand by the term "special resolution" as explained in the
Companies Ordinance, 1984?
(04)
113 Auditors certificate

Companies are required to obtain certificates from auditors in regard to the matters
contained in a statutory report. You are required to elaborate on the matters for which
auditors certificates are required.
(04)
114 Commission GM
Under what circumstances does the Commission have the power to call a general
meeting of the company?
(04)
CHAPTER 25 MANAGEMENT
115 Subsequent CEO
of the Companies Ordinance, 1984. Support your answer with reasons.
27
Business Law
A chief executive, other than the first chief executive of the company, is appointed by
the shareholders in the annual general meeting of the company, for a period up to the
next annual general meeting.
(03)
116 CEO removal and competitors

(a)
Mr. Zameer is the first chief executive of Ryan Industries Limited, a public
company. The directors of the company are not satisfied with his performance. In
view of the provisions of the Companies Ordinance, 1984 specify the term of
office of Mr. Zameer and explain how he can be removed before expiry of the
above term.
(05)
(b)
Describe the provisions of the Companies Ordinance, 1984 which restrict the chief
executive of a public company from carrying on any business competing with the
companys business.
(03)
117 Casual vacancy

Abid, Qasim and Tariq were the only members of Alpha Securities Limited, a public
company and were elected as directors on 30 June 20X9. Qasim expired on 2
February 20Y4 in a road accident.
Briefly describe the provisions of the Companies Ordinance, 1984 relating to the casual
vacancy as described above.
(05)
118 Election
Narrate the provisions of the Companies Ordinance, 1984 relating to a private
company in respect of:
(a)
Appointment of the first directors and their tenure.
(03)
(b)
Procedure for election of subsequent directors.
(09)
119 Presence
Explain the exception to the following provisions as specified under the Companies
Ordinance, 1984.
In a meeting of the board of directors, no director shall take any part in the discussion
of, or vote on, any contract or arrangement entered into, or to be entered into, by or on
behalf of the company, if he is in any way, whether directly or indirectly, concerned or
interested in the contract or arrangement, nor shall his presence count for the purpose
of forming a quorum at the time of any such discussion or vote; and if he does vote, his
vote shall be void.
(04)
120 Number, remuneration and assignment

of the Companies Ordinance, 1984.
(a)
A company may change the number of directors to be elected at least 21 days

before the date of general meeting at which the election is to be held.
(04)
(c)
Directors remuneration for performance of extra services including the holding of

office of the chairman or attending the board meeting is decided by the chief
executive.
(04)
(d)
A director of a listed company cannot assign his office to another person under
any circumstances.
(03)
28
121 Fresh elections

Explain the conditions specified in the Companies Ordinance, 1984 under which a
person may request a listed company to hold election of directors prior to the end of
the term of the present board of directors.
(07)
122 Loans
In view of the provisions of the Companies Ordinance, 1984 explain the conditions
which are required to be complied with, if a company wishes to grant loan to its director.
(05)
123 Power
At the annual general meeting of Rahbar Refineries Limited (RRL), certain
shareholders have raised objections on matters related to the use of the companys
funds. In the opinion of those shareholders the directors have exceeded the authority
vested upon them by the Companies Ordinance, 1984. Identify those powers of
directors which the shareholders of RRL may be referring to.
(05)
124 Number and casual vacancy

Lalazar Limited, a pubic unlisted company has a paid up capital of Rs 100 million
consisting of shares having face value of Rs 10 each. Last election of its Board of
Directors was held on April 15, 20X3 in which eight directors were elected. Four of the
directors belonged to the same family. The remaining directors were Mr. Javed, Mr.
Bader, Mr. Qasim and Mr. Dawood. They secured 600,000, 350,000, 480,000 and
220,000 votes respectively. The remaining votes were equally distributed among the
four directors of the family. Mr. Javed died on May 30, 20X3 and Mr. Aslam was
appointed as a director on June 15, 20X3 to fill in the casual vacancy.
Explain the following in the light of the provisions of the Companies Ordinance,1984:
(a)
Is Lalazar Limited in compliance with the requirements of minimum number of

directors?
Who shall fix the number of directors to be elected and by what time such
number should be fixed? Is it possible for the company to change the number of
directors once fixed?
(04)
(b)
Who is responsible to fill the casual vacancy in the Board and when would Mr.
Aslams term of office be completed?
(02)
125 First and subsequent

Alpha Technologies Limited (ATL) is in the process of being incorporated as a public
limited company. Further, ATL has plans to have its stock listed on all the three stock
exchanges in the country within a period of one year of its incorporation.
Required:
Write a letter to the promoters of ATL, on behalf of Best Financial Services who are
their consultants, advising them about appointment authority and the terms of holding
of office of the following:
(i)
the first and subsequent directors.
(ii)
the first and subsequent chief executive.
29
Business Law
126 Removal
Lalazar Limited, a pubic unlisted company has a paid up capital of Rs 100 million
consisting of shares having face value of Rs 10 each. Last election of its Board of
Directors was held on April 15, 20X3 in which eight directors were elected. Four of the
directors belonged to the same family. The remaining directors were Mr. Javed, Mr.
Bader, Mr. Qasim and Mr. Dawood. They secured
600,000, 350,000, 480,000 and 220,000 votes respectively. The remaining votes were
equally distributed among the four directors of the family. Mr. Javed died on May 30,
20X3 and Mr. Aslam was appointed as a director on June 15, 20X3 to fill in the casual
vacancy.
Explain the following in the light of the provisions of the Companies Ordinance, 1984:
The conditions required to be fulfilled if a person desires to remove the following
directors:
(i)
Mr. Aslam
(ii)
Mr. Bader
(05)
127 Loan repayment

The directors of Shahzada Limited, a listed company, have offered Mr. Shams who is
presently working as General Manager Operations, to become the Chief Executive of
the company. Last year Mr. Shams obtained a loan amounting to Rs 1.2 million in
accordance with the company's employment rules, out of which Rs 0.8 million is still
outstanding. Mr. Shams has agreed to take the position of Chief Executive but is not in
a position to repay the loan immediately.
Discuss the requirements of the Companies Ordinance, 1984 which Mr. Shams will
need to comply with.
(08)
128 General notice of interest

What is the procedure for filing a general notice of interest by a director and what would
such a general notice include?
(06)
CHAPTER 26 INVESTMENTS AND DIVIDENDS

129 Associated company
Describe the term associated company in accordance with the Companies Ordinance,
1984.
(05)
130 Dividend restriction

of the Companies Ordinance, 1984. Support your answer with reasons.
There is no restriction on the declaration of dividend and the chief executive may
declare dividend in the general meeting of the company out of any kind of profit.
(04)
131 Investment restriction

Describe the restrictions that have been imposed by the Companies Ordinance, 1984
in respect of investment by a company in its associated undertaking.
(06)
30
132 Payment of dividend

Explain the exception to the following provisions as specified under the Companies
Ordinance, 1984.
Where a dividend is declared by a company but is not paid within the period
specified in the Companies Ordinance, 1984, the chief executive of the company shall
be punishable with imprisonment for a term which may extend to two years and with
fine which may extend to one million rupees.
(05)
133 Dividend amendment

The board of directors of Dinar Ltd, a listed company, had recommended a final
dividend @ 100% for the year ended June 30, 20X3. Just a week after the notice for
AGM had been dispatched the company suffered huge losses due to certain
unanticipated events and incurred heavy liabilities. The company is now considering
the following options:
(i) Reducing the dividend to 25%.
(ii) Deferring the payment of 75% of the dividend, for six months.
Explain whether the company can exercise the above options, under the Companies
Ordinance, 1984.
(04)
CHAPTER 27 ACCOUNTS AND AUDIT

134 Qualification
Explain whether or not the following statements are in accordance with the provisions of
the Companies Ordinance, 1984 and support your answer with reasons:
A person who holds shares in a company cannot be appointed as the auditor of
such company.
(03)
135 Removal - representation

Briefly explain the exceptions to the following provisions as specified under the
If a copy of the representation received from the retiring auditor is not sent to every
member of the company because it was received too late or because of the
companys default, the auditor may, without prejudice to his right to be heard in
person, require that the representation shall be read out at the meeting.
(03)
136 Removal change of auditor

Narrate the responsibilities of a company or of its directors in the following
circumstances:
A notice is given to a listed company by a member of the company, 17 days before the
annual general meeting, proposing for a change in the auditors of the company.
(03)
137 Books of accounts

SQL Plastics Limited is a wholly owned subsidiary of a foreign company and has its
registered office in Karachi.
(a)
List the books of account the company is required to maintain.
(b)
State the conditions which the directors shall be required to comply with if they
want to keep the books of account at SQLs factory located in Peshawar.
(02)
31
(04)
Business Law
138 Registrar and the directors report

(a)
Describe the formalities to be completed by an unlisted company, not being a

private company having paid up capital of less than Rs. 7.5 million, before and
after the annual general meeting, with respect to the annual audited accounts,
under the Companies Ordinance, 1984.
(05)
(b)
Describe the contents of the Directors Report to be attached with the balance
sheet of a public company, as specified under Companies Ordinance, 1984. (10)
139 Signing the accounts

The chief executive of Raza Enterprises Limited (REL), a listed company, is out of the
country at the time of finalization of annual accounts. Explain the provisions related to
signing and authentication of the annual accounts as contained in the Companies
Ordinance, 1984 which REL would have to comply with, in the above situation.
(03)
140 The auditors report

Explain the provisions of the Companies Ordinance, 1984 in respect of the following:
(a)
Reading and inspection of auditors report.
(02)
(b)
Signature on the audit report.
(03)
141 Appointment of auditor

Sahara Pakistan Limited (SPL) is a multinational company listed on the Karachi and
Lahore Stock Exchanges. Mr. Brown, a major shareholder of the company, wants to
appoint ABC & Company, Chartered Accountants, as the new auditors in place of the
retiring auditors of SPL.
Narrate the procedure that Mr Brown would have to follow and the responsibilities of
the Company in the context of provisions of the Companies Ordinance, 1984 for
change of auditors.
(12)
142 Auditor and the AGM

Discuss the provisions of the Companies Ordinance, 1984 related to the attendance of
the auditors in the general meeting of the company.
(03)
143 Auditor disqualification

On April 30, 20X3 the Board of Directors of MIL informed the CFO that it wishes to
change the auditors of the company. The interim audit for the year ended June 30,
20X3 is due to commence shortly.
As the CFO of the company, advise the Board about the provisions contained in the
Companies Ordinance, 1984 as regards:
Restrictions imposed on the appointment of certain persons as auditors of the
company.
(06)
144 Appointment by SECP

Narrate the circumstances in which SECP becomes empowered to appoint auditors
under the Companies Ordinance, 1984.
(06)
32
SECTION

Business Law
Multiple choice answers
33
Business Law
CHAPTER 1
1
(1)
(d)
(2)
(c)
(3)
(b)
(4)
(d)
(5)
(b)
(6)
(d)
(7)
(a)
(8)
(c)
(1)
(b)
(2)
(a)
(3)
(a)
(4)
(c)
(5)
(c)
(6)
(a)
(7)
(c)
(8)
(d)
(9)
(b)
(10) (b)
(11) (b)
(12) (a)
(13) (b)
(14) (a)
(15) (c)
(16) (c)
(17) (c)
(18) (c)
(19) (c)
(20) (c)
(21) (d)
(1)
(a)
(2)
(b)
(3)
(d)
(4)
(c)
(5)
(d)
(6)
(d)
34
Section C
Answer bank: Multiple choice answers
(7)
(d)
(8)
(a)
(9)
(c)
(10) (c)
(11) (b)
(12) (d)
(1)
(c)
(2)
(b)
(3)
(d)
(4)
(c)
35
Business Law
36
SECTION

Business Law
Part A - Mercantile Law

Objective test and
long-form answers
1

(a)
The Federal Shariah Court may, either of its own motion or on the petition of
citizen of Pakistan or the Federal or Provincial Government, examine and
decide the question whether or not any law or provision of law is repugnant to
the Injunctions of Islam.
(b)
If the court decides that a particular law is repugnant to the injunctions of

Islam, it should specify the extent to which it is so repugnant.
(c)
Appeal: If any party in any proceedings before the Federal Shariat Court is
aggrieved by the final decision of the court, he may prefer an appeal to the
Supreme Court.
Courts
(a)
The Federal Shariat Court:
The Federal Shariat Court consists of not more than eight Muslim
Judges including the Chief Justice which are appointed by the President
in accordance with Article 175A.
Out of the number not more than three shall be Ulema having at least
fifteen years experience in Islamic law, research or instruction and
not more than four each one of them
is or
has been or
is qualified
to be a Judge of High Court.
The judges hold office for a period of three years. However, the
President may, extend such period.
37
Business Law
(b)
Court of first instance:

A court of first instance is the court where the case is originally heard in full.
Areas of jurisdiction of the High Court:
Following are the five areas of jurisdiction of the High Court.
(i)
Original civil jurisdiction;
(ii)
Appellate civil jurisdiction;
(iii)
Appellate criminal jurisdiction;
(iv)
Supervisory jurisdiction;
(v)
Constitutional jurisdiction.
Binding precedent
For a precedent to be binding it must meet the following requirements:
(i)
The ratio decidendi (reason for judgment) is clearly identified;
(ii)
The material facts of the case must be similar;
(iii) The status of the court which set the precedent must be such as to bind the
present court.
High court
The High Court exercises its supervisory role in the following manner:
(i)
It may issue a writ of habeas corpus. That is, it may order for the release of
a person wrongfully detained by a court subordinate to it or any government
agency.
(ii)
It may issue prerogative orders against sub-ordinate courts, tribunals and

other bodies such as local authorities in so far as they have a duty to
exercise a decision fairly.
There are three types of prerogative orders:
Mandamus requires the court or other body to carry out a public duty.
Prohibition prevents a court or tribunal from exceeding its jurisdiction.

