Business Laws, Ethics & Communication Questions

PAPER 2: BUSINESS LAWS, ETHICS & COMMUNICATION
QUESTIONS
PART A: BUSINESS LAWS
The Indian Contract Act, 1872
1.
State the nature of the contract in the following cases with reasons:
(a) A entered into an agreement with S to deliver him 500 bags of sugar to be
manufactured in his factory in a month. The sugar could not be manufactured
because of strike by the workers and as a consequence, A failed to supply the
agreed number of sugar bags to S. Decide whether A can be exempted from liability
under the provisions of the Indian Contract Act, 1872.
(b) M owes money to N under a contract. It is agreed between M, N and O that N shall
henceforth accept O as his debtor instead of M. Referring to the provisions of the
Indian Contract Act, 1872, state whether N can claim payment from O?
2.
(a) Mr. Anand, is employed as a cashier on a monthly salary of ` 2,000 by ABC bank
for a period of three years. X gave surety for Mr. Anands good conduct. After nine
months, the financial position of the bank deteriorates. Then Mr. Anand agrees to
accept a lower salary of ` 1,500/- per month from Bank. Two months later, it was
found that Mr. Anand has misappropriated cash since the time of his appointment.
What is the liability of X?
(b) B owes C a debt guaranteed by A. C does not sue B for a year after the debt has
become payable. In the meantime, B becomes insolvent. Is A discharged? Decide
with reference to the provisions of the Indian Contract Act, 1872.
The Negotiable Instruments Act, 1881

3.
Discuss with reasons, in the following given conditions, whether X can be called as a
holder under the Negotiable Instruments Act, 1881:
(i)
X who obtains a cheque drawn by Y by way of gift.
(ii)
X, the payee of the cheque, who is prohibited by a court order from receiving the
amount of the cheque.
(iii) X, finds a cheque payable to bearer, on the road and retains it.
(iv) X, the agent of Y, is entrusted with an instrument without endorsement by Y, who is
the payee.
(v) X, steals a blank cheque of A and forges As signature.
4.
A Bill is drawn and payable at particular adddress but does not contain drawees name.
Mr. Vinay who resides at the mentioned address accepts the bill. Is it a valid Bill?
The Institute of Chartered Accountants of India
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INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014
The Payment of Bonus Act, 1965

5.
An employee working in an establishment commits fraud during the accounting year

2009-2010, but continues to work during the subsequent accounting years 2010-2011
and 2011-2012, and has a clean record during the subsequent years. On the basis of the
fraud committed in 2009-2010, the employee is dismissed from service at the end of the
accounting year 2011-2012. In this case, does he lose the bonus for the accounting year
of misconduct i.e. 2009-2010 or for all 3 accounting years ending with 2011-2012?
Discuss in the light of the provisions of the Payment of Bonus Act, 1965.
6.
A company employed 20 fulltime and 5 part-time employees who were drawing salary of
less than ` 10,000 per month. After completing service of 28 days, in an accounting year,
10 full-time employees submitted their resignations and left the service of the company.
The Board of directors of this company decided not to give the bonus to the employees,
who resigned, to the remaining full-time employees and to the part-time employees.
Against the decision, all the employees applied to the authorities for relief.
Decide, stating the provisions of the Payment of Bonus Act, 1965, whether the
employees, who resigned, the remaining full-time employees and part-time employees
will get relief.
The Employees Provident Funds and Miscellaneous Provisions Act, 1952

7.
State the provisions of the Employees' Provident Funds and Miscellaneous Provisions
Act, 1952 regulating the quantum of contribution to be made by the employer and
employee to the provident fund. Is it possible for an employee to increase the amount of
his contribution to the provident fund more than the minimum contribution as statutorily
prescribed?
8.
A 60 years old district judge was appointed by the Central Government as Presiding
Officer of the Employee's Provident Funds Appellate Tribunal for a period of 2 years.
After one year, he resigns from his office and ceases to work with immediate effect
without handing over the charge to his successor, who was not appointed by the
Government till that date. Examine the validity of his action to cease work under the
provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952.
The Payment of Gratuity Act, 1972

9.
Mr. K, an employee in a coal mine with five days working in a week. K was not in
continuous service during the financial year 2012-2013. He worked only for 150 days
and due to arising of an accident during working in a mine, he was on leave with full pay
for 45 days. Referring to the provisions of the Payment of Gratuity Act, 1972 decide,
whether K is entitled to gratuity payable under the Act?
10. Bokaro steel plant decided to forfeit the amount of gratuity of its employees A, B and C
on account of disorderly conduct and other acts which caused loss to the property
belonging to the company. A, B and C committed the following acts:
PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION
(i)
A refused to surrender the occupied land belonging to the company.
(ii)
B committed theft under law involving offence of moral turpitude.
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(iii) C after superannuation continued to occupy the quarter of the company for six
months.
Against the decision of the company, A, B and C applied to the appropriate authorities for
relief. The company contented that the right to gratuity is not a statutory right and the
forfeiture of the amount of gratuity was within the law.
Examine the contention of the company and the decision taken by the company to forfeit
the amount of gratuity in the light of the Payment of Gratuity Act, 1972.
The Companies Act, 1956/ 2013
11.
Explain the power of the company to close the register of members or debenture holders
or other security holders as per the Companies Act, 2013. State the manner in which the
corresponding provision given under the Companies Act, 1956 differs from the law given
under new Act.
12. An allottee of shares in a Company brought action against a Director in respect of false
statements in prospectus. The director contended that the statements were prepared by
the promoters and he has relied on them. Is the Director liable under the circumstances?
Decide referring to the provisions of the Companies Act, 2013.
13. A Company was incorporated on 6th July, 2014. The certificate of incorporation of the
company was issued by the Registrar on 15th July, 2014. The company on 10th July,
2014 entered into a contract, which created its contractual liability. The company denies
from the said liability on the ground that company is not bound by the contract entered
into prior to issuing of certificate of incorporation. Decide, under the provisions of the
Companies Act, 1956, whether the company can be exempted from the said contractual
liability.
14. Write a note on the powers of the Central Government in regard to conversion of
debentures and loans into shares of the company under the following heads:
(i)
When terms of issue of such debenture or terms of loan do not include term
providing for an option of conversion;
(ii)
Matters considered in determining the terms and conditions of such conversion.
(iii) Remedy available to the company if conversion or terms of conversion is not

acceptable to it.
15. State the procedure for passing a resolution by Postal Ballot as per the Companies Act,
1956.
PART B: ETHICS
16. Comment on the statement Business is all green, only philosophy is grey.
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17. Explain communications is another area in which ethical concern may arise.
18. What kind of pressure are faced by a finance and accounting professional working as an
employee in an organization?
19. What are the common CSR policies ?
20. Explain the meaning of the terms ethics and business ethics and also state the
requirements of business ethics.
PART C: COMMUNICATION
21. Explain clearly the process of Communication.
22. Explain the functions of interpersonal communication.
23. Explain the concept of Negotiation. What are its techniques ?
24. Draft a letter informing the customer that his cheque has been dishonoured.
25. Draft the performa of affidavit for not having a Marriage certificate.
SUGGESTED ANSWERS/HINTS
1.
(a)
In this case Mr. A could not deliver the sugar bags as promised because of strike
by the workers. This difficulty in performance cannot be considered as impossible of
performance attracting Section 56 (Para 2) and hence A is liable to S for nonperformance of contract.
(b) Yes, a contract need not be performed when the parties to it agree to substitute a
new contract for it or to rescind or alter it. (Section 62, Indian Contract Act, 1872).
Here, in the given problem, novation has taken place as one of the parties has been
replaced with a third party. Therefore, N can claim the money from O.
2.
(a) If the creditor makes any variance (i.e. change in terms) without the consent of the
surety, then surety is discharged as to the transactions subsequent to the change.
In the instant case X is liable as a surety for the loss suffered by the bank due to
misappropriation of cash by Anand during the first nine months but not for
misappropriations committed after the reduction in salary. [Section 133, Indian
Contract Act, 1872].
(b) Discharge of surety: The problem is based on the provisions of section 137 of the
Indian Contract Act, 1872 relating to discharge of surety. The section states that
mere forbearance on the part of the creditor to sue the principal debtor and/or to
enforce any other remedy against him would not, in the absence of any provision in
the guarantee to the contrary, discharge the surety. In view of these provisions, A is
not discharged from his liability as a surety.
3.
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Person to be called as a holder: As per section 8 of the Negotiable Instruments Act,

1881 holder of a Negotiable Instrument means any person entitled in his own name to
the possession of it and to receive or recover the amount due thereon from the parties
thereto.
On applying the above provision in the given cases(i)
Yes, X can be termed as a holder because he has a right to possession and to

receive the amount due in his own name.
(ii)
No, X is not a holder because to be called as a holder he must be entitled not only
to the possession of the instrument but also to receive the amount mentioned
therein.
(iii) No, X is not a holder of the Instrument though he is in possession of the cheque, so
is not entitled to the possession of it in his own name.
(iv) No, X is not a holder. While the agent may receive payment of the amount
mentioned in the cheque, yet he cannot be called the holder thereof because he has
no right to sue on the instrument in his own name.
(v) No, X is not a holder because he is in wrongful possession of the instrument.
4.
Yes, it is a valid Bill and Mr. Vinay is liable thereon. The drawee may be named or
otherwise indicated in the Bill with reasonable certainty. In the present case, the
description of the place of residence indicates the name of the drawee and Mr. Vinay, by
his acceptance, acknowledges that he is the person to whom the bill is directed (Gray vs.
Milner 1819).
5.
According to Section 9 of the Payment of Bonus Act, 1965, one of the grounds for
disqualification for any bonus is fraud. An employee who is dismissed from service on the
ground of misconduct as mentioned in section 9, is disqualified for any bonus and not
merely for the bonus of the accounting year in which he is dismissed. Based on this
provision, in the given case, the employee lose the bonus for all 3 three accounting years
[Pandian Roadways Corporation Ltd Vs Presiding officer(1996)2 CLR 1175(Mad)].
6.
In accordance with the provisions of Section 2(13) of the Payment of Bonus Act, 1965
any person other than an apprentice employed on a salary or wage not exceeding
` 10,000 per month in any industry to do any skilled or unskilled, manual, supervisory,
managerial, administrative, technical or clerical work for hire or reward whether the terms
of employment be express or implied is eligible for bonus. Further, in accordance with the
provisions of Section 8 of the Payment of Bonus Act, 1965 every employee of an
establishment covered under the Act is entitled to bonus from his employer in an
accounting year provided he has worked in that establishment for not less than thirty
working days in the year on a salary less than ` 10,000 per month.
The problem as asked is based on the above provisions of the Act and the answer may
be given as follows:
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(a) As regards the employees who resigned : The employees who have resigned are
not entitled to bonus because they have given their services only for 28 days in an
accounting year although they are drawing salary less than ` 10,000 per mensem.
(b) As regards full time remaining employees: These employees are entitled to get
the bonus as they fulfil both the requirements as stated under Sections 2 (13) and 8
of the Act. Although the employees in this case have been reduced to 10, once the
Act is applicable, it continues to apply even if number of employees fall below 20.
(c) As regards part time employees: Even a part time employee is also entitled to
bonus on the basis of total number of days worked by him in an accounting year.
The Payment of Bonus Act, 1965 does not prohibit such employees as they fulfil all
the requirements stated above [Automobile Karmachari Sangh vs. Industrial
Tribunal (1971)].
7.
Contribution to Provident Fund under the EPF and Miscellaneous Provisions Act,
1952: Section 6 of the EPF and MP Act, 1952 regulates contribution to Provident Fund
Scheme established under the Act. The employer's contribution shall be 10% of the basic
wages, dearness allowance and retaining allowance, if any. The employee's contribution
shall be equal to the contribution payable by the employer in respect of him.
Dearness allowance includes cash value of any food concession allowed to the
employees. Retaining allowance means the sum paid for retaining the service, when the
factory is not working. The Central Government may by notification make the employee's
contribution equal to 12% for certain establishments or class of establishments.
The above rule will prevail irrespective of whether the employer employs the person
directly or through a contractor.
An employee can at his will voluntarily contribute, beyond 10%. But the employer shall
not be under an obligation to pay any contribution over and above his contribution
payable under section 6 of the said Act.
8.
Section 7 F of the Employees Provident Funds and Miscellaneous Provisions Act, 1952
provides that the Presiding Officer of a Employees Provident Funds Appellate Tribunal
may by notice in writing under his hand addressed to the Central Government, resign his
office provided that the Presiding Officer shall, unless he is permitted by the Central
Government to relinquish his office sooner, continue to hold office until the expiry of three
months from the date of receipt of such notice or until a person duly appointed as his
successor enters upon his office or until the expiry of his term of office, whichever is the
earliest.
Hence, action of district judge is invalid as per above provisions. He should obtain
permission from the Central Government to do so.
9.
As per Section 2 A of the Payment of Gratuity Act, 1972 an employee shall be said to be
in continuous service for a period if he has, for that period, been in uninterrupted service,
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including service which may be interrupted on account of sickness, accident, leave, layoff, strike or a lockout or cessation of work not due to any fault of an employee.
Where any employee (not being an employee employed in a seasonal establishment) is
not in continuous service for any period of one year he shall be deemed to be in
continuous service under the employer for the said period of one year, if the employee
during the period of twelve calendar months preceding the date with reference to which
calculation is to be made, has actually worked under the employer for not less than (i)
one hundred and ninety days, in the case of any employee employed below the ground in
a mine or in an establishment which works for less than six days in a week, and (ii) two
hundred and forty days, in any other case.
For the purposes of calculating the number of days on which an employee has actually
worked under an employer shall include the days on which the person was absent due to
temporary disablement caused by accident arising out and in the course of his
employment.
Thus, as per the above provisions, K is entitled for gratuity because he was in continuous
service (150+45 days) more than 190 days in 2012-2013 and was working in a mine with
5 days in a week(less than six days in a week).
10. Forfeiture of Gratuity: In accordance with the provisions of Section 4(6) of the Payment
of Gratuity Act, 1972, if the services of any employee have been terminated for any act,
willful omission, or negligence causing any damage or loss to or destruction of, property
belonging to the employer, the gratuity shall be forfeited to the extent of the damage or
loss so caused; and if the services of such an employee have been terminated for any
act which constitutes an offence involving moral turpitude, provided that such offence is
committed by him in the course of his employment, the gratuity payable to the employee
may be wholly or partially forfeited.
The problem asked in the question is based on the above provisions and the provisions
of Section 4(1) of the Payment of Gratuity Act, 1972. Accordingly, gratuity shall be paid
to the employee when he completes five years of continuous service on his
superannuation, or on his retirement or resignation, or on his death or disablement due to
accident or disease. The condition of the completion of five years continuous service is
not essential in case of the termination of the employment of any employee due to death
or disablement. Looking to the provisions of Section 4(1), it is clear that withholding of
gratuity is not permissible under any circumstances, except under those circumstances
covered by Section 4(6). In K. C. Mathew vs. Plantation Corporation of Kerala Ltd. 2001
LLR (2) (Ker), it was held that withholding of gratuity is not permissible except under
those circumstances enumerated in Section 4(6) and that the right to gratuity is a
statutory right and none can be deprived of it except as provided by the law. Therefore,
the contention of Bokaro steel plant is wrong, to that extent.
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The correctness of the decision taken by Bokaro steel plant regarding forfeiture of the
gratuity amount of its employees A, B and C may be tested in the light of Section 4(6) of
the Payment of Gratuity Act,1972 as referred above.
(i)
Accordingly, the refusal of an employee to surrender the occupied land belonging to

the company is not sufficient ground to withhold gratuity under Section 4(6) of the
Payment of Gratuity Act, 1972 [Travancore Plywood Industries Ltd. vs. Regional
Joint Labour Commissioner [1966] II LLJ 85 Ker] Hence, As gratuity cannot be
withheld.
(ii)
The offence of theft committed by B, under law involves moral turpitude and his
gratuity stands wholly forfeited in view of Section 4(6) of the Act [relevant case is
Bharat Gold Mines Ltd vs. Regional Labour Commissioner, 1987, 70 FJR 11
(Karnataka)].
(iii) If the employer has to be paid any amount regarding any type of charge by the
employee and if he has not paid for the same during the course of his service, then
the employer can adjust the amount from the gratuity of the employee. In the instant
case, C after superannuation continued to occupy the quarter of the company for six
months. Therefore the company is entitled to charge the rent from him and after
adjusting other dues the remaining amount of gratuity may be paid [relevant case is
Wazir Chand vs. Union of India 2001, LLR172 (SC)].
11. Power to close register of members or debenture holders or other security holdersSection 91 of the Companies Act, 2013 deals with the closing of the register of members.
The provision lays down that (i)
Closing of register of members, debenture holders or other security holder by

giving previous notice- A company may close the register of members or the
register of debenture-holders or the register of other security holders for any period
or periods not exceeding in the aggregate forty-five days in each year, but not
exceeding thirty days at any one time, subject to giving of previous notice of at least
seven days or such lesser period as may be specified by Securities and Exchange
Board for listed companies or the companies which intend to get their securities
listed, in such manner as may be prescribed.
(ii) If the register of members or of debenture-holders or of other security holders

is closed without giving the notice or after giving shorter notice than that so
provided, or for a continuous or an aggregate period in excess of the limits specified
above, the company and every officer of the company who is in default shall be
liable to a penalty of 5,000/- for every day subject to a maximum of one lakh rupees
during which the register is kept closed.
Point of comparison with respect to the Companies Act, 1956
This section of 2013 Act replaces section 154(Power to close register of members
or debenture holders) of the 1956 Act.
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The new Act of 2013 introduces the closure of the Registers of other security
holders in the provision.
Listed companies or the companies which intend to get their securities listed( i.e.,
the unlisted companies) close the register of members/ register of debentureholders / the register of other security holders by giving a previous notice of at least
7 days/ such lesser period as may be specified by Securities and Exchange Board.
This law pertaining to listed companies is lacking in the 1956 Act.
In case of default with respect to the closure of register of member / register of