Certiorari is exercised when an inferior court has acted illegally by
exceeding its jurisdiction or reached its decision contrary to the
principles of natural justice without giving the person concerned the
right to know and reply to the case against him. Essentially it is a
review of what has been done after it has been done.

Civil law regulates the disputes in respect of rights and obligations between persons
dealing with each other.
The court does not punish the wrong doers but imposes a settlement, either by
awarding damages or granting injunctions or other orders.
38
Section D: Part A - Mercantile Law
Answer bank: Objective test and long-form answers
Examples of civil laws are:

(i)
company law
(iv) family laws
(ii) rent law
(iii) commercial law
(v) employment law
Criminal law is a body of law:

dening conduct prohibited by law against the community at large;
regulating how suspects are investigated, charged and tried and;
establishing punishments for convicted offenders / accused
Criminal law deals with crimes such as murder, violence, terrorism, theft, robbery
etc.
If the President deems necessary to take an immediate action, he has the power to
promulgate an ordinance if the Senate or National Assembly is not in session. Such
ordinances have the same force and effect as an Act of the Parliament. The
Ordinance stands repealed after one hundred twenty days if it is not passed by the
National Assembly or by National Assembly and Senate both as the case may be.
However, National Assembly may extend it for another period of one hundred twenty
days. Thereafter it will stand repealed.

Section 10 of the Contract Act
1.
Essential elements of a valid contract

A valid contract must have following essential elements:
a)
Offer and acceptance
b)
There must be an agreement between parties to create a valid contract.

An agreement involves a valid offer and acceptance.
Legal r elationship
c)
A contract to become valid must have a legal relationship. In case of

social or domestic agreements, the usual presumption is that the parties
do not intend to create legal relationship but in commercial or business
agreements, the usual presumption is that the parties intend to create
legal relationship unless otherwise agreed upon.
Competency of parties
The parties to an agreement must be competent to contract. In other
words, the person must be
Major
Person of sound mind and
Not declared as disqualied from contracting by any law to which
he is subject.
d)
Consideration
An agreement must be supported by lawful consideration. Gratuitous
promises are not enforceable at law. Consideration requires not only
requires presence of consideration but also lawfulness of consideration.
39
Business Law
e)
Free Consent
An agreement must be made between parties by free consent. In other
words, the consent must not be obtained from following:
Coercion
Undue inuence
Fraud
Misrepresentation
Mistake
f)
Lawful Object
The object of an agreement must be lawful. An object is said to be
unlawful when: [Section 23]
It is forbidden by law
Is of such a nature that if permitted would defeat the provisions of
any law
It is fraudulent
It involves an injury to the person or property of another
The court regards it as immoral, or opposed to public policy
g)
Not declared as void

An agreement which is not enforceable by law is called void agreement.
There are certain agreements which have been expressly declared as
void such as: [Section 24 to 30]
agreement, the object or consideration of which is unlawful
agreement, without consideration is void
agreement in restraint of marriage
agreement in restraint of legal proceedings
agreement in restraint of trade
agreement is void if meaning of which is uncertain
wagering agreement
h)
Certainty
An agreement may be void on the grounds of uncertainty. The meaning of
the agreement must be certain or capable of being certain. [Section 29]
i)
Possibility of performance
The terms of the agreement must be capable of being performed else
it is void. [Section 56]
j)
Legal formalities
An oral contract is a perfectly valid contract, except in certain cases where
a contract must comply with the necessary formalities as to writing,
registration and stamping.
40
Acceptance
Section 2(b) and 7 of the Contract Act
When the person to whom the proposal is made signifies his assent to the offer, the
proposal is said to be accepted.
(i)
Acceptance must be absolute and unqualified.
(ii)
It must be expressed in some usual and reasonable manner, unless the

proposal prescribes the manner in which it is to be accepted. If the proposal
prescribes a manner in which it is to be accepted, and the acceptance is not
made in such manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted
in the prescribed manner and not otherwise, but if he fails to do so, he
accepts the acceptance.
(iii)
Acceptance must be made by the offeree i.e. by the person(s) to whom offer
was made and only such person or a person with his authority must
communicate the acceptance to the offeror.
(iv)
Acceptance must be given within a reasonable time and before the offer
lapses and/or is revoked.
(v)
Acceptance must succeed the offer.
Lapse of an offer
An offer is lapsed in following ways:
Revocation
An offer may be revoked before its acceptance by the offeree.
Lapse of time
An offer will come to an end if it is not accepted within the time specified or within a
reasonable time where no time is specified. What is the reasonable time is a
question of fact depending upon the subject matter and circumstances.
Death or insanity
An offer comes to an end by the death or insanity of the offeror if the fact of his death
or insanity comes to the knowledge of the acceptor before acceptance.
Non-fulfilment of condition precedent
An offer comes to an end when the acceptor fails to fulfil the conditions precedent to
the offer.
Counter offer
An offer comes to an end if the counter offer is made.
Non-acceptance according to requirement
An offer comes to an end if it is not accepted according to the requirement (if any) of
the offeror.
Non-acceptance / Rejection
An offer comes to an end if it is not accepted by the offeree. An offer is said to be
rejected if the offeree expressly rejects.
41
Business Law
Subsequent illegality or destruction

An offer comes to an end if it becomes illegal or the subject matter is destroyed
before its acceptance.
10
Section 5 and 6 of the Contract Act
Revocation of a proposal
A proposal may be revoked at any time before the communication of its acceptance
is complete as against the proposer, but not afterwards. A valid proposal comes to
an end upon happening of any one of the following:
11
(a)
by communication of notice of revocation by the proposer.
(b)
by the lapse of time prescribed in such proposal for its acceptance, or if no

time is prescribed, by the lapse of a reasonable time, without communication
of the acceptance.
(c)
by failure of the acceptor to fulll a condition precedent to acceptance.
(d)
by the death or insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of acceptor before acceptance.
(e)
if a counter proposal is made by the acceptor to the proposer.
(f)
if the proposal is not accepted in some usual or reasonable manner, where

no mode is so prescribed.
(g)
subsequent illegality or destruction of subject matter.
(h)
rejection of proposal by the offeree.
Minor
Section 10, 11 and 68 of the Contract Act
Section 30 of the Partnership Act
The position of agreements with a minor are given below:
An agreement with a minor is void ab-initio.
Where an infant / minor represents fraudulently that he is of the age of majority
and induces another to enter into a contract with him, he will not be liable
Since ratication has a retrospective application it is necessary that the minor
must be competent to contract at the time when the contract is entered into.
Therefore, an agreement with a minor cannot be ratied subsequently after he
attains majority
If a minor enters into an agreement jointly with a major person than such
agreement can be enforced against the major person who has jointly promised
to perform.
A minor can be admitted for the benets of partnership with the consent of all
the partners. He cannot be a partner until he attains majority.
A minor can be agent but cannot be a principal
A minor cannot be declared insolvent because he is incompetent to contract.
A minor can le a suit but cannot be sued.
42
12
If the guardian or manager of the minor entered into on behalf of a minor being
within the scope of the authority and for the benefit of the minor than such
agreements can be enforced by or against the minor.
A person who supplied necessaries to a minor is entitled to be reimbursed from

the property of such minor. Such claim is against the property of the minor but
not against the minor personally.
Consideration
(a)
13

The conditions under which the said contract is enforceable are:
Mohsin and Ahsan stand in near relation to one another.
The agreement is out of natural love and affection.
The said contract is in writing.
The contract is registered.
Consideration
Validity of an agreement made without consideration
An agreement without consideration is considered valid in any of the following
circumstances:
14
(i)
it is expressed in writing and registered under the law for the time being in
force for the registration of documents and is made on account of natural love
and affection between parties standing in a near relation to each other.
(ii)
it is a promise to compensate wholly or in part, a person who has already

voluntarily done something for the promisor, or something which the promisor
was legally compellable to do.
(iii)
it is a promise, made in writing and signed by the person to be charged

therewith, or by his agent generally or specially authorized in that behalf, to
pay wholly or in part a debt which is barred by the law for the limitation of
suits.
(iv)
any gift which is actually made as between the donor and the donee.
(v)
no consideration is necessary to create an agency.
(vi)
remission by the promisee of the performance of the promise. A creditor can

agree to give up either the whole or part of his claim or may agree to extend
time for the performance of the promise and no consideration is required for
such an agreement.
(vii)
a promise to contribute to charity, though gratuitous, would be enforceable,

provided the promisee on the faith of such promise undertakes a liability not
exceeding the amount so promised.
Coercion
Yes, Bano can avoid the contract as her consent was caused by coercion.
43
Business Law
15
Fraud
(a)
16
Fraud Fraud means acts committed by a party to a contract, or with his

connivance, or by his agent with intent to deceive another party thereto or his
agent, or to induce to enter into the contract and includes any of the following:
(i)
the suggestion, as a fact of that which is not true by one who does not
believe it to be true;
(ii)
the active concealment of a fact by one having knowledge or belief of

the fact;
(iii)
a promise made without any intention of performing it;
(iv)
any other act fitted to deceive;
(v)
any such act or omission as the law specially declares to be fraudulent.
Misrepresentation
Following are the acts which constitute misrepresentation:
(a)
Unwarranted statement
When a person makes a positive statement that a fact is true when his
information does not warrant it to be so, though he believes it to be true this
amounts to misrepresentation.
(b)
Breach of duty
Any breach of duty which
without an intent to deceive,
gains an advantage to the person committing it, or
anyone claiming under him,
by misleading another
(c)
to his prejudice or
to the prejudice of anyone claiming under him.
Inducing mistake about subject matter (Innocent misrepresentation)

A party to an agreement induces (however innocently) the other party to make a
mistake as to the nature or quality of the subject of the agreement.
Following are the circumstances were a party whose consent has been
obtained by misrepresentation cannot rescind the contract:
(i)
(ii)
(iii)
(iv)
(v)
where the party whose consent was caused by misrepresentation had the
means of discovering the truth with ordinary diligence;
where the party gave the consent in ignorance of misrepresentation;
where the party after becoming aware of the misrepresentation, takes a
benefit under the contract;
where an innocent third party, before the contract is rescinded, acquires
for consideration some interest in the property passing under the contract;
where the parties cannot be restored to their original position.
44
17
Mistake
Section 20 to 22 of the Contract Act
The effects on the validity of the contract are given below:
18
(a)
In case of unilateral mistake of law in force in Pakistan the contract is not

voidable.
(b)
In case of unilateral mistake of fact the contract is not voidable
(c)
In case of mutual mistake of foreign law the agreement is void.
Legality of object
Section 2(e), (g), 23 and 24 of the Contract Act
(a) Agreement
Every promise and every set of promises, forming the consideration for each
other, is an agreement.
An agreement not enforceable by law is said to be void.
Circumstances in which an object of an agreement is considered unlawful:
The object of an agreement is unlawful when:
(i)
it is forbidden by law; or
(ii)
is of such a nature that, if permitted, it would defeat the provisions of any

law; or
(iii) is fraudulent; or
(iv) involves or implies injury to the person or property of another; or
(v)
19
the court regards it as immoral, or opposed to public policy.

The agreements which are opposed to public policy are the following:
Trading with enemy
A person cannot enter into an agreement with an alien enemy during the period of
war.
Stifling prosecution
Criminals should be prosecuted and punished; hence an agreement for stifling
prosecution is illegal.
Maintenance and champerty
Maintenance is an agreement where a person promises to maintain a suit in which he
has no interest. Champerty is an agreement whereby one party agrees to assist
another in recovering property and in turn is to share in the proceeds of the action.
Sale of public offices
The agreements of sale of public offices are illegal as they promote corruption.
Restraint of parental rights
An agreement which prevents a parent to exercise his right of guardianship is void.
45
Business Law
Restraint of personal liberty

An agreement which unduly restricts the personal liberty of a person is void.
Agreement to create monopoly
An agreement to create monopoly is void.
Marriage brokerage agreement
An agreement in which a person promises for reward to procure marriage for another
is void.
20
Section 23
No, the agreement is void as its object is unlawful.
21

Section 11, 20, 23 to 30, 36 and 56 of the Contract Act
The agreements which have been expressly declared to be void and exception
thereto are as follows:
1.
Contracts with minor or a person of unsound mind.
2.
When both parties to an agreement are under a mistake of fact essential to an

agreement.
3.
An agreement of which the consideration or object is unlawful: includes any

agreement which the court regards as immoral or opposed to public policy.
4.
If consideration or object is unlawful in part.
5.
An agreement without consideration is unlawful

Exceptions:
6.
The agreement is in writing and registered and made on account of

natural love and affection.
It is a promise to compensate for something done.
It is a promise written and signed to pay a debt barred by limitation law.
Agreements in restraint of marriage of any person.

EXCEPTION:
Agreement in restraint of marriage of minor.
7.
Agreements in restraint of a lawful profession, trade or business;

EXCEPTION:
When goodwill has been sold, reasonable limits to carry on similar business
can be imposed
8.
Agreements in restraint of legal proceedings;

EXCEPTION:
Two parties may agree to refer any dispute to arbitration and avoid legal
proceedings
46
9.
Agreements, the meaning of which is uncertain or not capable of being made

certain;
10.
Wagering Agreements;
EXCEPTION:
Subscription/contribution to horse-racing.
11.
Agreements contingent upon impossible events whether known or not at the

time of the agreement;
12.
Agreements to do impossible acts.

EXCEPTION:
Where one party knows about an impossible act, he may be liable to
compensate the innocent party.
22
Contingent Contract
No, this is not a contingent contract as the condition i.e. construction of a bungalow
is not collateral to the contract; but in itself forms a consideration and is thus an
integral part of the contract.
Essentials of a contingent contract
The following are the essential characteristics of a contingent contract:
23
(i)
the performance of such a contract depends upon the happening or nonhappening of some future event;
(ii)
the event must be uncertain;
(iii)
the event must be collateral i.e. incidental to the contract.

The rules regarding the performance of the contingent contracts are given below:
Contracts contingent upon the happening of an uncertain future event
A contract the performance of which is contingent on the happening of an uncertain
future event cannot be enforced by law unless and until that event has happened. If
the event becomes impossible, such contracts become void.
Contracts contingent upon the non-happening of a certain future event
A contract of performance of which is contingent on the non-happening of a certain
future event can be enforced when the happening of that event becomes impossible
and not before.
Contracts contingent upon the future conduct of a living person
If the future event on which a contract is contingent is the way in which a person will
act at an unspecified time, the event shall be considered to become impossible when
such person does anything which renders it impossible that he should so act within
any definite time or otherwise than under further contingencies.
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Business Law
Contracts contingent upon the happening of an uncertain specified event within

a fixed time
Contingent contracts to do or not to do anything if a specified uncertain event
happens within a fixed time become void if at the expiration of the time fixed such
event has not happened or if before the time fixed happening of such event becomes
impossible.
Contracts contingent upon the non-happening, of an uncertain specified event
within a fixed time
A contract of performance of which is contingent on the non-happening of a specified
uncertain event within a fixed time may be enforced by law:
When the time fixed has expired and such event has not happened or
If (before the expiry of the time fixed) it becomes certain that such event will not
happen.
Agreements contingent upon impossible events

Contingent agreements to do or not to do anything, if an impossible event happens,
are void, whether the impossibility of the event is known or not to the parties to the
agreement at the time when it is made.
24
Quasi contracts
Reimbursement of person paying money due by another, in payment of which
he is interested
No, however, Baqar may recover the amount, if he has his interest in the payment.
To constitute a quasi contract and be entitled for reimbursement, following
conditions must be satisfied:
(a) the person who made the payment must have his own interest in the payment;
and
(b) the other person must be bound by law to pay.
25
Quasi contracts
Quasi contract:
A quasi contract is a relation resembling to those created by a contract by which one
party is bound to pay money in consideration of something done or suffered by the
other party, though; no contractual relation exists between the parties. As a result of
the above, certain legal rights and obligations are created between the concerned
parties. Such type of relations resembles those created by the contract and such a
contract is called Quasi contract.
It is an obligation based on the principle of equity and justice, which the law creates
in the absence of any formal agreement.
48
Different types of relationships causing Quasi Contract:

There are five kinds of quasi contractual obligations given in Contract Act. These are
discussed below:
(a) Supply of necessaries: If a person incapable of entering into a contract, or
anyone whom he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life the person who has furnished such
supplies is entitled to be reimbursed from the property of such incapable person.
(b) Payment of lawful dues by interested persons: A person, who is interested
in the payment of money which another is bound by law to pay, and who
therefore pays it, is entitled to be reimbursed by the other.
(c) Obligation of a person enjoying benefit of a non-gratuitous act / goods
Where a person lawfully does anything for another person, or delivers anything
to him, not intending to do so gratuitously and such other person enjoys the
benefit of it, the latter is bound to make compensation to the former in respect of,
or to restore, the thing so done or delivered.
(d) Responsibility of finder of goods: A person, who finds goods belonging to
another and takes them into his custody, is subject to the same responsibility as
a bailee.
(e) Liability of a recipient of goods delivered by mistake or under coercion:
A person to whom money has been paid or anything delivered, by mistake or
under coercion, must repay or return it.
26

(a)
Rights and responsibilities of Mehboob

Mehboob would not be responsible for non-performance;
he will not lose his rights to claim damages under the contract, for
instance he will be entitled to compensation and contract will become
voidable at his option;
in case of performance by Saulat on Mehboobs demand, Mehboob will
be responsible to perform his promise.
Essentials of a valid offer of performance:
(i)
it must be unconditional;
(ii)
it must be made at a proper time and place, and under such

circumstances that the person to whom it is made may have a reasonable
opportunity of ascertaining that the person by whom it is made is able and
willing there and then to do the whole of what he is bound by his promise
to do;
(iii)
if the offer is an offer to deliver anything to the promisee, the promisee

must have reasonable opportunity of seeing that the thing offered is the
thing which the promisor is bound by his promise to deliver.
An offer to one of several joint promisees has the same legal consequences as
an offer to all of them.
49
Business Law
27

(a)
Time and place of performance not specified in contract:

If according to the contract, a promisor is to perform his promise without
application by the promisee, and no time for performance is specified, the
promise must be performed within a reasonable time.
When a promise is to be performed without application by the promisee, and
no place is fixed for the performance, it is the duty of the promisor to apply to
the promisee to appoint a reasonable place for the performance of the
promise, and to perform it at such place.
The question what is reasonable time and place is, in each particular case, a
question of fact.
(b)
Order of performance of reciprocal promises

The promises must be performed in the order expressly fixed by the contract,
and where the order is not expressly fixed, they must be performed in the
order which the nature of transaction requires.
(c)
Effect of release of one joint promisor

Where two or more persons have made a joint promise, release of one such
promisor by the promisee does not discharge the other joint promisor(s);
neither does it free the joint promisors so released from responsibility to the
promisor who was not released.
28
(a)
Afaq alone cannot compel Mohsin to make payment unless a contrary

intention appears from the contract. The right to claim performance rests with
all the promisees jointly and a single promisee cannot demand performance.
(b)
Mohsin 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.
Therefore, Faizan must share the loss arising from default of Laila equally with
Mohsin.
29

Unless a contrary intention appears from the contract, the right to claim
performance rests:
(a)
with Hatim and Tahir jointly
(b)
after the death of Hatim, with the representative of Hatim jointly with Tahir
(c)
after the death of both Hatim and Tahir, with the representative(s) of both,
jointly.
50
30
Reciprocal promises
No, Nasir need not perform his promise to pay and Maimar must compensate Nasir
for any loss which Nasir may sustain due to Maimars non-performance.
31
Appropriation
(a)
The payment is correctly applied by Bilal and the objection of Wasim is not
valid. In the absence of any intimation from debtor or circumstances indicating
to which debt payment is to be applied, the creditor is free to use his discretion
and apply it to any lawful debt actually due and payable to him from the debtor
whether its recovery is or is not barred by the law in force for the time being as
to the limitation of suits.
(b)
(a)
The payment should be applied in discharging the following debts:

Debt of
March 2, 2009
August 30, 2010
Rupees
20,000
50,000
70,000
As Ubaid has written the break-up of payment at the back of the cheque,
it implies that payment should be applied to discharge those particular
debts.
(b)
The payment should be applied in discharging the debts in the order in

which they became due.
It is irrelevant whether the debts are or are not barred by the law in force
for the time being as to limitation of suits.
32

Effect of alteration of contract
If the parties to a contract agree to substitute a new contract for it the original contract
need not be performed.
Since Bashir accepted Jahangir as his debtor in place of Talib, so now he cannot
demand payment from Talib. Consent of all the parties is essential.
33
A contract is discharged by supervening impossibility in the following cases:
Destruction of subject matter
If the subject matter of the contract is destroyed after the formation of the contract
without any fault of either party then a contract is said to be discharged.
Death or Personal incapacity (Doctrine of Frustration)
If a contract is of personal nature then on the death / incapacity / illness of a person a
contract is said to be discharged.
51
Business Law
Declaration of war
At the time of declaration of war the contracts with alien enemies are either
suspended or declared as void.
Change of law
If the performance of the contract becomes impossible or unlawful due to change in
law after the formation of the contract than the contract is said to be discharged.
Particular state of things ceases to exist or occur
The contract is discharged if that particular state of thing which forms the basis of a
contract ceases to exist or occur.
34

Akhtar cannot rescind the contract as he has affirmed the contract when he allowed
Bushra to conduct the seventh show. However, he may be entitled to compensation
for damage sustained by him through Bushras failure to conduct the sixth show.
If Akhtar puts an end to the contract then it will amount to breach of contract and
remedies of breach of contract would be available to Bushra.
35
Damages
The party who suffers from breach of contract is entitled to receive compensation for
any loss or damage caused to it, which naturally arose from the usual course of
things from such breach, or which the parties knew, when they made the contract to
be likely to result from such breach.
Such compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breach.
36
Indemnity
A contract, by which one party promises to save the other from loss caused to it by
the conduct of the promisor himself, or by the conduct of any other person, is called a
contract of indemnity.
37
Guarantee
The guarantee given by Ameen is a continuing guarantee. It can be revoked by
Ameen (surety) at any time as to future transactions but he will remain liable to Bashir
for Rs. 325,700.
38
Guarantee
Revocation of a Continuing guarantee:
No, Kamal is not competent to revoke his guarantee. Where a guarantee is given for
an entire consideration, the contract is not divisible and the guarantee is considered
as a specific guarantee. In this case also, the contract is not one of a continuing
52
guarantee because lease for five years is an entire or indivisible consideration and
not a fragmented one.
39
Guarantee
Co-sureties who are bound in different sums are liable to pay equally as far as
limits of their respective obligations permit.
Therefore, the co-sureties should pay:
Rupees
20,000
30,000
34,000
84,000
Amin
Imran
Shahid
40
Guarantee
(a) Haseeb upon payment of guaranteed amount is invested with all rights which
Faiz (the creditor) had against Gulzar (the principal debtor).
Haseeb the surety is entitled to the benefit of every security which Faiz (the
creditor) has against Gulzar (the principal debtor) at the time when the contract
of suretyship is entered into whether Haseeb knows of the existence of such
security or not.
He is entitled to recover from Gulzar (the principal debtor) whatever sum he has
rightfully paid under the guarantee, but no sums which he has paid wrongfully.
(b) Section 62, 130, 131, 133 to 135, 139 and 141 of the Contract Act
A continuing guarantee may at any time be revoked by the surety, as to
future transactions by notice to the creditor.
(i)
In the absence of any contract to the contrary, the death of the surety
results in the revocation of a continuing guarantee, as regards future
transactions.
Other modes of revocation of a continuing guarantee:

(ii)
If the terms of the contract are changed by the creditor and the principal
debtor by a contract without the consent of the surety.
(iii)
When a creditor discharges principal debtor from the liability.
(iv) When the creditor makes a composition with, or promises to give time to,
or not to sue the principal debtor, without the consent of the surety.
(v)
When a creditors act or omission impairs the eventual remedy of a

surety.
(vi) When a creditor loses security under the contract, the surety gets
discharged to the extent of the value of the security.
53
Business Law
41
Duties of bailor
(a)
Repayment by bailor of necessary expenses

(i)
No remuneration is to be paid to Farha for the safe custody of pet:

Sara should reimburse Rs. 1,500 to Farha, as where, by the conditions of
the bailment, the goods are to be kept or to be carried, or to have work
done upon them by the bailee for the bailor, and the bailee is to receive
no remuneration, the bailor shall repay to the bailee the necessary
expenses incurred for the purpose of the bailment.
(ii)
Farha is to be remunerated for her services:

Sara should reimburse Rs. 1,000 to Farha, as where, under the terms of
the bailment, the bailee is to receive remuneration for his services; it is
the duty of the bailor to bear extraordinary expenses only, if any, incurred
by the bailee in relation to the thing bailed.
42
Particular lien
Stylish Suiting is not justified to refuse delivery of the coat to Majid, because a bailee
who renders a service involving the exercise of labour or skill in respect of the goods
bailed which improves the value of the article, is entitled to a right of particular lien,
and not a general lien until and unless agreed for it.
43
(a)
A contract of bailment may be terminated under the following circumstances:

(i)
If the bailee does any act with regard to the goods bailed, which is
inconsistent with the terms of bailment, the bailment may be terminated
by the bailor even though the term of bailment has not expired or the
purpose of bailment has not been accomplished.
(ii) If the bailment is gratuitous, and involves lending of goods, it may be

terminated by the bailor at any time, even before the specified time or
before the purpose is achieved; however, where such termination causes
loss in excess of benefit actually derived by the bailee, the bailor must
indemnify the bailee.
A contract of bailment may also be terminated:
(iii) If the bailment is for specific period, on expiry of the stipulated period.
(iv) If the bailment is for a specific purpose, on fulfilment of the purpose.
(v) If gratuitous, on the death either of the bailor or of the bailee.
44
Finder of goods
Right of Reward
The finder of goods may retain the goods for the expenses incurred by him to
preserve the goods and to find out the owner, until he receives compensation, and
54
where the owner has offered a specific reward for the return of goods lost, the finder
may sue for such reward, and may retain the goods until he receives it.
The finder of goods may sell the goods if the owner cannot be found or he refuses to
pay lawful charges of the finder:
45
(a)
and the goods are in danger of perishing or losing the greater part of their value;
or
(b)
when the lawful charges amount to 2/3rd of its value.
Pledge
Section 30 of the Sales of Goods Act
Pledge
The bailment / delivery of goods as security for payment of a debt or performance of a
promise is called a pledge.
Under the following circumstances a pledge can be made by non-owners:
1.
Pledge by mercantile agent

If a mercantile agent is in possession of goods or the title documents with the
consent of the owner and he pledges the goods while acting in the ordinary
course of business of a mercantile agent, the pledge shall be valid, provided
that the pawnee acts in good faith.
2.
Pledge by person in possession under voidable contract