debenture-holders / the register of other security holders, there the company and
every officer of the company who is in default shall be liable to a penalty of five
thousand rupees for every day during which register is closed but not exceeding
one lakh rupees. This limit of penalty is lacking in 1956 Act.
12. Yes, the Director shall be held liable. A director can escape liability for mis-statements in
a prospectus only on the grounds specified under Section 34 and 35 of the Companies
Act, 2013. Relying on statements prepared by promoters is not a ground included there
under. Accordingly, no defence shall be available to the Director.
A Director shall not be liable if he puts up the following defences:
(i)
Such statement or omission in the prospectus was immaterial, or
(ii)
Director had reasonable grounds to believe, and did up to the time of issue of the
prospectus believe, that the statement was true or the inclusion or omission was
necessary(Section 34, the Companies Act, 2013)
(iii) Where a person having consented to become a director of the company, withdrew
his consent before the issue of the prospectus, and that it was issued without his
authority or consent; or where the prospectus was issued without the knowledge or
consent of a person, and that on becoming aware of its issue, he forthwith gave a
reasonable public notice that it was issued without his knowledge or
consent.(Section 35, the Companies Act, 2013).
13. Certificate of Incorporation and the binding effect: Upon the registration of the
documents as required under the Companies Act, 1956 for incorporation of a company,
and on payment of the necessary fees, the Registrar of Companies issues a Certificate
that the company is incorporated (Section 34, the Companies Act, 1956).
Section 35 of the Companies Act, 1956, provides that a certificate of incorporation issued
by the Registrar is conclusive as to all administrative acts relating to the incorporation
and as to the date of incorporation. The facts as given in the problem are similar to those
in case of Jubilee Cotton Mills v. Lewis (1924) A.C. 1958 where it was held that an
allotment of shares made on the date after incorporation could not be declared void on
the ground that it was made before the company was incorporated when the certificate of
incorporation was issued at a later date.
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Applying the above principles the contention of the company in this case cannot be
tenable. It is immaterial that the certificate of incorporation was issued at a later date.
Since the company came into existence on the date of incorporation stated on the
certificate, it is quite legal for the company to enter into contracts. To conclude the
contracts entered into by the company before the issue of certificate of incorporation
shall be binding upon the company. The date of issue of certificate is immaterial.
14. (i)
Under Section 81 of the Companies Act, 1956 where any debentures have been
issued to or loans have been obtained from the Government by a company, whether
such debentures have been issued or loans have obtained before or after the
commencement of Companies Amendment Act, 1963 (w.e.f. 1.1.1964), the Central
Government may, if in its opinion it is necessary in the public interest so to do, by
order direct that such debentures or loans or any part thereof shall be converted
into shares in the company on such terms and conditions as appear to that
Government to be reasonable in the circumstances of the case, even if the terms of
issue of such debentures or the terms of such loans do not include term providing
for an option for such conversion.
(ii) In determining the terms and conditions of such conversion, the Central
Government shall have due regard to the following circumstances:
(i)
The financial position of the company;
(ii)
The terms of issue of the debentures or the terms of the loans, as the case
may be;
(iii) The rate of interest payable on the debentures or the loans;

(iv) The capital of the company, its loan liability, its reserves, its profits during the
preceding five years; and
(v) The current market price of the shares in the company.
A copy of every order proposed to be issued by the Central Government shall be
laid in draft before each House of Parliament.
(iii) Remedies open to the company: If the terms and conditions of such conversion
are not acceptable to the company, the company may, within 30 days from the date
of communication of such order or within such further time as may be granted by the
Court, prefer an appeal to the court in regard to such terms and conditions and the
decision of the Court on such appeal and, subject only to such decision, the order of
the Central Government shall be final and conclusive.
15. A listed public company and in case of resolutions relating to such business as the
Central Government may, by notification, declare to be conducted only by postal ballot,
shall get any resolution passed by means of a postal ballot, instead of transacting the
business in general meeting of the company. The term Postal Ballot includes voting by
electronic mode.
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The procedure laid down in Section 192A is as under:

(i)
Notice to shareholders: Where a company decides to pass any resolution by

resorting to postal ballot, it shall send a notice to all the shareholders, along with a
draft resolution explaining the reasons therefore and requesting them to send their
assent within a period of 30 days from the date of posting of the letter;
(ii)
Notice shall be sent by registered post acknowledgement: The notice shall be

sent by registered post acknowledgement due or by any other method as may be
prescribed by the Central Government in this behalf, and shall be annexed with the
notice a postage pre-paid envelope for facilitating the communication of the assent
or dissent of the shareholder to the resolution within the said period;
(iii) Appointment of scrutinizer: The board of directors shall appoint one scrutinizer,
who is not in employment of the company, may be a retired judge or any person of
repute, who, in the opinion of the board can conduct the postal ballot voting process
in a fair and transparent manner;
(iv) Submission of report by the scrutinizer: The scrutinizer will be in position for 35
days (excluding holidays) from the date of issue of notice for annual general
meeting. He is required to submit his final report on or before the said period.
(v) Resolution assented by majority: If a resolution is assented to by a requisite
majority of the shareholders by means of postal ballot, it shall be deemed to have
been passed at a general meeting convened in that behalf.
For this purpose the scrutinizer willing to be appointed is available at the registered
office of the company for ascertaining the requisite majority.
(vi) Fraudulent defence or destroy of postal ballot: If a shareholder sends his assent
or dissent in writing on a postal ballot and thereafter any person fraudulently
defences or destroys the ballot paper or declaration of the identity of shareholder,
such person shall be punishable with imprisonment for a term which may extend to
six months or with fine or both;
(vii) Maintenance of register by scrutinizer: The scrutinizer shall maintain a register to
record the consent received, including electronic media, mentioning the particulars of
name, address, folio number, number of shares, nominal value of shares, whether the
shares have voting, differential voting or non-rights and the scrutinizer shall also
maintain record for postal ballot which are received in defaced or mutilated form. The
postal ballot and all other papers relating to postal ballot will be under the safe custody
of the scrutinizer till the Chairman considers, approves and signs the minutes of the
meeting. Thereafter, the scrutinizer shall return the ballot papers and other related
papers/register to the company so as to preserve such ballot papers and other related
papers/registers safely till the resolution is given effect to.
16. The statement was given by the karl marx commenting on the business objectives said
Business is all green, only philosophy is grey. By this line he meant that business is all
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about profits and comfort for its rich owners and discomforts for all other sections of the
society who are at the receiving end of the business. Despite such socialist ideology
been relegated to the background due to fact that capitalism is being gradually accepted;
business is still painted as essentially exploitative in nature. But one has to accept that
much of the progress in the world would not have been possible without entrepreneurship
and business which involves risk.
17. Communications is another area in which ethical concerns may arise. False and
misleading advertising, as well as deceptive personal-selling tactics, anger consumers
and can lead to the failure of a business. Truthfulness about product safety and quality
are also important to consumers. The Food and Drug Regulatory Authorities need to
ensure that customers are told the truth about product safety, quality, and effectiveness
claims. Some manufacturers fail to provide enough information to consumers about
differences or similarities between products. For example, a lawsuit filed by consumers
against Johnson claimed that the companys Acuvue and 1-Day Acuvue contact lenses
were actually the same product. Consumers were directed by the company to dispose of
the 1-Day Acuvue lenses after one days use. The suit claims that because the two
products were identical, the lenses could have been worn up to two weeks. It is
estimated that six million people who used contact lenses spent $1.1 billion on
unnecessary replacements because of the companys misleading advertising. Johnson &
Johnson agreed to pay up to $860 million to settle the complaints. Another important
aspect of communications that may raise ethical concerns relates to product labelling. It
is mandatory for cigarette manufacturers to indicate clearly on cigarette packing that
smoking cigarettes is harmful to the smokers health.
18. A finance and accounting professional may be under pressure to act or behave in ways
that could directly or indirectly threaten compliance with the fundamental principles. Such
pressure may be explicit or implicit; it may come from a supervisor, manager, director or
another individual within the employing organization. A finance and accounting
professional may face pressure to:
Act contrary to law or regulation.
Act contrary to technical or professional standards.
Facilitate unethical or illegal earnings management strategies.
Lie to, or otherwise intentionally mislead (including misleading by remaining silent)

others, in particular:
The auditors of the employing organization; or
Regulators.
Issue, or otherwise be associated with, a financial or non-financial report that

materially misrepresents the facts, including statements in connection with, for
example:
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The financial statements; Tax compliance; Legal compliance; or Reports required by

securities regulators.
19. CSR Policies: Corporate Social Responsibility (CSR) refers to operating a business in a
manner that accounts for the social and environmental impact created by the business.
CSR means a commitment to developing policies that integrate responsible practices into
daily business operations, and to reporting on progress made toward implementing these
practices.
Common CSR policies include:
Adoption of internal controls reform in the wake of Enron and other accounting
scandals;
Commitment to diversity in hiring employees and barring discrimination;
Management teams that view employees as assets rather than costs;
High performance workplaces that integrate the views of line employees into
decision-making processes;
Adoption of operating policies that exceed compliance with social and

environmental laws;
Advanced resource productivity, focused on the use of natural resources in a more

productive, efficient and profitable fashion (such as recycled content and product
recycling); and
Taking responsibility for conditions under which goods are produced directly or by
contract employees domestically or abroad.
20. Ethics: The term 'Ethics' has a variety of meanings. One of the meanings is 'Ethics' are
the principles of conduct governing an individual or a group. Another definition describes
ethics as relating to what is good or bad and having to do with moral duty and obligation.
Business Ethics: In a broad sense, ethics in business refers to the application of day-today moral and ethical norms to business. Business ethics are the principles and
standards that determine acceptable conduct in business organisation.
Requirements: Being ethical in business requires acting with an awareness of (a) The need for complying with rules (e.g) (i) laws of the land, (ii) customs and
expectation of the community (iii) principles of morality (iv) policies of the
organization and (v) general concerns such as the needs of others and fairness.
(b) How the products, services and actions of a business enterprise, can affect its
stakeholders (i.e. employees, customers, suppliers, shareholders and community
society as a whole) either positively or negatively.
54
21. Process of Communication: Communication is a two-way process in which there is an

exchange of ideas or thoughts linking the sender and receiver towards a mutually
accepted direction or goal consisting of 7 elements which are as under:
1.
Sender: The process of communication begins with a sender, the person who has
an idea and desires to exchange it.
2.
Encoding: The sender puts his/her ideas or facts into words, symbols, pictures or
gestures that the receiver can understand.
3.
Message: A message refers to what is being communicated. It may be verbal or

non-verbal.
4.
Channel: Channel is the medium through which message is transmitted to the

sender. Channel may be in oral or written forms.
5.
Receiver: It is any person who notices and attaches some meaning to a message.
6.
Decoding: The receiver translates the words and symbols used in the message into
ideas and interpret it to attain its meaning.
7.
Feedback: Ultimately receiver reacts or responds to the communication sent by the

sender. It could be based on clear interpretation of the symbols sent or
misunderstanding or misinterpretation of the symbols sent.
22. Functions of Interpersonal Communication: Interpersonal communication is important

because of the following functions it achieves:
Gaining Information: One reason, we engage in interpersonal communication, is to gain
knowledge about another individual. We attempt to gain information about others so that
we can interact with them more effectively.
Building Understanding: Interpersonal communication helps us to understand better
what someone says in a given context. Words can mean very different things depending
on how they are said or in what context. Content Messages refer to the surface level
meaning of a message. Relationship Messages refer to how a message is said. The
two are sent simultaneously, but each affects the meaning assigned to the
communication and helps us understand each other better.
Establishing Identity: We also engage in interpersonal communication to establish an
identity based on our relationships and the image we present to others.
Interpersonal Needs: We also engage in interpersonal communication to express
interpersonal needs. William Schutz has identified three such needs: inclusion, control,
and affection.
Inclusion is the need to establish identity with others.
Control is the need to exercise leadership and prove one's abilities.
55
Affection is the need to develop relationships with people. Groups are an excellent
way to make friends and establish relationships.
23. Negotiation: Negotiation occurs when two or more parties either individuals or groups
discuss specific proposals in order to find a mutually acceptable agreement. Whether it is
with an employer, family member or business associate, we all negotiate for things each
day like higher salary, letter service or solving a dispute with a co worker or family
member Negotiation is a common way of settling conflicts in business. When handled
skillfully, negotiation can improve the position of one or even both but when poorly
handled; it can leave a problem still unsolved and perhaps worse than before.
Techniques for Negotiation:
(a) Spiraling agreements: Begin by reaching a minimums agreement even though it is
not related to the objectives and build, hit by hit, on this first agreement.
(b) Changing of position: Formulate the proposals in a different way, without changing
the final result.
(c) Gathering information: Ask for information from the other party to clarify their
position
(d) Making the cake bigger: Offer alternatives that may be agreeable to the other party,
without changing the terms.
(e) Commitments: Formalize agreements orally and in writing before ending the
negotiation.
24.
-----------Bank Ltd
----------Branch,
New Delhi
To,
-------Date
Regarding: Dishonour of cheque no.-------drawn on ----------, dated-------Dear Sir,
We inform you that your above cheque due to insufficient fund in your account was not
clear and was received back by us. The cheque has been sent to you by registered post
dated --------- at your residential address.
Sd/Manager of the Bank
56
25. Affidavit
I, .................S/o.............R/o..............................do hereby solemnly affirm and declare an
oath as under:
That the marriage between......(name of spouses with details) solemnized with the
Hindu rituals on.......... at-------(Name of place) .That due to inadvertence, I did not
register my marriage with the concerned department and not having marriage certificate.
Date:..
Place:.
Signature
Deponent
Applicability of Pronouncements/Legislative Amendments/Circulars

etc. for November, 2014 Intermediate (IPC) Examination
Paper 1: Accounting
Accounting Standards
AS
Disclosure of Accounting Policies
AS
Valuation of Inventories
AS
Cash Flow Statements
AS
Depreciation Accounting
AS
Construction Contracts (Revised 2002)
AS
Revenue Recognition
AS
10
Accounting for Fixed Assets
AS
13
Accounting for Investments
AS
14
Accounting for Amalgamations
Non-Applicability of Ind ASs for November, 2014 Examination

The MCA has hosted on its website 35 Indian Accounting Standards (Ind AS) without
announcing the applicability date. Students may note that these Ind ASs are not
applicable for November, 2014 Examination.
Paper 2: Business Laws, Ethics and Communication

The Companies Act, 2013
The 53 sections of the Companies Act, 2013 along with the clarifications notified by the
Ministry of Corporate Affairs.
Supplementary study material in this regard has been hosted on the student portal, ICAI at the
following link http://220.227.161.86/32794ssp-p2blec-ipcc.pdf
Non-Applicability of the following /Circulars/Notifications
S.No.
Subject Matter
1.
*New 184 sections of the Companies Act, 2013 notified on 27 th February, 2014
and 26th March, 2014.
2.
*Rules notified under the Companies Act, 2013
Paper 4: Taxation
Applicability of the Finance Act, Assessment Year etc. for November, 2014 examination
The provisions of income-tax and indirect tax laws, as amended by the Finance Act, 2013,
including circulars and notifications issued upto 30th April, 2014. The relevant assessment
year for income-tax is A.Y. 2014-15.

PART I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY
FOR NOVEMBER, 2015 EXAMINATION
I.
Applicability for November 2015 examinations

Applicability of relevant amendments/Circulars/Notifications/Regulations etc. for the
period 1st May 2014 to 30th April, 2015 relating to Business Law, Ethics and
Communication at Intermediate (IPC) for November 2015, Examination:
(i)

Sl. No.
Amendment related
to the topic
Content
1.
Associate Company
Vide General Circular no. 24/2014 dated

25th of June 2014 Ministry of Corporate
Affairs issued a clarification with regard
to holding of shares in a fiduciary
capacity by associate company under
section 2(6) of the Companies Act,
2013.
2.
Delegation of power
and functions to
ROC under the
sections related to
the Memorandum,
Companies
with
charitable objects,&
Alteration
of
memorandum
As per the Notification S.O. 1353(E),

dated 9th Of July, 2014 and in
supersession of the notification of the
Government of India, MCA, dated the
10.07.2012 vide no. S.O. 1538(E), dated
10.07.2012, Central Government hereby
delegates to the ROC the power &
functions vested in it under the following
sections of the said Act- 4(2), 8, 13(2)
which deals with the memorandum,
Companies with charitable objects,&
Alteration of memorandum respectively.
3.
Delegation
of
powers
and
functions to the
Regional
Director(RD) under
the sections related
to the Memorandum,
Companies
with
charitable objects,&
Alteration
of
Vide Notification S.O. 1352(E) dated

21.05.2014 and in supersession of the
notification of the Government of India,
MCA, dated the 10.07.2012 the Central
Govt. hereby delegates to the RD at
Mumbai, Kolkata, Chennai, Noida,
Ahmedabad, Hyderabad & Shillong, the
power & functions vested in it under the
following sections of the said Act, subject
to the condition that the Central Govt.
memorandum,
Rectification
of
name of company
and Commencement
of business.
may revoke such delegation of powers or

may itself exercise the powers &
functions under the sections, 8(6), 13(4)
&(5), 16, 11(3) if in its opinion, such
course of action is necessary in the
public interest,: These sections deals
with Memorandum, Companies with
charitable objects,& Alteration of
memorandum, Rectification of name of
company and Commencement of
business.
4.
Registration
names
of
Companies
of
the
Vide General Circular No. 29/2014 dated