When the pawner has obtained possession of the goods pledged by him under
a voidable contract but the contract has not been rescinded at the time of
pledge, he can make a valid pledge provided the pledgee acts in good faith.
3.
Pledge where pawner has only a limited interest

Where a person pledges goods in which he has only a limited interest, the
pledge is valid to the extent of that interest.
4.
Seller in possession of goods after sale

If a seller is, left in possession of the goods sold, a pledge created by him will
be valid, provided the pawnee acted in good faith and had no notice of the sale
of goods to the buyer.
5.
Buyer in possession of goods under an agreement to sell

Where a buyer has acquired possession of goods under an agreement to sell
wherein the goods are to become the property of the buyer on fulfillment of
certain conditions, a pledge created by him is valid, provided the pledgee acted
in good faith.
46
Pledge
Right to extra ordinary expenses:
The pawnee is entitled to receive from the pawner extraordinary expenses incurred
by him for the preservation of the goods pledged.
Therefore, Mehreen is entitled to claim the cost of insurance, in addition to the
principal and interest.
55
Business Law
47
Rights of pawner
Pawnees right where pawner makes default:
On default in payment of debt by Ramla, Ovais may:
(a)
bring a suit against Ramla upon the debt and retain the goods pledged as a
collateral security; or
(b)
he may sell the jewellery pledged on giving Ramla reasonable notice of the
sale.
If the proceeds of such sale are less than the amount due in respect of the debt,
Ramla would still be liable to pay the balance.
If the proceeds of the sale are greater than the amount so due, Ovais shall pay over
the surplus to Ramla.
48
Ratification
(a)
Ratification
Ratification means the subsequent adoption and acceptance of an act originally
done without authority.
Where acts are done by one person on behalf of another, but without his
authority, he may elect to ratify or to disown such acts. If he accepts them, the
same effects will follow as if they had been performed by his authority.
(b)
Essentials of a valid ratification:

A valid ratification must fulfill the following conditions:
(i)
The agent must purport to act as agent for a principal who is in

contemplation and is identifiable at the time of contract.
(ii)
The principal must be in existence at the time of contract.
(iii)
The principal must be competent to contract both at the time of the

contract and at the time of ratification.
(iv)
The act to be ratified must not be void, or illegal.
(v)
Ratification must be made with full knowledge of all material facts.
(vi)
The principal must signify his unconditional acceptance of the act.
(vii)
Ratification must be made within a reasonable time.
(viii)
Ratification must be of whole transaction.
(ix)
Ratification must be communicated.
(x)
Ratification must not injure a right of third person.
56
49
Duties of an agent
Section 209, 211 to 218 of the Contract Act
Duties of an agent towards his principal
1.
Duty to follow principals directions / instructions / mandate / orders or customs
2.
Duty to carry out the work with reasonable skill and diligence
3.
Duty to render accounts
4. Duty to communicate with the principal, in cases of difficulty, for obtaining his
instructions.
5. Duty not to deal on his own account.
6. If an agent, without the knowledge of his principal, deals in the business on his
own account the principal is entitled to claim any benefit which may have
resulted to him from the transaction.
7. Duty not to make profit on his own account or to make secret profit.
8. When an agency is terminated on the death of the principal or on his becoming
of unsound mind, the agent must take, all reasonable steps for the protection
and preservation of the interests of his late principals representatives.
9. Duty not to delegate authority subject to certain exceptions.
10. Duty to act with ordinary prudence in case of emergency in order to protect the
principal from loss.
50

Section 209, 211 to 218 of the Contract Act
The main duties of an agent towards his principal are:
(i)
To conduct the business of his principal according to the directions given by the
principal, or, in the absence of any such directions according to the custom
which prevails in doing business of the same kind at the place where the agent
conducts such business.
(ii)
To conduct the business with as much skill as is generally possessed by

persons engaged in similar business and to act with reasonable diligence. In
the absence of any special skill, the agent should use such skill as he
possesses.
(iii) To render proper accounts to his principal on demand.

(iv) In cases of difficulty, to use all reasonable diligence in communicating with his
principal and in seeking to obtain his instructions.
(v)
An agent must not deal on his own account in the business of agency; i.e. he
must not himself buy from or sell to his principal goods he is asked to sell or
buy on behalf of his principal without obtaining the consent of his principal and
after disclosing all material facts to him.
(vi) The agent is bound to pay his principal all sums received on his account
subject to deductions such as all moneys due to him in respect of advances
made or expenses properly incurred and his agreed remuneration.
The agent should not make secret profit.
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Business Law
(vii) When an agency is terminated by the principal dying or becoming of unsound

mind, the agent must take, on behalf of the representatives of his late principal,
all reasonable steps for the protection and preservation of the interests
entrusted to him.
(viii) Subject to certain exceptions, an agent must not further delegate his authority
to another person, but perform the work of agency himself.
51
Rights
(i)
Agents authority in an emergency

An agent has authority, in an emergency to do all such acts for the purpose of
protecting his principal from loss as would be done by a person of ordinary
prudence, in his own case, under similar circumstances.
(ii)
Agents right of retainer

An agent may retain, out of any sums received on account of the principal in
the business of the agency, all moneys due to himself in respect of advances
made or expenses properly incurred by him in conducting such business, and
also such remuneration as may be payable to him for acting as agent.
(iii)
Agents right of lien

In the absence of any contract to the contrary, an agent is entitled to retain
goods, papers and other property, whether movable or immovable, of the
principal received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid or accounted
for to him.
52
Misconduct by agent
It is the duty of an agent to act diligently as a man of ordinary prudence. He must
compensate his principal in respect of the direct consequences of his negligence.
Zakir being an agent of Aslam is responsible for his misconduct due to which Aslam
had to pay Naveed. Therefore, Aslam is justified in his suit.
53
Substituted agent
Where an agent, holding an express or implied authority to name another person to
act for the principal in the business of the agency, has named another person
accordingly, such person is a substituted agent, and an agent of the principal for such
part of the business of the agency as is entrusted to him.
The original agent is not responsible to the principal for the acts or negligence of the
substituted agent so selected if he has exercised in selecting such agent the same
amount of discretion as a man of ordinary prudence would exercise in his own case.
54
Irrevocable agency
The principal may revoke the authority of the agent, at any time before the agent has
exercised his authority so as to bind the principal.
58
However, the following are the exceptions to the above provision:
55
(a)
Where an agent has himself an interest in the property forming subject matter of
the agency.
(b)
Where the agent has partly exercised the authority
(c)
Where an agent has incurred a personal liability the agency becomes

irrevocable.
Duties of partner
Section 16(a) of the Partnership Act
Personal profits earned by partners
No, Talha and Umair are not liable to share such profits with Sohail as this transaction
was not within the scope of the partnership.
Subject to the contract between the partners, the partner shall account for that profit
and pay it to the firm, which:
56
(a)
he derives for himself, from any transaction of the firm, or from the use of the
property or business connection of the firm or the firms name; or
(b)
he made for himself, from carrying on any business of the same nature as and
competing with that of the firm.

Right of Pervez to share subsequent profits
In the absence of a contract to the contrary, Pervez has an option either:
57
(a)
to claim such share of the profits of the firm, earned after he ceased to be a
partner, as may be attributable to the use of his share of the property of the firm;
or
(b)
to claim interest at the rate of six percent per annum on the amount of his share
in the property of the firm.

Mutual rights and liabilities of partners
In the absence of any express contract:
(i)
every partner has a right to take part in the conduct of the business;
(ii)
every partner shall have the right to express his opinion before a matter is
decided. Any difference arising as to ordinary matters connected with the
business may be decided by a majority of the partners, but no change may be
made in the nature of the business without the consent of all the partners;
(iii)
every partner has a right to have access to and to inspect and copy any of the
books of the firm;
(iv)
a partner is not entitled to receive remuneration for taking part in the conduct
of the business;
(v)
the partners are entitled to share equally in the profits earned and shall
contribute equally to the losses sustained by the firm;
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Business Law
(vi)
where a partner is entitled to interest on the capital subscribed by him such

interest shall be payable only out of the profits;
(vii)
a partner making, for the purposes of the business, any payment or advance
beyond the amount of capital he has agreed to subscribe, is entitled to
interest thereon at the rate of six percent per annum;
(viii)
the firm shall indemnify a partner in respect of payments made and liabilities
incurred by him:
in the ordinary and proper conduct of the business, and
in doing such act, in an emergency, for the purpose of protecting the firm
from loss, as would be done by a person of ordinary prudence, in his own
case, under similar circumstances; and
(ix)
58
a partner shall indemnify the firm for any loss caused to it by his willful neglect
in the conduct of the business of the firm.
Liabilities
Section 25 to 27 of the Partnership Act
(i)
Liability of a partner for acts of the firm

Every partner is liable jointly with all the other partners and also severally for all
acts of the firm done while he is a partner.
(ii)
Liability of the firm for wrongful acts of a partner

Where, by the wrongful act or omission of a partner acting in the ordinary
course of the business of a firm, or with the authority of his partners, loss or
injury is caused to any third party, or any penalty is incurred, the firm is liable to
the same extent as the partner.
Although the firm is liable to the third party for the loss caused to him (third
party) by fraud committed by a partner, but, as between the partners, the same
must be borne by the partner committing the fraud and cannot be shared
among all the partners.
(iii) Liability of firm for misapplication of money or property by a partner

The firm is liable to make good the loss where:
59
A partner acting within his apparent authority receives money or property

from a third party and misapplies it, or
A firm in the course of its business receives money or property from a third
party, and the money or property is misapplied by any of the partners while
it is in the custody of the firm.
Implied authority
Partners act not under implied authority
In the absence of any usage or custom of trade to the contrary, the implied authority
of a partner does not empower him to:
(a) submit a dispute relating to the business of the firm to arbitration,
(b) open a banking account on behalf of the firm in his own name,
60
(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding filed on behalf of the firm,
(e) admit any liability in a suit or proceeding against the firm,
(f)
acquire immovable property on behalf of the firm,
(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.
60
Holding out
If a person represents to the outside world by words spoken or written or by his
conduct or by lending his name, that he is a partner in a certain partnership firm, he
becomes liable as a partner in that firm to anyone who has on the faith of such
representation granted credit to the firm, whether the person representing himself or
allowing himself to be so represented does or does not know that the representation
has reached the person so giving credit.
The doctrine of holding out or estoppel does not extend to:
Where after a partners death the business is continued in the old firm name the
continued use of that name or of the deceased partners name as a part thereof shall
not of itself make his legal representative or his estate liable for any act of the firm
done after his death.
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Rights of transferee of a partners interest
Where a partners interest is transferred, the transferee does not become a partner
and similarly the transferor does not cease to be a partner. Therefore, Adil would not
be considered as a partner in the firm.
Rights of Adil:
Adil would be entitled only to receive the share of the profits of the firm to which
Fauzia is entitled. He would be bound to accept the account of profits agreed to by
the partners.
Upon dissolution of the firm or, in case, if Fauzia ceases to be a partner, Adil would
be entitled, as against the remaining partners, to receive the share of the assets of
the firm, to which Fauzia was entitled and for the purpose of ascertaining that share
he would be entitled to ask for the accounts as from the date of the dissolution.
Restrictions on Adil:
Adil would not be entitled, during the continuance of the partnership:
(i)
to interfere in the conduct of the business; or
(ii)
to require accounts; or
(iii)
to inspect the books of the firm.
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62
The property of the firm
Subject to the contract between the partners, the property of the firm includes:
(i)
all property and rights and interests in property originally brought into the stock
of the firm or
(ii)
all property acquired by purchase or otherwise, by or for the firm or for the
purposes and in the course of the business of the firm,
(iii) the goodwill of the business.