11th of July 2014 the Ministry of
Corporate Affairs directed Registrar to
ensure that registration of names of the
Companies shall be in consonance with
the provisions of the Emblems and
Names (Prevention of Improper Use)
Act, 1950.
5.
Registration
names
of
Companies
of
the
General Circular No. 02/2014, dated

11.02.2014 was issued on the use of
word National and Bank in the names
of Companies or LLP.
6.
Private Placement
As per the Companies (Prospectus and

Allotment of Securities) Amendment
Rules, 2014, dated 30th June 2014
further a new proviso has been added
with respect to an offer or invitation for
non-convertible debentures It says that
when an offer or invitation for nonconvertible debentures is made within a
period of six months from the date of
commencement of these rules, the
special resolution may be passed within
the said period of six months from the
date of commencement of these rules.
8.
Acceptance
of
deposits from public
As per the Companies (Removal of

Difficulties) Second Order, 2014 dated
2nd of June, 2014 and the Companies
(Removal of Difficulties) Fourth Order,
2014 dated 6th of June 2014, the Central
Government hereby makes the order that
47
48
until a date is notified by the Central

Government, the Company Law Board
shall exercise the jurisdiction, powers,
authority and functions of the Tribunal.
9.
Further
Capital
issue
10.
Debenture
Conditions for the issue of secured

debentures by a company prescribed
under the Companies (Share Capital and
Debentures) Rules, 2014. According to
which issue of secured debentures may
be made, provided the date of its
redemption shall not exceed ten years
from the date of issue And also inclusion
of amendment as per the Companies
(Share Capital and Debentures)
Amendment Rules, 2014 .According to
which classes of companies that may
issue secured debentures for a period
exceeding ten years but not exceeding
thirty years.
11.
Debenture
redemption reserve
(DRR) account
After the RBI (Amendment) Act, 1997

the following is inserted and for Housing
Finance Companies registered with the
National Housing Bank as per the
Companies
(Share
Capital
and
Debentures) Amendment Rules, 2014
12.
Voting
through
electronic means
Clarifications on issues associated with

e-voting procedure issued by the Ministry
of Corporate Affairs vide General
Circular No. 20/2014 dated 17th June
2014 for clarity and ensuring uniformity
of
As per the Companies (Share Capital

and Debenture) Amendment Rules,
2014, dated 18th of June, 2014, after
Sub-Rule (2) of rule 13 related to issue
of shares on preferential basis, following
sub-rule (3) has been inserted stating
that the price of shares or other
securities to be issued on preferential
basis shall not be less than the price
determined on the basis of valuation
report of a registered valuer.
in the e-voting procedure.

13.
Declaration
in
respect of beneficial
interest in any share
A proviso has been inserted under Rule

9 sub rule 3 by the Companies
(Management
and
Administration)
Second Amendment Rules, 2014 with
respect to section 89 of the Companies
Act, 2013. "Provided that nothing
contained in this rule with respect to
section 89 of the Companies Act, 2013
shall apply in relation to a trust which is
created, to set up a Mutual Fund or
Venture Capital Fund or such other fund
as may be approved by the Securities
and Exchange Board of India".
14.
Annual return
As per the Companies (Management and

Administration) Second Amendment
Rules, 2014 a changes have been
carried out in the Companies
(Management
and
Administration)
Amendment Rules, 2014 in Rule 13
whereby the words either value or
volume of the shares" is omitted along
with the explanation giving meaning of
change.
15.
Voting and right to

demand a poll
Vide Notification dated 19th March,

2015, Central Government further
amended the Companies(Management
and Administration) Rules, 2014 by
issuing the Companies (Management
and Administration) Amendment Rules,
2015 whereby replacing the rule 20 of
the Companies (Management and
Administration) Rules, 2014 relating to
the Voting through electronic means.
16.
Place of keeping
and inspection of
registers,
returns,
etc
Vide Notification dated 31st March,

2015, the Central Government hereby
delegates to the Regional Directors at
Mumbai, Kolkata, Chennai, Noida,
Ahmedabad, Hyderabad and Shillong,
the powers and functions vested in it
under sub-section (5) of section 94 of the
Companies Act,2013.
49
50
(ii) The Employees Provident Funds & Miscellaneous Provisions Act, 1952
Revised statutory wage ceiling from ` 6500/- to ` 15,000 per month under the
Employees Provident Funds (Amendment) Scheme, 2014, Employees Pension
(Amendment) Scheme 2014 and the Employees Deposit Linked Insurance
(Amendment) Scheme, 2014.
Students are advised to refer the study material (July 2014 edition) along with the
practice manual (December 2014 edition).
II.
Non-Applicability for November 2015 examinations

(i)
The following sections of the Companies Act, 2013 are not applicable for
November 2015 examinations: Section 48 relating to Variation of shareholders
right, Section 66 related to Reduction of share capital, Section 75 relating to
damages for fraud, Section 97 relating to Power of tribunal to call AGM, Section
98 relating to Power of Tribunal to call meetings of members, etc., and Section 99
relating to Punishment for default in complying with provisions of sections 96 to
98, of the Companies Act, 2013.
(ii) The Companies (Amendment) Act, 2015
PART II : QUESTIONS AND ANSWERS

QUESTIONS
1.
(a) Mr. David started self service system in his shop. Ms. Marry entered the shop,
took a basket and after taking articles of her choice into the basket reached the
cashier for payments. The cashier refuses to accept the price. Can Mr. David be
compelled to sell the said articles to Ms. Marry? Decide.
(b) Rishi proposed to sell his house to Rajan. Rajan sent his acceptance by post. Next
day, Rajan sends a telegram withdrawing his acceptance. Examine the validity of
the acceptance in the light of the following:
(i)
The telegram of revocation of acceptance was received by Rishi before the

letter of acceptance.
(ii) The telegram of revocation and letter of acceptance both reached together.
2.
(a) Explain in brief the rules relating to 'Acceptance' of an offer under the
provisions of the Indian Contract Act, 1872.
(b) A, the bailor, pledges a cinema projector and other accessories with Cine
Association Co-operative Bank Limited, the bailee, for a loan. A requests the bank
to allow the pledged goods to remain in his possession and promises to hold the
51
same in trust for the bailee and also further promises to handover the possession of
the same to the bank whenever demanded. Examining the provisions of the Indian
Contract Act, 1872 decide, whether a valid contract of pledge has been made
between A, the bailor and Bank, the bailee?
3.
(a) John, a shareholder of a Company purchased for his personal use certain goods
from a Mall (Departmental Store) on credit. He sent a cheque drawn on the
Companys account to the Mall (Departmental Store) towards the full payment of the
bills. The cheque was dishonoured by the Companys Bank. John, the shareholder
of the company was neither a Director nor a person in-charge of the company.
Examining the provisions of the Negotiable Instruments Act, 1881 state whether
John has committed an offence under Section 138 of the Act and decide whether he
(John) can be held liable for the payment, for the goods purchased from the Mall
(Departmental Store).
(b) Mr. Big, a major, and Minion, a minor, executed a promissory note in favour of Ms.
Purva. Examine with reference to the provisions of the Negotiable Instruments Act,
the validity of the promissory note and whether it is binding on Mr. Big and Minion.
4.
P draws a cheque for ` 50,000. When the cheque ought to be presented to the drawee
bank, the drawer has sufficient funds to make payment of the cheque. The bank fails
before the cheque is presented. The payee demands payment from the drawer. What is
the liability of the drawer.

5.
Peter is working as a salesman in a company on salary basis. The following payments

were made to him by the company during the previous financial year
(i)
overtime allowance,
(ii) dearness allowance

(iii) commission on sales
(iv) employers contribution towards pension fund
(v) value of food.
Examine as to which of the above payments form part of salary of Peter under the
provisions of the Payment of Bonus Act, 1965.
6.
Achal limited company earned super profits during financial year. It intends to give
maximum bonus to its employees. In this regard you are asked to advice the company on
permissible maximum bonus under the Payment of Bonus Act, 1965.
52

7.
prescribed?
8.
Satish retired from the services of Life Management Limited, on 31st March, 2014. He
had a sum of ` 5 lac in his Provident Fund Account. It has become due for payment to
Satish on 30th April, 2014 but the company made the payment of the said amount after
one year. Satish claimed for the payment of interest on due amount at the rate of 15
percent per-annum for one year. Decide, whether the claim of Satish is tenable under the
provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952.