(iv) property and rights and interests in property acquired with money belonging to
the firm unless the contrary intention appears.
The shop is not property of the firm as Irfan has bought it with the firms money and
by debiting it in his account, he showed his intention of taking the money as loan.
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Minor
D becomes a partner in the firm after 6 months of the date on which he became
aware of the fact that he was entitled to the benefits in the firm i.e. on 16th February
2008. Therefore, he shall be liable to share the losses of the firm, incurred thereafter.
His failure to announce his decision will have no bearing on the situation.
64
Promissory notes
Section 4 of the Negotiable Instruments Act
(i)
It is not a promissory note as promise to pay is not unconditional.
(ii)
It is a valid promissory note containing all the essential elements.
(iii)
It is not a promissory note as the payment is not in terms of money only.
(iv) It is not a promissory note as the amount payable under it is not certain.
(v)
It is not a promissory note as the payee in the instrument is not certain.
(vi) It is a valid promissory note. It is not considered to be conditional, for it is

certain that Salik will die, though the exact time of his death is uncertain.
(vii) It is not a promissory note as it lacks unconditional undertaking. There is only
an acknowledgement of indebtedness.
65
Presumptions of negotiable instrument

Section 118 to 119 of the Negotiable Instruments Act
Unless the contrary is proved, the following presumptions shall be assumed in
respect of all negotiable instruments:
(i)
Consideration: that every negotiable instrument whenever made, drawn,

accepted, endorsed, negotiated or transferred, was accepted, endorsed or
transferred for consideration;
(ii)
Date: that every negotiable instrument bearing a date was made / drawn on
such date;
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(iii)
Time of acceptance: that every accepted bill of exchange was accepted

within a reasonable time after its date and before its maturity;
(iv)
Time of transfer: that every transfer of a negotiable bill of exchange was

transferred within a reasonable time after its date and before its maturity;
(v)
Order of endorsements: that the endorsements appearing on a negotiable

instrument were made in the order in which they appear thereon;
(vi)
Stamps: that a lost promissory note, bill of exchange or cheque was duly
stamped;
(vii) That the holder is a holder in due course;

Provided that, where the instrument has been obtained from any person in
lawful custody thereof by means of an offence or fraud or for unlawful
consideration, the burden of proving that the holder in due course lies upon
him (the holder).
(viii) Presumption on proof of protest: In a suit upon an instrument which has
been dishonoured, the court shall, on proof of the protest, presume the fact of
dishonour, unless and until such fact is disproved.
66

Enforceability of Inchoate stamped instruments
If a person becomes a party to an inchoate stamped instruments before its
completion, inchoate stamped instrument may on completion, be enforceable against
such person provided it is filled up within a reasonable time and strictly in accordance
with the authority given.
Provided that if any such instrument after completion is negotiated to a holder in due
course, it shall be valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up within a reasonable time and strictly in accordance
with the authority given.
Extent of liability
The person so signing shall, subject to the above provisions, be liable upon such
instrument, in the capacity in which he signed the same, to any holder in due course,
for the amount specified in the instrument or filled upon therein.
Provided that no person other than a holder in due course shall receive from the
person so signing the paper anything in excess of the amount intended by him to be
paid there under.
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Where an instrument may be construed either as a promissory note or a bill of
exchange, it is called an ambiguous instrument.
Yes, ambiguous instruments are negotiable.
Examples:
(i)
Where the drawer and drawee are the same person.
(ii)
Where the drawee is a fictitious person.
(iii)
Where the drawee is incompetent to contract.
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Business Law
68

Where a cheque payable to order purports to be endorsed by or on behalf of the
payee, the drawee is discharged by payment in due course. Therefore the banker is
discharged from liability as a banker is not expected to know the signatures of payees
who are not the clients of the bank.
On the other hand, a banker paying a cheque on which the drawer's signature is
forged is responsible and should bear the loss.
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Cheque
(a)
Cheque
A cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand.
Essential elements of a valid cheque:
Following are the essential elements of a valid cheque.
(i)
It must be in writing,
(ii)
It must contain an unconditional order to pay,
(iii)
It must contain an order to pay in terms of money,
(iv)
It must contain an order to pay a definite amount of money,
(v)
The parties to the cheque must be certain (real),
(vi)
It must be signed by the drawer,
(vii)
It must be drawn on a specified banker,
(viii) It must be payable on demand.

(b)
Who can cross the cheque after issue

Following persons can cross the cheque:
(i)
Holder
(ii)
Banker
Crossing of cheque after issue

(i)
Where a cheque is uncrossed, the holder may cross it generally or

specially.
(ii)
Where a cheque is crossed generally, the holder may cross it specially.
(iii)
Where a cheque is crossed generally or specially, the holder may add

the words not negotiable.
(iv)
Where a cheque is crossed specially, the banker to whom it is crossed

may again cross it specially to another banker, his agent, for collection.
(v)
When an uncrossed cheque, or a cheque crossed generally, is sent to

a banker for collection, he may cross it specially to himself.
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70
Bill of Exchange
The liabilities incurred by the drawer of a bill are as follows:
71
(i)
on due presentment, the bill shall be accepted. and paid according to its
tenor, and that
(ii)
if the bill is dishonoured, the drawer shall compensate the holder or any
endorser who is compelled to pay it, provided that due notice of dishonour
of the bill is given to or received by the drawer.
(iii)
until acceptance, the drawer is liable thereon as principal debtor.
Holder, Holder in due course, Payment in due course

(i)

Payment in due course implies the following:
The payment is in accordance with the apparent tenor of the instrument.
The payment is made in good faith and without negligence.
The payment is made to a person in possession of the instrument
The payment is honestly made in the bonade belief that the person
demanding payment is legally entitled to it.
(ii)
Holder
The holder of a negotiable instrument means
any person entitled to the possession of the instrument in his own name
and to receive or recover the amount due thereon from the parties liable
thereto.
(iii)
Holder in due course

Holder in due course means any person who for consideration becomes the
possessor of a promissory note, bill of exchange or cheque if payable to
bearer, or the payee or endorsee thereof, if payable to order, before it
becomes overdue, without notice that the title of the person from whom he
derived his own title was defective.
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Material alteration
Section 20, 87 and 89 of the Negotiable Instruments Act
In the following situations, the alteration does not prejudice the rights and liabilities
of the parties to a negotiable instrument :
(i)
Alteration made for the purpose of correcting a mistake or a clerical error.
(ii)
Alteration made to carry out the common intention of the original parties.
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Business Law
(iii)
Alteration made with the consent of the parties liable on the instrument.
(iv)
Conversion of bearer cheque into an order cheque.
(v)
Crossing of an uncrossed cheque.
(vi)
Filling blanks in the case of inchoate or incomplete instruments
(vii)
Conversion of blank endorsement into an endorsement in full.
(viii)
Making qualified acceptance.
(ix)
Alteration which is the result of an accident, e.g., mutilation by washing,

ravages by white ants, document torn by a child, document burnt in part by
the hot end of a cigarette.
(x)
Alternation made before the instrument is issued.
66
SECTION

Business Law
Part B - Company Law

Objective test and
long-form answers
73

A company shall be deemed to be a subsidiary of another when:
(i)
that other company directly or indirectly:
owns or holds or control more than fifty percent of its voting securities or
has power to elect and appoint more than fifty percent of its directors: or
(ii) the first mentioned company is a subsidiary of any company or body corporate
which is that others subsidiary
74
Association NFP
(a)
The Commission may grant a licence and direct that the Alfalah Associates be
registered as a company with limited liability, without the addition of the words
"Limited", to its name, if Alfalah Associates satisfies the following conditions:
(i)
It should be capable of being formed as a limited company.
(ii)
It should be formed for promoting commerce, art, science, religion, sports,

social services, charity or any other useful object.
(iii)
It applies or intends to apply its profits/income in promoting its objects.
(iv)
It prohibits the payment of any dividend to its members.
(v)
A licence may be granted on such conditions and regulations as the

Commission thinks fit and those conditions and regulations shall be
binding on the association and shall, if the Commission so directs, should
be inserted in the memorandum and articles, or in one of those
documents.
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Business Law
(b)
75
The licence may be revoked at any time by the Commission after giving a notice
in writing of its intention and shall afford Alfalah Associates an opportunity of
submitting a representation in opposition to the revocation. On revocation of the
licence, the registrar shall enter the word Limited at the end of the name of the
Alfalah Associates in the register, and Alfalah Associates will be required to use
the name as entered in the register.
Private company
A private company is a company which, by its articles of association
Restricts the right of members to transfer the shares
Restricts the right of members to fifty
Prohibits the invitation of subscriptions against its securities from general

public.
And any company which is not a private company, is a public company
76
KRL
Kaghan Resham Limited (KRL) is the holding company of Naran Silk Limited (NSL)
as KRL holds more than 50 percent shares of NSL
NSL is the holding company of Thandyani Ice-creams Limited (TIL) as NSL can
appoint more than fifty percent directors of TIL
So as per the definition of the holding and subsidiary company under the Ordinance,
KRL is also the holding company of TIL
77
Fajita
June 10, 2010
Warsi family
Fajita Specialists
Subject: Opinion regarding incorporation of Fajita Specialists as a Limited
Liability Company
Respected members of the Warsi family
As per companys ordinance 1984, any association, partnership or company formed
for the purpose of carrying on any business shall be required to be registered as a
company under the Ordinance if it consists of more than twenty persons. However if
the association or company is a joint family carrying on joint family business then
they shall not be required to be registered as a Company under the Companies
Ordinance 1984.
As your business is a joint family business carried on by a joint family, it shall not be
required to be registered as a company even if its number of members exceeds
twenty.
If you require any further information regarding the matter, the undersigned shall be
pleased to assist.
Kind regards
Corporate Advisor
68
Section D: Part B - Company Law
78
Zouk
The Companies Ordinance 1984 requires the company to forward a copy of
Memorandum of Association and Articles of Association on the request of a member
only on payment of certain xed fee. Any unconcerned person cannot demand such
copies from the company. So Arizona Grill Limited is not bound to provide such
copies to Mr Zouk.
79

Any association partnership or company consisting of more than twenty members
cannot be formed for the purpose of carrying on any business for acquisition of gain
unless it is registered as a company under the Companies Ordinance, 1984, except in
the following cases:
80
(i)
Any society, body or association other than a partnership, formed or

incorporated under any other Pakistani law.
(ii)
A joint family carrying on joint family business.
(iii)
A partnership of two or more joint families where the total number of

members of such families, excluding the minor members, does not
exceed twenty.
(iv)
Partnership formed to carry on practice of any profession where practice as a

limited liability company is not permitted under the relevant laws or regulations
for such practice.
A company shall not commence any business or exercise any borrowing powers
unless:
(i)
Shares held subject to the payment of the whole amount thereof in cash have
been allotted to an amount not less in the whole than the minimum
subscription;
(ii)
Every director of the company has paid to the company full amount on each
of the shares taken or contracted to be taken by him;
(iii)
No money is or may become liable to be repaid to applicants for any shares

or debentures which have been offered for public subscription by reason of
any failure to apply for or to obtain permission for the shares or debentures to
be dealt in on any stock exchange.
(iv)
There has been led with the registrar a duly veried declaration by the chief
executive or one of the directors and the secretary in the prescribed from that
the aforesaid conditions have been complied with and the registrar has issued
a certicate of commencement of business; and
(v)
In the case of a company which has not issued a prospectus inviting the
public to subscribe for its shares, a statement in lieu of prospectus has been
led with the registrar.
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Business Law
81

(a) (i)
(ii)
According to the Companies Ordinance, 1984 a company may alter the

memorandum with respect to the objects of the company so far as may be
required to enable it to:
carry on its business more economically or more efficiently; or
attain its main purpose by new or improved means; or
enlarge or change the local area of its operations; or
carry on some business, not being a business specified in its

memorandum, which may conveniently or advantageously be combined
with the business of the company; or
restrict or abandon any of the objects specified in the memorandum; or
sell or dispose of the whole or any part of the undertaking of the

company; or
amalgamate with any other company or body of persons.
A Special Resolution authorising the change has to be passed.
(iii) The alteration shall not take effect until and except in so far as it is
confirmed by the Commission.
Before confirming the alteration, the Commission must be satisfied:
that sufficient notice has been given to every holder of debentures of the
company, and to any person or class of persons whose interest will, in
the opinion of the Commission, be affected by the alteration; and
that, with respect to every creditor who in the opinion of the Commission
is entitled to object and who signifies his objection in manner directed by
the Commission, either his consent to the alteration has been obtained
or his debt or claim has been discharged or determined, or has been
secured to the satisfaction of the Commission.
(iv) A certified copy of the order of the commission along with the altered
memorandum is required to be filed with the registrar, within 90 days of the
order.
(b) The shareholders objection is not valid, because an alteration to change the
place of registered office of a company from one city or town in a province to
another does not require confirmation by the Commission.
82
MOA alteration
The commission may confirm the alteration in the memorandum of association
of the company if it is satisfied that:
(i)
Sufficient notice has been given to every debenture holder of the

company, and to any person or class of persons whose interest will, in the
opinion of the Commission, be affected by the alteration; and
(ii)
With respect to every creditor who in the opinion of the Commission is

entitled to object, and who signifies his objection in the manner directed by
the Commission either his consent to the alteration has been obtained or
his debt or claim has been discharged or determined, or has been
secured to the satisfactions of the Commission.
70
On confirmation of the alteration in the memorandum, the company shall file

with the registrar, a certified copy of the order confirming the alteration, together
with a printed copy of the memorandum as altered, within ninety days, from the
date of the order.
83
(a)
Section 26 & 27,Companies Ordinance, 1984

(i)
The company may adopt all or any of the regulations specified in Table A in
the First Schedule to the Companies Ordinance, 1984 in its articles of
association.
(ii)
The articles of the company shall be explicit and without ambiguity and also
list and enumerate the voting and other rights attached to the different
classes of shares and other securities to be issued by it.
(iii)
The Articles of Association shall be:

printed
divided into paragraphs numbered consecutively
signed by each subscriber
dated
(b)
Section 26, Companies Ordinance, 1984

The articles of association sets out regulations for the company and are
required to be registered along with the memorandum, with the registrar.
These must be signed by the subscribers to the memorandum.
(c)
Section 28 & 36, Companies ordinance, 1984

(i)
Subject to the conditions of the companys memorandum the Articles

of Association are allowed to be altered after its registration. A
company may by passing a special resolution make alteration or
addition to its articles. Any alteration or addition made is as valid as if
originally contained in the articles.
(ii)
Where such alteration affects the substantive rights or liabilities of

members or of a class of members, the special resolution shall be
passed only if a majority of at least three-fourths of the members or of
the class of members affected by such alteration, vote for such
alteration, personally or through proxy.
(iii) When an alteration is made in the articles of a company, such

changes are required to be made in every copy of the articles issued
after the date of the alteration.
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MOA Nil capital

The memorandum of association of a company limited by guarantee shall include the
following clauses.
a.
Name clause
The first clause of the memorandum is the name clause of the company which contains
the name of the company with the addition of the words Guarantee Limited in case of a
company limited by guarantee.
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Business Law
b.
Registered office clause
For registered ofce clause the province or the part of Pakistan not forming part of a
province, as the case may be, in which the registered ofce of the company is to be
situated.
c.
Object clause
This clause of the memorandum clause contains the objects of the company and,
except in the case of a trading corporation the territories to which they extend.
d.
Liability clause
In case of a company limited by guarantee, the liability clause states that the liability of
the members is limited. In case of a company limited by guarantee, the following
additional sentences are added, that each member undertakes to contribute to the
assets of the company in the event of it being wound up while he is a member or within
one year afterwards, for payment of the debts and liabilities of the company contracted
before he ceases to be a member, and of the costs, charges and expenses of winding
up, and for adjustment of the rights of the contributories among themselves such
amount as may be required, not exceeding a specied amount.
85

As per the Ordinance a company can alter the object or registered ofce clause of its
memorandum of association only if any of the following can be proved to the
satisfaction of the Commission:
to carry on its business more economically or more efciently; or
to attain its main purpose by new or improved means; or
to enlarge or change the local area of its operations; or
to carry on some business, not being a business specied in its memorandum,
which may conveniently or advantageously be combined with the business of the
company; or
to restrict or abandon any of the objects specied in the memorandum; or
to sell or dispose of the whole or any part of the undertaking of the company; or
to amalgamate with any other company or body of persons.
The alteration shall not take effect until and except in so far as it is conrmed by the
Commission on petition of the company led for this purpose.
86
Incorporation
Registration of a company is actually registration of the certicate of memorandum of
the company as the memorandum is actually a charter of the company. For registration
of a memorandum of association, it shall be led with the registrar of companies. A
declaration of compliance (on Form 1) with requirements of the Ordinance in getting
the company registered shall be provided to the registrar along with the memorandum.
Registrar shall register the memorandum of association only if it is satised that:
the company is being formed for lawful purposes,
none of its objects stated in the memorandum is inappropriate or deceptive or
insufciently expressive and
all the requirements of this Ordinance and the rules made thereunder have been
complied with in respect of registration.
72
If the registrar of companies for any reason refuses the registration of the
memorandum, the company may le an appeal before a registrar higher in rank or
ultimately to the commission if no relief is received against such a refusal. Order of
Commission on such appeal shall be nal.
87
Name
When selecting the name it should be considered that the name:
is not inappropriate or deceptive;
is not designed to exploit or offend the religious sentiments of the people;
is not a name identical with the name of the company already registered and
does not closely resemble with the name of the company already registered
under the Ordinance, except where the company in existence, is in the course of
being dissolved and signies its consent in granting its name to the new company
in such manner as the registrar requires.
Whatever name is proposed, the nal authority to decide whether or not a name is in
line with the provisions of the Ordinance lies with the Commission.
88
Disallowed name
Where a company has, due to any reason, been registered with a name which is not
permitted by the Ordinance, the company may, on its own, change the name with the
approval of the registrar.
The registrar may also direct the company to change its name within thirty (30) days of
the receipt of such directions. The registrar cannot issue any direction in this regard
after the expiration of three years from the date of registration of the name of the
company.
The registrar shall give to the company an opportunity of being heard before issuing
such direction.
89

Section 92 and 94
The company may increase the authorized capital subject to the following
conditions:
90
(i)
Increase is allowed under the articles of association.
(ii)
Alter the capital clause of memorandum of association.
(iii)
Pass a special resolution.
(iv)
File a notice of the increase of capital along with the special resolution with
the registrar within 15 days of passing of resolution. The notice shall include
particulars of the shares to be affected and the conditions, if any, subject to
which the new shares are issued.

(a)
Following conditions would have to be complied with by the aggrieved

shareholders.
(i)
Their holding should be at least ten percent of the total class B shares.
(ii) Application must be led within thirty days of the date of passing of special
resolution.
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Business Law
(b)
91
The Court shall pass an order for cancellation of the resolution only if it is
satised that some facts having impact on the decision of the shareholders
were withheld by the company in getting the special resolution passed or, the
variation in rights would unfairly prejudice the shareholders of the class
represented by the applicant.

Company is not entitled to buy its shares from the members. Further, company is also
forbidden to buy the shares of its holding company. However as an exception, If
subsidiary carries on a bona de business of brokerage, then company can deal in the
shares of its holding company but in this case as well, the company shall not exercise
voting rights on the shares of the holding company held by it.
As a further exception, if a subsidiary company provides service of a trustee for shares
and people buy the shares and place them in the subsidiary company as trustee then
such subsidiary, while acting as a subsidiary can hold the shares of the holding
company in trust as well but benecial ownership of those shares should not be in the
name of the subsidiary company itself or the holding company.
92
Objections
The resolution to vary the rights of the members needs approval by three fourth
majority of the members of the particular class affected by the variation. However, r any
member or members of the affected class representing at least ten percent
shareholding of that class may apply to the court for an order against the resolution
varying their rights. The court has got the powers to declare the resolution null and void
if it feels that either;
the company withheld certain facts while getting the resolution passed. Had the
members been in knowledge of those facts, they would not have passed the
resolution varying the rights of a particular class; or
the change is otherwise prejudicial to the interest of members.
Such application for getting an order against the resolution should be led by the
persons aggrieved by the change within 30 days of the date of resolution. The decision
of the court on such matter shall be nal and appeal cannot be led against such
decision and the company is required to le a copy of the order of the court to the
registrar within fourteen days of receipt of the order.
93
Prospectus consent of expert

(a) "Expert" includes an engineer, a valuer, an accountant and every other person
whose profession gives authority to a statement made by him.
(b) A prospectus which includes a statement made by an expert shall not be issued,
unless:
(i)
The expert has given his written consent to the issue thereof with the
statement included in the form and context in which it is included and has
not withdrawn such consent before the delivery of a copy of the prospectus.
for registration; and
(ii)
A statement that he has given and has not withdrawn his consent as
aforesaid appears in the prospectus.
74
94
Prospectus publication and availability

(a)
Section 53(2), Companies Ordinance,1984

The advertisement of a prospectus is required to be published in a
newspaper not less than seven days and not more than thirty days
before the subscription list, is due to open.
Since, Deo Limited published the prospectus on March 1, 20X4, which is more
than 30 days before the subscription list was due to open i.e. April 5, 20X4. The
Company is in violation of the requirements of above provision of Law.
However, the Commission may, for special reasons, allow the company to
publish the prospectus more than thirty days before the subscription list is due
to open.
(b)
Section 53 (1A),Companies Ordinance,1984

Deo Limited is required to make available sufficient number of copies of its
prospectus at the following places:
95
(i)
registered office of the company,
(ii)
with the stock exchange at which the company is listed or proposed to be

listed; and,
(iii)
with the bankers to the issue,
Prospectus - registration
Section 52, 53 , 54, 55, 57
The registrar shall not register a prospectus unless the following requirements
have been complied with:
i)
Prospectus is dated.
ii) It shall state the matters and reports specified in the Second Schedule.
iii) Experts whose statements are included have not been connected with the
formation, promotion or management of the company.
iv) Experts whose statements are included in the prospectus have given written
consent for issue of such statements.
v) All requirements regarding approval, issue and registration have been
complied with.
vi) The prospectus is accompanied by the written consent of the auditor, legal
adviser, attorney, solicitor, banker and the broker who have agreed to act
in that capacity.
96

Mr. Zafar shall not incur any liability by reason of any non-compliance with, or
contravention of, any of the requirements of Companies Ordinance, 1984 related to the
prospectus, if
(a)
he proves that he had no knowledge regarding the matter not disclosed.
(b)
he proves that the non-compliance or contravention arose from an honest mistake

of fact on his part; or
(c)
that non-compliance or contravention was in respect of matters which, in the
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Business Law
opinion of the registrar or officer dealing with the case, were immaterial, or was
otherwise such as ought, in the opinion of that registrar or officer, as the case may
be, having regard to all the circumstances of the case, reasonably to be excused.
97
The amount of minimum subscription must be stated in the prospectus. This includes:
98
Purchase price of property to be purchased.
Preliminary expenses including underwriting commissions etc.
Repayment of any money borrowed for above matters.
Working capital.
Any other expenditure.
If the company intends to meet all or any of the above needs from any source
other than the issue of shares, such source shall be disclosed.
Face of prospectus
Following matters shall be stated on the face of the prospectus:
99
That a copy of this prospectus has been filed with the registrar for registration
purpose.
List of documents or a reference to any note in the prospectus containing the list
of documents that were filed with the registrar along with the copy of the
prospectus when it was filed for registration.
That an application for listing of the shares or debentures offered under the
prospectus has been filed or shall be filed with the stock exchange.

(a)
The following mortgages and charges, if not registered, would be treated as

void:
(i)
for the purpose of securing any issue of debentures.
(ii)
on uncalled share capital of the company.
(iii)
on any immovable property wherever situated, or any interest therein.
(iv)
on any book debts of the company.
(v)
on any movable property of the company (not being a pledge).
(vi)
on a ship or any share in a ship.
(vii)
on goodwill, on a patent or licence under a patent, on trade mark, or

copyright or licence under a copyright.
76
(viii) or other interest based on agreement for the issue of any instrument in
the nature of redeemable capital.
(b)
(ix)
or other interest based on a Musharika agreement.
(x)
or other interest based on a hire-purchase or leasing agreement for

acquisition of xed assets.
(xi)
oating charge on the undertaking or property of the company, including

stock-in-trade.
The registrar can enter in the register of mortgages and charges a

memorandum of satisfaction or release of charge without receiving any
intimation from the Company, on evidence being given to his satisfaction with
respect to any registered charge, that the:
(i)
debt for which the charge was given has been paid or satised in whole or
in part, or
(ii) part of the property or undertaking charged has been released from the
charge or has ceased to form part of the company's property or
undertaking;
100 Mortgages and charges 2

Procedure for registration of the payment or satisfaction of mortgage
(i)
A company must give intimation to the registrar of the payment or

satisfaction, in full, of any mortgage created by the company and requiring
registration, within twenty-one days from the date of the payment or
satisfaction, in full, thereof.
(ii)
The registrar, on receiving such intimation, will send a notice to the holder of
the mortgage, calling upon him to show-cause, within fourteen days of the
notice, as to why the payment or satisfaction of the charge or mortgage
should not be recorded.
(iii)
If no objection is raised by the holder of the charge, the registrar shall order that
a memorandum of satisfaction be entered in the register.
(iv)
If any objection is received, the registrar shall record a note to that effect in the
register, and shall inform the company about the same
101 AGM timeline

In the case of a listed company, the Commission and in any other case, the registrar,
may for any special reason extend the time within which any annual general meeting, not
being the rst such meeting, shall be held, by a period not exceeding thirty days.
102 Ordinary vs. special

(a) The following businesses transacted at a general meeting are considered as
ordinary businesses:
(i)
consideration of the accounts and balance-sheets
(ii)
the presentation of the reports of the directors and auditors,
(iii)
declaration of a dividend,
(iv)
appointment and xation of remuneration of auditors
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Business Law
(v)
election or appointment of directors
Any business other than those specified above is termed as special business.
(b) Where any special business is to be transacted at a general meeting, a
statement setting out all material facts concerning such business, including, the
nature and extent of interest, whether directly or indirectly, therein of every
director, must be annexed to the notice of the meeting.
Further, where any business transaction requires an approval to any document
by the meeting, the time when and the place where the document may be
inspected must be specified in the statement annexed to the notice.
103 AGM and EGM

The exception to the statements given in the question are as under:
(a)
The Commission for any special reason may on the application of such
company allow the company to hold a particular meeting at any other places.
(b)
In the case of an emergency affecting the business of the company the

registrar may on the application of the directors authorize such meeting to be
held at such shorter notice as he may specify.
104 Polling
(a)
(b)
If Mr. Shakeel intends to make a request for a poll, the chairman of the meeting
would be required to accept his request provided the request is supported:
(i)
in the case of a public company, by at least five members having the right
to vote on the resolution and present in person or by proxy;
(ii)
in the case of a private company, by one member having the right to vote
on the resolution and present in person or by proxy if not more than seven
such members are personally present, and by two such members present
in person or by proxy if more than seven such members are personally
present.
(iii)
by any member or members present in person or by proxy and having not

less than one-tenth of the total voting power in respect of the resolution.
(iv)
by any member or members present in person or by proxy and holding

shares in the company conferring a right to vote on the resolution, being
shares on which an aggregate sum has been paid up which is not less
than one-tenth of the total sum paid up on all the shares conferring that
right.
When a poll is taken, the chairman or his nominee and a representative of the
members demanding the poll i.e. Mr.Shakeel and members requesting the poll,
shall scrutinize the votes given on the poll. However, the results of the poll shall
be announced by the chairman of the meeting.
105 Minutes
Every company shall enter a fair and accurate summary of the minutes of all
proceedings of general meetings in the properly maintained minute book along with
the names of those participating in the meetings.
Minute are required to be signed by the chairman of the general meeting or by
78
the chairman of the next succeeding meeting, in order to be evidence of the

proceedings.
The books containing minutes of proceedings of the general meetings must be kept at
the registered office of the company
The minutes book may be allowed/open for inspection of members without charge for
not less than two business hours in each day Subject to reasonable restrictions
imposed through its articles of association or in general meeting.
Any member shall at any time after seven days from the meeting be entitled to be
furnished, with a certified copy of the minutes of any general meeting at such charge
not exceeding the prescribed amount as may be fixed by the company.
The company shall provide, within seven days after member has made a request in
this respect, a certified copy of the minutes.
106 Meetings commencement and EGM