9.
When an employee becomes disabled due to any accident or disease and is unable to do
the same work and re-employed on the reduced wages, how the gratuity of such
employee shall be, computed under the provisions of the Payment of Gratuity Act, 1972?
10. Elle was an employee of Tea Estate Ltd. The whole of the undertaking of Tea Estate Ltd.
was taken over by a new company - Asia Tea Estate Ltd. The services of Elle remained
continuous in new company. After serving for one year Elle met with an accident and
became permanently disabled. Elle applied to the new company for the payment of
gratuity. The company refused to pay gratuity on the ground that Elle has served only for
a year in the company.
Examine the validity of the refusal of the company in the light of the provisions of the
Payment of Gratuity Act, 1972.
11. An association of 120 persons has been formed with the object of acquisition of gain.
Now, due to an internal mismanagement, the said association has applied for being
wound up under the provisions of the Companies Act, 2013. Advice.
12. XYZ Co. Ltd. was in the process of incorporation. Promoters of the company signed an
agreement for the purchase of certain furniture for the company and payment was to be
made to the suppliers of furniture by the company after incorporation. The company was
incorporated and the furniture was used by it. Shortly after incorporation, the company
went into liquidation and the debt could not be paid by the company for the purchase of
above furniture. As a result suppliers sued the promoters of the company for the recovery
of money.
Examine whether promoters can he held liable for payment under the following
situations:
(i)
When the company has already adopted the contract after incorporation?
53
(ii) When the company makes a fresh contract with the suppliers in terms of pre
incorporation contract?
13. Explain the meaning of ordinary and special resolutions as discussed under the
Companies Act, 2013.
14. Write a note on Report on Annual General Meeting under the Companies Act, 2013.
15. An allottee of shares in a Company brought action against a Director in respect of false
statements in prospectus. The director contended that the statements were prepared by
the promoters and he has relied on them. Is the Director liable under the circumstances?
Decide referring to the provisions of the Companies Act, 2013.
PART B: ETHICS
16. Explain the meaning of the terms ethics and business ethics. What kind of awareness
is required for being ethical in business.
17. State the elements which create discrimination in employment in the business
organizations.
18. State in brief the guidelines for managing ethics and to prevent the need for whistleblowing in the work place.
19. (i)
What is meant by Environmental ethics? How does its non-adoption lead to 3 Ps

Viz., Polluter Pays and Principles? Explain.
(ii) Explain the reasons for unethical behaviour among finance and accounting
professionals.
20. Examine the following hypothetical situation and give a brief analytical note on it.
Kalam Ltd. has been the leading scientific equipment manufacturing company in South
India. But it suddenly finds that certain companies from North India that do not have
anywhere near its own kind of clout in their own turfs, are trying to enter the south Indian
market. But because of its superior clout, Kalam Ltd coerces them to enter into
agreement with itself such that they do not sell at prices above that of its own products.
Please comment on the legality of such agreements. Conversely, if Kalam Ltd were to
enter into agreements with distributors such that the distributors are prevented from
marketing the products of the North Indian companies, would that be illegal?
21. Importance of communication is increasing day-by-day in the business organizations.
State the reasons for this increasing importance.
23. Explain Consensus Building.
54
24. Mr. Atul has not received a dividend warrant of ` 1,500 for 150 shares of Xtra Ltd. Draft
an indemnity bond, to be given to the company for seeing release of Dividend.
25. Draft a business letter, presuming your facts that you have received the goods from the
company and you are sending payments.
1.
(a) Invitation to offer : The offer should be distinguished from an invitation to offer. An
offer is the final expression of willingness by the offeror to be bound by his offer
should the party chooses to accept it. Where a party, without expressing his final
willingness, proposes certain terms on which he is willing to negotiate, he does not
make an offer, but invites only the other party to make an offer on those terms. This
is the basic distinction between offer and invitation to offer.
The display of articles with a price in a self-service shop is merely an invitation to
offer. It is in no sense an offer for sale, the acceptance of which constitutes a
contract. In this case, Ms. Marry by selecting some articles and approaching the
cashier for payment simply made an offer to buy the articles selected by her. If the
cashier does not accept the price, the interested buyer cannot compel him to sell.
[Fisher V. Bell (1961) Q.B. 394 Pharmaceutical society of Great Britain V. Boots
Cash Chemists].
(b) The problem is related with the communication and time of acceptance and its
revocation. As per Section 4 of the Indian Contract Act, 1872, the communication of
an acceptance is a complete as against the acceptor when it comes to the
knowledge of the proposer.
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
Referring to the above provisions
(i)
Yes, the revocation of acceptance by Rajan (the acceptor) is valid.
(ii) If Rishi opens the telegram first (and this would be normally so in case of a
rational person) and reads it, the acceptance stands revoked. If he opens the
letter first and reads it, revocation of acceptance is not possible as the contract
has already been concluded.
2.
(a) Following are the general rules regarding acceptance under the Indian Contract Act,
1872.
(i)
Acceptance must be absolute and unqualified. As per section 7 of the Act,

acceptance is valid only when it is absolute and unqualified or unconditional.
55
(ii) Acceptance must be in the prescribed manner. If the offer is not accepted in
the prescribed manner, then the offeror may reject the acceptance within a
reasonable time.
(iii) Acceptance must be communicated to the offeror. If acceptance is
communicated to the person, other than the offeror, it will not create any legal
relationship. Thus, to conclude a contract between the parties, the acceptance
must be communicated in some perceptible form.
(iv) Acceptance must be given by the party to whom the offer is made.
(v) Acceptance must be given within the prescribed time or within a reasonable
time.
(vi) Acceptance cannot be given before communication of an offer
(vii) Acceptance must be made before the offer lapses or is withdrawn.
(viii) Acceptance must show intention to fulfill the promise.
(ix) Acceptance cannot be presumed from silence
(x) Acceptance by conduct/performance of condition: Acceptance may also be by
performance of some condition / act as required by the Offer or.
(b) Delivery to pawnee under Indian Contract Act, 1872: The problem as asked in
the question is based on the provisions of the Indian Contract Act, 1872 as
contained in Section 149 (delivery to bailee and pledgee). The Section provides that
the delivery of the goods to the bailee may be made by actual or constructive
delivery or delivery by attornment to the bank. In such a case there is change in the
legal character of the possession of goods though not in the actual or physical
custody. Though the bailor continues to be in possession of the goods, it is the
possession of the bailee.
In the given problem the delivery of the goods is constructive i.e. delivery by
attornment to the bailee (pawnee) and the possession of the goods by A, the bailor
is construed as possession by bailee/pawnee, the Bank. A constructive pledge
comes into existence as soon as the pawnor, without actually delivering the goods,
promises to deliver them on demand. The transaction was, therefore, a valid pledge.
On this point, the decision given by the Andhra Pradesh High Court in Bank of
Chittur Ltd. vs. Narasimhulu AIR 1966 AP 163 is relevant.
3.
(a) The facts of the problem are identical with the facts of a case known as H.N.D.
Mulla Feroze Vs. C.Y. Somaya Julu, J(2004) 55 SCL (AP) wherein the Andhra
Pradesh High Court held that although the petitioner has a legal liability to refund
the amount to the appellant, petitioner is not the drawer of the cheque, which was
dishonoured and the cheque was also not drawn on an account maintained by him
but was drawn on an account maintained by the company. Hence, it was held that
the petitioner John could not be said to have committed the offence under Section
56
138 of the Negotiable Instruments Act, 1881. Therefore is not liable for the cheque
but legally liable for the payments for the goods.
(b) Minor being a party to negotiable instrument: According to section 26 of the
Negotiable Instruments Act, 1881, every person competent to contract has capacity
to incur liability by making, drawing, accepting, endorsing, delivering and
negotiating a promissory note, bill of exchange or cheque.
As a minors agreement is void, he cannot bind himself by becoming a party to a
negotiable instrument. But he may draw, endorse, deliver and negotiate such
instruments so as to bind all parties except himself.
In view of the provisions of Section 26 explained above, the promissory note
executed by Mr. Big and Minion is valid even though a minor is a party to it. Minion,
being a minor is not liable; but his immunity from liability does not absolve the other
joint promisor, namely Mr. Big from liability [Sulochana v. Pandiyan Bank Ltd., AIR
(1975) Mad. 70].
4.
Section 84 of the Negotiable Instruments Act, 1881 provides that where a cheque is
not presented for payment within a reasonable time of its issue and the drawer or
person on whose account it is drawn had the right at the time when presentation
ought to have been made, as between himself and the banker, to have the cheque
paid and suffers actual damage through the delay, he is discharged from the
liability, that is to say, to the extent to which such drawer or person is a creditor of
the banker to a larger amount than would have been if such cheque had been paid.
In determining what is a reasonable time, regard shall be had to the nature of the
instrument, the usage of trade and of banker, and the facts of the particular case.
Applying the above provisions to the given problem since the payee has not
presented the cheque to the drawers bank within a reasonable time when the
drawer had funds to pay the cheque, and the drawer has suffered actual damage,
the drawer is discharged from the liability.
5.
Computation of Salary / Wages: According to Section 2(21) of the Payment of

Bonus Act, 1965 salary and wages means all remuneration other than remuneration
in respect of overtime work, capable of being expressed in terms of money, which
would if the terms of employment, express or implied, were fulfilled, be payable to
an employee in respect of his employment, or of work done in such employment and
includes dearness allowance, i.e. all cash payment by whatever name called, paid
to an employee on account of a rise in the cost of living. But the term excludes:
(i)
Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical
attendance or other amenities of any service or of any concessional supply of
food grains or other articles;
(iii) Any traveling concession;
57
(iv) Any bonus including incentive, production or attendance bonus;

(v) Any contribution paid or payable by the employer to any pension fund or for
benefit of the employee under any law for the time being in force.
(vi) Any retrenchment compensation or any gratuity or other retirement benefit
payable to the employee or any ex-gratia payment made to him; and
(vii) Any commission payable to the employee.
It has been clarified in the explanation to the section that where an employee is
given, in lieu of the whole or part of the salary or wage payable to him, free food
allowance or free food by his employer, such food allowance or the value of such
food shall be deemed to form part of the salary or wage for such employee.
In view of the provisions of Section 2(21) explained above, the payment of dearness
allowance and value of free food by the employer forms part of salary of Peter while
remaining three payments i.e. payment for overtime, commission on sales and
employers contribution towards pension funds shall not form part of his salary.
6.
Where, in respect of any accounting year referred to in Section 10 of the Payment of

Bonus Act,1965, the allocable surplus exceeds the amount of minimum bonus payable to
the employees under that section, the employer shall, in lieu of such minimum bonus, be
bound to pay to every employee in respect of that accounting year bonus which shall be
an amount in proportion to the salary or wage earned by the employee during the
accounting year subject to a maximum 20% of such salary or wage.
In the given case therefore, the company will be free to give bonus at any rate exceeding
8.33% upto a maximum of 20% of the salary or wage earned by the employees during
the accounting year. From the facts given, it may be presumed that the bonus at 20%
may be payable.
However, in relation to the maximum bonus payable the most important term to
understand is allocable surplus. The eligibility for maximum bonus arises from the
allocable surplus but is not limited by it, as the allocable surplus may justify a bonus at
a rate higher than 20% but bonus will still be limited to 20%.
7.
Scheme established under the Act.
The employer's contribution shall be 10% of the basic wages, dearness allowance and
retaining allowance, if any payable to each of the employees whether employed by him
directly or by or through a contractor.
The employee's contribution shall be equal to the contribution payable by the employer in
respect of him.
58
In case the employee so desires, he may contribute an amount exceeding ten percent of
his basic wages, dearness allowance and retaining allowance if any, subject to the
condition that the employer shall not be under an obligation to pay any contribution over
and above his contribution payable under this section.
factory is not working.
The Central Government may by notification make the employer's contribution equal to
12% for certain establishments class of establishments.
8.
According Section 7Q of the Employees' Provident Funds and Miscellaneous Provisions

Act, 1952 the employer shall be liable to pay simple interest @ of 12% per annum or at
such higher rate as may be specified in the Scheme on any amount due from him under
this Act from the date on which the amount has become so due till the date of its actual
payment:
Provided that higher rate of interest specified in the Scheme shall not exceed the lending
rate of interest charged by any scheduled bank.
As per above provision, Satish can claim for the payment of interest on due amount @ 12
percent per annum or at the rate specified in the Scheme, whichever is higher, for one
year. Here in the absence of specified rate he (Satish) can claim only 12 percent per
annum interest on the due amount.
Hence claim of Satish for interest rate of 15% is not tenable.
9.
Computation of Gratuity of a disabled employee: According to Section 4 (4) of the

Payment of Gratuity Act, 1972, when an employee becomes disabled due to any accident
or disease and is not in a position to do the same work and re-employed on reduced
wages on some other job, the gratuity will be calculated in two parts :
For the period preceding the disablement: on the basis of wages last drawn by the
employee at the time of his disablement.
For the period subsequent to the disablement: On the basis of the reduced wages
as drawn by him at the time of the termination of services.
In the case of Bharat Commerce and Industries Vs. Ram Prasad, it was decided that if
for the purposes of computation of quantum of the amount of gratuity the terms of
agreement or settlement are better than the Act, the employee is entitled for that benefit.
However, the maximum statutory ceiling limit as providing under Sub-Section 3 of
Section 4 of the Act (the maximum amount of gratuity payable to an employee shall not
exceed ` 10 lakh), cannot be reduced by mutual settlement or agreement.
10. According to Section 4 (1) of the Payment of Gratuity Act, 1972, gratuity shall be payable
to an employee on the termination of his employment after he has rendered continuous
59
service for not less than five years on his superannuation, or, on his retirement or
resignation or on his death or disablement due to accident or disease.
The proviso to the subsection states that the condition of the completion of five years of
continuous service is not essential in case of the termination of the employment of any
employee due to death or disablement for the purpose of this section.
Disablement has been explained as such disablement which incapacitates an employee
for the work which he was capable of performing before the accident or disease resulting
in such disablement.
The given problem fulfils all the above requirements as stated. Therefore, Elle is entitled
to recover gratuity after becoming permanently disabled and continuous service of five
years is not required in this case. Hence, the company cannot refuse to pay gratuity on
the ground that he has served only for a year.
11. According to section 464 of the Companies Act, 2013, no association or partnership
consisting of more than prescribed number of persons shall be formed for the purpose of
carrying on any business that has for its object the acquisition of gain by the association
or partnership or by the individual members thereof, unless it is registered as a company
under the Companies Act or is formed under any other law for the time being in force.
Further, the prescribed number of persons shall not exceed 100.
The association as mentioned in the question exceed the prescribed number of members
i.e., it consists of 120 members. Where an association is formed, which has membership
in excess of the number aforementioned, will be an illegal association. Such a body will
have no legal existence and it cannot be wound up under the Act, or even as an
unregistered company. Neither a member of it would be able to sue it, nor would it be
able to sue the member.
Further, every member of an association or partnership carrying on business in
contravention of above law, shall be punishable with fine which may extend to one lakh
rupees and shall also be personally liable for all liabilities incurred in such business.
12. The present contract has been entered into by the promoters for purchase of furniture.
The terms of the contract provide for the payment by the XYZ Co Ltd after it is
incorporated. A pre incorporation contract is not binding on the company as it was not in
existence on the date of the contract. Such a contract can also not be entered into by
promoters acting as agents of the company as the company not being in existence
cannot appoint agents.
Therefore, the contract for the purchase of furniture cannot be binding on the company.
The promoters remain personally liable on a contract made on behalf of a company
which is not yet in existence. Such a contract is deemed to have been entered into
personally by the promoters and they are liable to pay damages for failure to perform the
promises made in the companys name (Scot v. Lord Ebury), even though the contract
expressly provided that only the company shall be answerable for performance.
60
In Kelner v. Baxter also it was held that the persons signing the contracts viz. Promoters
were personally liable for the contract.
Further, a company cannot ratify a contract entered into by the promoters on its behalf
before its incorporation. Therefore, it cannot by adoption or ratification obtain the benefit
of the contract purported to have been made on its behalf before it came into existence
as ratification by the company when formed is legally impossible. The doctrine of
ratification applies only if an agent contracts for a principal who is in existence and who
is competent to contract at the time of contract by the agent.
The company can, if it desires, enter into a new contract, after its incorporation with the
other party. The contract may be on the same basis and terms as given in the preincorporation contract made by the promoters. The adoption of the pre-incorporation
contract by the company will not create a contract between the company and the other
parties even though the option of the contract is made as one of the objects of the
company in its Memorandum of Association. It is, therefore, safer for the promoters
acting on behalf of the company about to be formed to provide in the contract that: (a) if
the company makes a fresh contract in terms of the pre-incorporation contract, the
liability of the promoters shall come to an end; and (b) if the company does not make a
fresh contract within a limited time, either of the parties may rescind the contract.
Thus applying the above principles, the answers can be as under:
(i)
the promoters in the first case will be liable to the suppliers of furniture. There was
no fresh contract entered into with the suppliers by the company. Therefore,
promoters continue to be held personally liable in this case for the reasons given
above.
(ii) in the second case obviously the liability of promoters comes to an end provided the
fresh contract was entered into on the same terms as that of pre-incorporation
contract.
13. (1) Ordinary resolution: A resolution shall be an ordinary resolution if the notice
required under this Act has been duly given and it is required to be passed by the
votes cast, whether on a show of hands, or electronically or on a poll, as the case
may be, in favour of the resolution, including the casting vote, if any, of the
Chairman, by members who, being entitled so to do, vote in person, or where
proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast
against the resolution by members, so entitled and voting.
(2) Special resolution: A resolution shall be a special resolution when
(a) the intention to propose the resolution as a special resolution has been duly
specified in the notice calling the general meeting or other intimation given to
the members of the resolution;
(b) the notice required under this Act has been duly given; and
61
(c) the votes cast in favour of the resolution, whether on a show of hands, or
electronically or on a poll, as the case may be, by members who, being entitled
so to do, vote in person or by proxy or by postal ballot, are required to be not
less than three times the number of the votes, if any, cast against the
resolution by members so entitled and voting.
14. Section 121 of the Companies Act, 2013 provides the preparation of report on each
Annual General Meeting which is to be filed with the registrar. The section says that(1) Report to be prepared by the listed public company: Every listed public
company shall prepare in the prescribed manner a report on each annual general
meeting including the confirmation to the effect that the meeting was convened,
held and conducted as per the provisions of this Act and the rules made thereunder.
(2) Filing of the report with the registrar: The company shall file with the Registrar a
copy of the report within thirty days of the conclusion of the Annual General Meeting
with such fees as may be prescribed, or with such additional fees as may be
prescribed, within the time as specified, under section 403.
(3) Default in filing of the report: If the company fails to file the report before the
expiry of the period specified under section 403 with additional fee, the company
shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees and every officer of the company who is in default
shall be punishable with fine which shall not be less than twenty-five thousand
rupees but which may extend to one lakh rupees.
The rules provided on the Report on Annual General Meeting given under the
Companies(Management and administration) rules, 2014 says that(I)
The report shall be prepared in the following manner, namely:(a) the report under this section shall be prepared in addition to the minutes
of the general meeting;
(b) the report shall be signed and dated by the Chairman of the meeting or in
case of his inability to sign, by any two directors of the company, one of
whom shall be the Managing director, if there is one and company
secretary of the company;
(c) the report shall contain the details in respect of the following, namely:(i)
the day, date, hour and venue of the annual general meeting;
(ii) confirmation with respect to appointment of Chairman of the