(a)
The statement is incorrect because private companies are not required to hold
statutory meetings. Moreover, the statutory meeting is to be held within a
period of not less than three months, or more than six months, from the date at
which the company is entitled to commence business.
(b)
In the case of an emergency affecting the business of the company, the

registrar may, on the application of the directors, authorize EOGM to be held at
such shorter notice as he may specify.
107 Quorum
(a)
Being a public listed company, the quorum of the meeting is not less than 10
members present personally who represent not less than 25% of the total
voting power, either of their own account or as proxies, unless the articles
provide for a larger number.
(b)
The quorum of the meeting should be present within half an hour from the
time for the meeting otherwise the meeting shall be dissolved as it has been
called on the requisition of members.
(c)
Since chairman of the board of directors cannot attend the meeting

therefore, any one of the directors present may be elected to be chairman.
(d)
However, if none of the directors is present or is unwilling to act as chairman,

the members present shall choose one of the members to be the chairman.
108 Members and meetings

(a)
(i)
Section 164 (1) & (2),Companies Ordinance,1984

Any member having not less than ten percent voting power in the
company may give notice of a resolution and such resolution together with
the supporting statement, if any, is required to be forwarded in such a way
so as to reach the company at least fifteen days before the meeting.
Mr. Dinshaw holds 13.5% shares in the company i.e. more than 10%
hence he is entitled to submit the resolution to the company.
However, since the notice given by Mr. Dinshaw did not reach the
company in the prescribed time, the company cannot be held liable
for its failure to circulate the resolution.
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Business Law
(ii)
Section 173 (6) & (7),Companies Ordinance,1984

The books containing the minutes of proceedings of the general meetings
shall be open to inspection by members without charge during business
hours, subject to such reasonable restrictions as imposed by the
company through its articles of association or in the general meeting,
but not less than two hours in each day be allowed for inspection.
Any member shall at any time after seven days from the meeting be
entitled to obtain a certified copy of the minutes of any general meeting,
which shall be provided to him within seven days after he has made a
request to the company, at charges not exceeding the amount fixed by the
company.
Therefore, Mr. Dinshaw is entitled to inspect and receive the certified
copy of the minutes of the general meeting.
(iii) Section 173 (1) & (4),Companies Ordinance,1984

A fair and accurate summary of the minutes of all proceedings of
general meetings and meetings of its directors and committee of directors
is required to be maintained by every company. The names of the
participants of the meetings should also be entered in properly
maintained books.
The minutes book of the proceedings of the general meetings and
directors meetings of the company are required to be kept at the
registered office of the company.
(b)
Resolution passed at adjourned meeting-Section 169, Companies

Ordinance, 1984
Where a resolution is passed at an adjourned meeting of the creditors of a
company, the resolution shall, for all purposes, be treated as having been
passed on the date on which it was in fact passed, and shall not be deemed
to have been passed on any earlier date.
109 Circulation
Following information/ documents are required to be circulated to various stake
holders at least twenty one days prior to the meeting.
(i)
Notice of meeting specifying the place and the day and hour of the meeting
along with a statement of the business to be transacted at the meeting and in
respect of the special business, statement setting out all material facts
concerning the business, including, in particular the nature and extent of the
interest therein, if any, of every director
Every notice of a meeting of a company shall be accompanied by a proxy
form.
The notice shall be sent to the following:
(ii)
All the members;
Any person entitled to a share in consequence of death of a member if

the interest of such person is known to the company;
The auditor or auditors of the company.
Being a listed company, such notice shall also be published at least in one
daily newspaper in English language and a daily newspaper in Urdu language
having circulation in the Province in which the stock exchange on which the
80
company is listed is situated.

(iii)
Copies of draft resolutions, which are proposed for consideration in the

meeting.
(iv)
Every company shall also send:
copy of audited balance sheet and Profit and loss account
copy of auditors report
Directors report
The above should be sent to the following:
the registered address of every member of the company
Securities & Exchange Commission
Stock exchange
Registrar.
Section 158, 160, 161 and 164
110 Representation and proxy

(a)
A company which is a member of another company may by resolution of the

directors, authorize any of its officials or any other person to act as its
representative at the meeting of that other company.
Representation of corporation at meetings of companies
(Section 162)
(b)
The instrument appointing a proxy shall:
be in writing and
be under company seal or be signed by an officer or an attorney duly

authorized.
The proxy shall be lodged with the company not later than forty-eight hours
before the time of the meeting.
Proxies Section 161 (3b & 5)
111 EOGM and special business

(a)
(i)
All general meetings of a company other than Annual General Meeting

and Statutory Meeting shall be called EOGM.
(ii)
The minimum notice period for calling an EOGM is 21 days.

In case of emergency affecting the business of the company, the registrar
may on the application of the directors, authorize such meeting to be held
at such shorter notice as he may specify.
Calling of extra ordinary general meeting, (Section 159-7)

(b)
All businesses transacted at an extraordinary general meeting or annual

general meeting, shall be treated as special business except the following:
declaration of dividend,
consideration of the accounts, balance sheet and the reports of the

directors and auditors,
81
Business Law
election of directors,
appointment and fixing of the remuneration of auditors.
Examples:
(i)
Disposal of a significant business segment of company.
(ii)
Investment in associated undertaking.
Provisions as to the meetings and votes, (Section 160 - b)
112 Special resolutions

Section 2
Special resolution means a resolution which has been passed by a majority of not
less than three-fourths of such members at a general meeting of which not less than
twenty-one days notice specifying the intention to propose the resolution as a
special resolution has been duly given.
If all the members entitled to attend and vote at any such meeting so agree, a
resolution may be proposed and passed as a special resolution at a meeting of
which less than twenty-one days notice has been given.
113 Auditors certificate

Auditors certificates on statutory report
The statutory report should be accompanied by an auditors certificate in respect of
correctness or otherwise of:
allotment of shares
cash received against share allotted and
receipts and payments account of the company.
114 Commission GM
Commission has got the powers to call general meetings of the company if the
company fails to
a)
Call a general meeting
b)
Call a statutory meeting or
c)
Call an extraordinary general meeting on the requisition of the members.
115 Subsequent CEO

The statement is incorrect.
Any chief executive (first or subsequent) is appointed by the directors within fourteen
days from the date of their election or within fourteen days of the office of the chief
executive falling vacant.
The chief executive, other than the first chief executive of the company, is appointed
for a period not exceeding three years.
82
116 CEO removal and competitors

(a)
Mr. Zameer being appointed as the first chief executive of Ryan Industries
Limited, will hold office up to the first annual general meeting of the company or
if a shorter period is fixed by the directors at the time of his appointment, on
expiry of such period unless he earlier resigns or ceases to hold office.
Since the directors are not satisfied with the performance of Mr. Zameer they
can remove him by a resolution passed by not less than three-fourths of the
total number of directors for the time being, or by passing a special resolution
in the general meeting of the company, notwithstanding anything contained in
the articles or in any agreement between the company and Mr. Zameer.
(b)
Chief executive of a public company shall not directly or indirectly engage in

any business which is of the same nature as and directly competes with the
business carried on by the company of which he is the chief executive or by a
subsidiary of such company.
A business shall be deemed to be carried on indirectly by the chief executive if
the same is carried on by his spouse or any of his minor children.
Every person who is appointed as chief executive of a public company shall
forthwith on such appointment disclose to the company in writing the nature of
such business and interest therein.
117 Casual vacancy

Alpha Securities Limited (ASL) is a public company and is required to have at least
three members as well as three directors On the death of Qasim, the number of
members and directors of ASL has been reduced to two which is in contravention
of the provisions of the Companies Ordinance 1984.
The casual vacancy arising due to the death of Qasim may be filled up by Abid and
Tariq and the person so appointed would hold office for the remainder of the term of
Qasim in whose place he is appointed.
118 Election
(a) The number and names of the first directors of the company shall be determined
in writing by the majority of subscribers of the memorandum of the company and
until so determined, all the subscribers of the memorandum, who are natural
persons, shall be deemed to be the directors of the company.
The first directors shall hold office until the election of directors in the first annual
general meeting of the company.
(b) The following procedure should be followed by a private company while holding
its election of directors:
(i)
The existing directors of a company must fix the number of elected directors
of the company at least thirty-five days before the convening of the general
meeting at which directors are to be elected. The number of directors so
fixed cannot be changed except, with the prior approval of a general
meeting of the company.
(ii)
The notice of the general meeting at which election of directors is to be held

must state:
the number of elected directors fixed for election.
the names of the retiring directors.
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Business Law
(iii) The company must receive a notice of intention to offer themselves for
election as a director, from the persons who seek to contest an election,
whether they are a retiring director or otherwise, at least 14 days before the
date of the general meeting at which elections are to be held.
Any such person may at any time before the holding of election withdraw
such notice.
(iv) All notices received by the company must be circulated among the
members, not later than seven days before the date of the general meeting
in the manner provided by the company for sending of a notice of general
meeting.
(v)
The directors of the company having a share capital shall, unless the
number of persons who offer themselves to be elected is not more than the
number of directors fixed, be elected by the members of the company in
general meeting in the following manner,
A member shall have such number of votes as is equal to the product

of the number of voting shares or securities held by him and the
number of directors to be elected.
A member may give all his votes to a single candidate or divide them
between more than one of the candidates in such manner as he may
choose; and
The candidate who gets the highest number of votes shall be declared
elected as director and then the candidate who gets the next highest
number of votes shall be so declared and so on until the total number
of directors to be elected has been so elected.
119 Presence
This rule is not applicable to:
(i)
a private company which is neither a subsidiary nor a holding company of a

public company;
(ii)
any contract of indemnity against any loss which the directors, or any one or
more of them, may suffer by reason of becoming or being sureties or a
surety for the company;
(iii)
any contract or arrangement entered into or to be entered into with a public

company, in which the interest of the director aforesaid consists solely in his
being a director of such company and the holder of no more than such
shares therein as are requisite to qualify him for appointment as a director
thereof, he on being nominated as such director by the sending company.
120 Number, remuneration and assignment

(a) The statement is not in accordance with the provisions of the Companies
Ordinance 1984 because the directors shall fix the number of directors to be
elected not later than thirty-five days before the convening of the general meeting
at which directors are to be elected, and the number so fixed shall not be
changed except with the prior approval of a general meeting of the company.
84
(b) The statement is not in accordance with the provisions of the Companies
Ordinance 1984. The directors remuneration for performing extra services,
including the holding of the office of chairman, is determined by the directors or
the company in general meeting in accordance with the provisions in the articles
of association of the company.
(c) The statement is not in accordance with the provisions of the Companies
Ordinance 1984. The assignment of office is possible provided it is allowed under
the articles of association of the company and assignment is approved by a
special resolution passed by the shareholders at the general meeting of the
company.
121 Fresh elections

Any person
own name,
election of
Companies
company.
who is holding not less than 12.5% voting shares of the company, in his
may apply to the Commission for requiring the company to hold fresh
directors in accordance with the procedure laid down under the
Ordinance, 1984 in the forthcoming annual general meeting of the
The Commission may, if it deems appropriate in the interest of the company, its
minority shareholders or the capital markets generally, direct the company to hold
the election of directors in the manner provided under section 178, and the company
shall comply with such direction.
The person on whose request such elections are held shall not sell or otherwise
dispose of the shares acquired by him for at least one year from the date of election
of directors.
122 Loans
The company may grant loan to a director if he is in the whole time employment of
the company. Such loan may be granted after getting prior approval from the
Commission.
The purpose for which a company may grant the loan are as follows:
(a)
For acquisition or construction of a dwelling house or land therefore
(b)
For defraying the cost of any conveyance for personal use or household
effects
(c)
For defraying any expense on his medical treatment or the medical treatment
of any relative as are ordinarily made or provided by the company to its
employees.
123 Power
Powers of Directors.
The shareholders seem to be referring to the following powers of the directors of
RRL:
(i)
Make calls on shareholders in respect of moneys unpaid on their shares.
(ii)
Borrow moneys otherwise than on debentures.
(iii)
Invest the funds of the company.
(iv)
Make loans.
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Business Law
(v)
Incur capital expenditure on any single item or dispose of a xed asset, in

accordance with the limits prescribed.
(vi)
Undertake obligations under leasing contracts exceeding one million rupees.
(vii)
Issue shares
(viii)
Issue debentures or any other instrument in the nature of redeemable

capital.
(ix)
Declare interim dividend
(x)
Write off bad debts, advances and receivables
(xi)
Write off inventories and other assets of the company
(xii)
To authorize sale, purchase or supply contracts with interested companies

and rms
(xiii)
To approve annual, half yearly or other periodical accounts to be circulated to

members.
(xiv)
To approve bonus to employees
124 Number and casual vacancy

(a)
Section 174 & 178(1),Companies Ordinance,1984

Every public company other than a listed company shall not have less than
three directors. As Lalazar Limited has eight directors on their board,
therefore they are in compliance with the requirements of law.
The directors of a company shall x the number of elected directors of the
company not later than 35 days before the convening of the general meeting
at which directors are to be elected. The number of directors so xed shall not
be changed except with the prior approval of a general meeting of the
company.
(b)
Section 180(2),Companies Ordinance,1984

Any casual vacancy occurring among the directors may be lled up by the
directors. Mr. Aslam shall hold ofce for the remainder of the term of the
director Mr. Javed in whose place he has been appointed.
125 First and subsequent

First Directors
The names of the rst directors shall be determined in writing by a majority of the
subscribers of the memorandum until so determined; all the subscribers of the
memorandum shall be deemed to be the directors of the company.
The rst directors shall hold ofce until the election of directors in the rst annual
general meeting.
Subsequent directors are elected in the rst general meeting of the company. The
directors so elected, hold ofce for a period of three years.
First Chief executive
The directors shall appoint any individual to be the chief executive of the Company
who shall hold ofce up to the rst annual general meeting of the company or, if a
shorter period is xed by the directors as the time of his appointment, for such
period.
86
Subsequent Chief Executive

Subsequent CEO is also appointed by the Directors, but such appointment shall not
be for a period exceeding three years from the date of appointment.
126 Removal
Removal of Directors-Section 181,Companies Ordinance,1984
A company may by resolution in a general meeting remove a director appointed to fill
in the casual vacancy or a director appointed by members in a general meeting of
the company.
(i)
The situation relates to the removal of director appointed to fill in the casual
vacancy. Therefore, the number of votes cast against the resolution should not
be equal to or exceed the total number of votes for the time being computed in
a manner similar to the method used for directors election divided by the
number of directors, which in this case would be 10,000,000 x 8 8 =
10,000,000.
(ii)
Mr. Badar can be removed from his office only when the votes cast against the
resolution are less than 220,000 i.e. the minimum number of votes through
which the director was elected in the immediately preceding election of
directors.
127 Loan repayment

Section 184(1) and Section 195(4)
If the loan is obtained for the purpose of:
acquisition or construction of dwelling house;
defraying the cost of any conveyance;
defraying the cost of any household;
defraying any expense on his medical treatment;
defraying any expense on his relatives medical treatment.
Then Mr. Shams shall within fourteen days of his appointment as chief executive of
the company file with the registrar the particular of the loan taken, prior to his
becoming chief executive which could not have been taken without the prior approval
of the Commission.
If the loan is not obtained for the above purposes, then he will be required to repay
the loan before the acceptance of the position of CEO.
128 General notice of interest

General notice of ownerships and directorships
Instead of making a disclosure at separate intervals on transaction by transaction
basis, the director may give a general notice regarding his directorships in other body
corporate or partnership in firms so that he may be considered as interested in any
transaction, contract or arrangement entered into with these businesses.
Such notice should be given at the directors' meeting or the concerned director may
take reasonable steps to ensure that the notice is read by the other directors.
This general notice shall expire at the end of the financial year in which it is given and
may be replaced by fresh notice to be given in last month of financial year.
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Business Law
129 Associated company

Associated companies mean any two or more companies or a company and an
undertaking, interconnected with each other in the following manner, namely:
(a) If a person who is the owner or a partner or director of a company or
undertakings, or who, directly or indirectly, holds or controls shares carrying not
less than twenty percent of the voting power in such company or undertaking, is
also the owner or partner or director of another company or undertaking, or
directly or indirectly, holds or controls shares carrying not less than twenty
percent of the voting power in that company or undertaking; or
(b) If the companies or undertakings are under common management or control or
one is the subsidiary of another; or
(c) If the undertaking is a modaraba managed by the company; and a person who is
the owner of or a partner or director in a company or undertaking or, who also
holds or controls shares carrying not less than ten percent of the voting power in
a company or undertakings, shall be deemed to be an associated person of
every such other person and of the person who is the owner of or a partner or
director in such other company or undertaking, or who so holds or controls such
shares in such other company or undertaking.
Provided that shares shall be deemed to be owned, held or controlled by a
person if they are owned, held or controlled by that person or by the spouse or
minor children of the person.
Provided further that (i)
Directorship of a person or persons by virtue of nomination by the Federal

Government or a Provincial Government or a nancial institution directly or
indirectly owned or controlled by such Government; or
(ii) Shares owned by the National Investment Trust or the Investment

Corporation of Pakistan or a nancial institution directly or indirectly owned
or controlled by the Federal Government or a Provincial Government or
shares registered in the name of a central depository, where such shares
are benecially owned by the central depository;
Shall not be taken into account for determining the status of a company,
undertaking or person as an associated company, associated undertaking or
associated person.
130 Dividend restriction

The statement is incorrect and contains the following errors.
The chief executive of the company does not declare the dividend. He informs the
shareholders about the percentage/amount of the dividend as recommended by the
directors. The dividend is approved by the members but the dividend so approved
shall not exceed the amount as recommended by the directors.
No dividend shall be declared or paid by a company out of the prots of the company
made from the sale or disposal of any immovable property or assets of a capital
nature comprised in the undertaking(s), unless the business of the company
consists, whether wholly or partly, of selling and purchasing any such property or
assets, except after such prots are set off or adjusted against losses arising from
the sale of any such immovable property or assets of a capital nature.
88
131 Investment restriction

A company shall not make any investment in any of its associated companies or
associated undertakings except under the authority of a special resolution which shall
indicate the nature, period and amount of investment and terms and conditions
attached thereto.
Provided that the return on investment in the form of loan shall not be less than the
borrowing cost of investing company.
No change in the nature of an investment or the terms and conditions attached
thereto shall be made except under the authority of a special resolution.
132 Payment of dividend

The Chief Executive will not be punishable in the following cases:
(i)
where the dividend could not be paid by reason of the operation of any law.
(ii)
where a shareholder has given directions to the company regarding the

payment of the dividend and those directions could not be complied with.
(iii)
where there is a dispute regarding the right to receive the dividend.
(iv)
where the dividend has been lawfully adjusted by the company against any
sum due to it from the shareholder.
(v)
where for any other reason the failure to pay the dividend or to post the
warrant within the period aforesaid was not due to any default on the part of
the company.
And the commission has allowed the company to withhold or defer the payment
of dividend against an application made by the company within 45 days from the
date of declaration of dividend.
133 Dividend amendment

(i)
(ii)
Once the dividend is recommended by the Board of Directors, it may be reduced by

approval of members, in the AGM. Certain restrictions on declaration of dividend
Section 248(1)
When a dividend has been declared, it shall not be lawful for the directors to defer its
payment for more than 30 days. Hence the company cannot defer it for six months.
134 Qualification
The statement is correct however, if a person holds shares prior to his
appointment as auditor, he can still be appointed as auditor provided he disinvests
such shares within ninety days of his appointment.
135 Removal - representation

It shall not be necessary to read out the representation received from the retiring auditor,
at the meeting if on the application either of the company or of any other aggrieved
person the registrar is satised that the rights conferred by this section are being abused
to secure needless publicity for defamatory matter;
136 Removal change of auditor

The Company shall forthwith send a copy of such notice to the retiring auditor and
shall also give thereof to its members not less than seven days before the date xed
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Business Law
for the annual general meeting and shall also publish it at least in one issue each of
a daily newspaper in English Language and a daily newspaper in Urdu Language
having circulation in the Province in which the stock exchange on which the company
is listed is situated.
137 Books of accounts

(a) SQL Plastic Limited must keep proper books of account with respect to:
(i)
all sums of money received and expended by the company;
(ii) all sales and purchases of goods by the company;

(iii) all assets of the company;
(iv) all liabilities of the company; and
(v) in the case of a company engaged in production, processing, manufacturing
or mining activities, such particulars relating to utilization of material or
labour or other inputs or items of cost, or any other particulars as required by
the Commission through a general or special order to be included in the
books of accounts.
(b) As the directors of SQL Plastic Limited intend to keep the books of account at a
place other than the registered office, SQL Plastic Limited must file with the
registrar a notice in writing within seven days of the decision, giving the full
address of the other place.
138 Registrar and the directors report

(a) An unlisted company not being a private company having a paid up capital of
less than Rs. 7.5 million, must complete the following necessary formalities
before and after the AGM:
(i)
Before the AGM:

Notice of an annual general meeting must be sent to every shareholder at
least 21 days before the date of AGM along with a copy of such balancesheet and profit and loss account so audited together with a copy of the
auditors report and the directors report and shall keep a copy at the
registered office of the company for the inspection of the members of the
company during a period of at least twenty-one days before that meeting.
(ii)
After the AGM:

The company must file with the registrar two copies of the balance-sheet
and profit and loss account that have been laid before the company at the
annual general meeting and signed by the chief executive, directors,
chairman of directors or the auditors of the company in the prescribed
manner, within thirty days from the date of AGM.
(b) The contents of the directors report of a public company, as specified in the
Companies Ordinance, 1984 are as follows:
(i)
report on the companys affairs;
(ii)
the amount of recommended dividend;
(iii)
amount proposed to be carried to the Reserve Fund, General Reserve or

Reserve Account;
(iv)
disclosure of material changes and commitments affecting the financial

position of the company since the end of the financial year to which the
90
balance-sheet relates and the date of the report;

(v)
any changes concerning the nature of the business of the company or of

its subsidiaries, or in the classes of business in which the company has
interest;
(vi)
fullest information and explanation regarding any reservation, observation,

qualification or adverse remarks contained in the auditors report;
(vii)
the pattern of shareholding;
(viii) name and country of incorporation of its holding company, if any, where
such holding company is established outside Pakistan;
(ix)
earnings per share;
(x)
reasons for incurring loss and a reasonable indication of future prospects

of profit, if any;
(xi)
information about defaults in payment of debts, if any, and reasons

thereof.
139 Signing the accounts

When the chief executive is for the time being not in Pakistan, then the balancesheet and profit and loss account or income and expenditure account of the
company shall be signed by not less than two directors for the time being in
Pakistan, but in such a case there shall be subjoined to the balance-sheet and profit
and loss account or income and expenditure account a statement signed by such
directors explaining the reasons on account of which the accounts could not be
signed by the Chief Executive.
140 The auditors report

(a) The auditors report shall be read before the company in general meeting and
shall be open to inspection by any member of the company.
(b) The auditors report shall only be signed, by the person appointed as auditor of
the company, or where a firm is so appointed, by the partner in the firm
practicing in Pakistan.
The auditors report shall be dated and indicate the place, at which it is signed.
141 Appointment of auditor

Procedure for change of auditor and companys responsibilities
(i)
Mr. Brown (the proposer of the change) shall give a notice to SPL not less
than fourteen days before the annual general meeting for passing a resolution
at the companys annual general meeting for appointment of ABC & Co.
Chartered Accountants as the auditor in place of the retiring auditor.
(ii)
The company shall forthwith send a copy of notice not less than seven days
before the date fixed for the annual general meeting to the following:
(iii)
retiring auditor
its members and
being a listed company, SPL shall also publish notice at least in one issue
each of a daily newspaper in English language and a daily newspaper in Urdu
language having circulation in the Provinces (Sind & Punjab) in which the
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Business Law
stock exchanges on which the company is listed are situated.

(iv)
(v)
(vi)
Where retiring auditor makes with respect thereto a representation in writing

to the company and requests its communication to the members of the
company, the company shall,
in any notice of the resolution given to members of the company, state the
fact of the representation having been made; and
send a copy of the representation to every member of the company to

whom notice of the meeting is sent by the company and if copy is not sent
as aforesaid because it was received too late or because of a companys
default, the auditor may require that the representation shall be read out
at the meeting.
The company shall, within fourteen days from the date of appointment of the
auditor, send to the registrar the following:
intimation of such appointment,
consent in writing of the auditor concerned.
The company shall, within fourteen days from the date of retirement of the
previous auditor send intimation thereof to the registrar.
142 Auditor and the AGM

The auditor of a company shall be entitled to attend any general meeting of the
company. However, in the case of a listed company, it is mandatory for an auditor
or a person authorized by him in writing, to be present in the general meeting in
which the balance-sheet and profit and loss account and the auditors report are to be
considered.
143 Auditor disqualification

Following persons shall not be appointed as auditor of a company.
A person who is or at any time during the preceding 3 years was a director,
other officer or employee of the company.
Partner or employee of a director, officer or employee of the company.
The spouse of a director of the company.
A person who is indebted to the company.
A body corporate.
A person or his spouse or minor children or in case of audit firm, all partners of
such firm who hold shares of the company or any of its associated companies.
Powers and duties of auditors

Section 254(3)
92
144 Appointment by SECP

Section 252(6)
In the following circumstances SECP becomes authorized to appoint the auditors of
a company:
(i)
The first auditors are not appointed within one hundred and twenty days of
the date of incorporation of the company, or
(ii)
No auditors are appointed at an annual general meeting, or
(iii)
Auditors appointed at an annual general meeting are unwilling to act as

auditors of the company. or
(iv)
A casual vacancy in the office of an auditor is not filled within thirty days after
the occurrence of the vacancy, or
(v)
Auditors are removed by the company before the expiry of their term.
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Business Law
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ICAP

First edition published by

Emile Woolf International, November 2013

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Certificate in Accounting and Finance

Question and Answers Index

Multiple choice questions

Mercantile Law - Objective test and long-form questions

Company Law - Objective test and long-form questions

Multiple choice answers

Mercantile Law - Objective test and long-form answers

Company Law - Objective test and long-form answers

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Certificate in Accounting and Finance

Federal Shariat Court

Civil law and criminal law

Chapter 2 - Introduction to law of contract

Essential elements of a contract

Chapter 3 - Offer and acceptance

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Chapter 4 - Capacity of parties

Chapter 6 Free consent

Chapter 7 - Legality of Object etc.

Opposed to public policy

Chapter 8 Void agreement

Exceptions of void agreements

Chapter 9 Contingent contracts

Rules of contingent contracts

Chapter 10 Quasi contracts

Chapter 11 Performance of a contract

Tender and essentials of tender

Time and place of performance

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Index to questions and answers

Joint promisor and promisee

Chapter 12 Discharge of a contract

Discharge by mutual agreement

Chapter 13 Remedies for breach of contract

Remedies for breach of contract

Chapter 14 Indemnity and guarantee

Chapter 15 Bailment and pledge

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Duties of agent toward principal

Chapter 17 Partnership Act

Rights of outgoing partner

Mutual rights and liabilities

Chapter 18 Negotiable instruments Act

Inchoate stamped instrument

Payment in due course

Holder / Holder in due course /

Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Index to questions and answers

Subsidiary and holding co.

Chapter 20 Incorporation of company

Company registration exceptions