meeting;
(iii) number of members attending the meeting;
(iv) confirmation of quorum;
62
(v) confirmation with respect to compliance of the Act and the Rules,
secretarial standards made there under with respect to calling,
convening and conducting the meeting;
(vi) business transacted at the meeting and result thereof;
(vii) particulars with respect to any adjournment, postponement of
meeting, change in venue; and
(viii) any other points relevant for inclusion in the report.
(d) the Report shall contain fair and correct summary of the proceedings of
the meeting.
(II) The copy of the report as prepared above, shall be filed with the Registrar in
prescribed Form within thirty days of the conclusion of the Annual General
Meeting along with the fee.
15. Yes, the Director shall be held liable for the false statements in the prospectus under
sections 34 and 35 of the Companies Act, 2013. Section 34 imposes a criminal
punishment on every person who authorises the issue of such prospectus Whereas
section 35 more particularly includes a director of the company in the imposition of civil
liability for such mis-statements.
The only situations when a director will not incur any liability for mis-statements in a
prospectus are as under:
(a) No criminal liability under section 34 shall apply to a person if he proves that such
statement or omission was immaterial or that he had reasonable grounds to believe,
and did up to the time of issue of the prospectus believe, that the statement was
true or the inclusion or omission was necessary.
(b) No civil liability for any mis-statement under section 35 shall apply to a person if he
proves that:
(i)
Having consented to become a director of the company, he withdrew his

consent before the issue of the prospectus, and that it was issued without his
authority or consent; or
(ii) The prospectus was issued without his knowledge or consent, and that on
becoming aware of its issue, he forthwith gave a reasonable public notice that
it was issued without his knowledge or consent.
Therefore, in the present case the director cannot hide behind the excuse that he
had relied on the promoters for making correct statements in the prospectus. He will
be liable for mis-statements in the prospectus.
16. Ethics: The term 'Ethics' has a variety of meanings. One of the meanings is 'Ethics' are
the principles of conduct governing an individual or a group. Another definition describes
ethics as relating to what is good or bad and having to do with moral duty and obligation.
63
Business Ethics: In a broad sense, ethics in business refers to the application of day-today moral and ethical norms to business. Business ethics are the principles and
standards that determine acceptable conduct in business organisation.
Being ethical in business requires acting with an awareness of (a) The need for complying with rules (e.g) (i) laws of the land, (ii) customs and
expectation of the community (iii) principles of morality (iv) policies of the
organization and (v) general concerns such as the needs of others and fairness.
(b) How the products, services and actions of a business enterprise, can affect its
stakeholders (i.e. employees, customers, suppliers, shareholders and community
society as a whole) either positively or negatively.
17. The root meaning of the term discriminate is to distinguish one object from another
Employment discrimination is treating one person better than another because of their
age, gender, race, religion or other protected class of status. Discrimination in
employment is wrong because it violates the basic principle of equality. Discrimination is
to treat people differently. It is usually intended to refer to the wrongful act of making a
difference in treatment or favour on a basis other than individual merit.
Elements of Discrimination: Generally, the discrimination means to distinguish one
object from another or treating people differently. It is usually intended to refer to the
wrongful act of making a difference in treatment or favour on a basis other than individual
merit. Such discrimination may also be related in employment in business organization.
The elements which create discrimination may be summarized as follows:
(i)
If the decision against one or more employees is taken which is not based on
individual merit, such as the ability to perform a given job, seniority or other morally
legitimate qualification.
(ii) If the decision has been derived solely from racial or sexual prejudice, false
stereotypes other kind of morally unjustified attitude against members of which the
employee belongs.
(iii) If the decision has a harmful or negative impact on the interests of the employees,
perhaps costing them jobs, promotions or better pay.
Discrimination in employment is wrong because it violates the basic principle of justice by
differentiating between people on the basis of characteristics (race or sex) that are not
relevant to the tasks they must perform. Looking to these aspects law has also been
changed to conform to these moral requirements and to minimize the discrimination in
employment in this respect.
18. Managing ethics and preventing whistle-blowing: The focus on core values and
sound ethics, the hall mark of ethical management, is being recognized as an important
way to ensure the long term effectiveness of governance structures and procedures and
to avoid the need for whistle blowing.
64
Employers, who understand the importance of work place ethics, provide their work force
with an effective framework and guiding principles of identity and address ethical issues
as they arise. These guidelines for managing ethics and to avoid the need for whistleblowing in the work place may be summarized as follows:(a) Have a Code of Conduct and ethics.
(b) Establishment open communication.
(c) Make ethical decisions in group and make decision public whenever appropriate.
(d) Integrate ethics with other management practices.
(e) Use of cross functional teams when developing and implementing the ethics
management programme.
(f)
Appointing an ombudsman.
(g) Creating an atmosphere of trust.

(h) Regularly updating of policies and procedures
(i)
Include a grievance policy for employees
(j)
Set an example from the top.
19. (i)
Ecological ethics is based on the idea that the environment should be protected not
only for the sake of human beings but also for its own sake. The issue of
environmental ethics goes beyond the problems relating to protection of
environment or nature in terms of pollution, resource utilization or waste disposal.
Business and Industry are closely linked with environment and resource utilization.
Production process and strategy for eco-friendly technologies throughout the
product life cycle and minimization of waste play major role in protecting the
environment and conservation of resources. Business, Industry and multinational
corporations have to recognize environmental management as the priority area and
a key determinant to sustainable development. Sound management of wastes is
among the major environmental issues for maintaining the quality of Earths
environment and achieving sustainable development.
If the environmental costs are properly reflected in the prices paid for goods and
services then companies and ultimately the consumer would adjust market
behaviour in a way that would reduce damage to environment, pollution and waste
production. Price signal will also influence behaviour to avoid exploitation or
excessive utilization of natural resources. Such measures would facilitate the
approach of Polluter Pays Principle. Removing subsidies that encourage
environmental damage is another measure.
(ii) The reasons which lead to unethical behaviour among finance and accounting
professionals are as follows:
65
1.
Emphasis on short term results : This is one of the primary reasons which
has led to the downfall of many companies like Enron and Worldcom.
2.
Ignoring small unethical issues: It is a known fact that most of the

compromises we make are small, however, they lead us into committing large
infractions. Ignoring minor lapses, lead to bigger and huge mistakes.
3.
Economic cycles: In good times, companies are relaxed in their accounting

procedures or disclosures, as there is a pervasive feel-good effect. But when
times of hardship follow, then the hit taken by them is almost fatal, as was
proved in the Enron case. So companies need to watch out for economic
cycles and be vigilant in good times as well as bad.
4.
Accounting rules: In the era of globalization and massive cross border flow of
capital, accounting rules are changing faster than ever before. The rules have
become more complex and it is difficult to identify deviations from these complex
set of requirements. The complexity of these principles and rules and the difficulty
associated with identifying abuse are reasons which may promote unethical
behaviour
20. The Competition Act, 2002 intends to provide, keeping in view of the economic development
of the country, for the establishment of a Commission to prevent practices having adverse
effect on competition, to promote and sustain competition in markets, to protect the interests
of consumers and to ensure freedom of trade carried on by other participants in markets, in
India, and for matters connected therewith or incidental thereto.
The Act deals with the following:
Prohibition of certain agreements, which are considered to be anti-competitive in

nature. Such agreements [namely tie in arrangements, exclusive dealings (supply
and distribution), refusal to deal and resale price maintenance] shall be presumed
as anti-competitive if they cause or are likely to cause an appreciable adverse effect
on competition within India.
Abuse of dominant position by imposing unfair or discriminatory conditions or

limiting and restricting production of goods or services or indulging in practices
resulting in denial of market access or through in any other mode are prohibited.
Regulation of combinations which cause or likely to cause an appreciable

adverse effect on competition within the relevant market in India.
In light of the above points, any agreement that Kalam Ltd. may enter into with its
competitors from North India to tie-up the price at a certain level is prohibited. Such
agreements would also amount to abuse of dominant position.
Conversely, agreements with distributors preventing the latter from distributing the goods
of its competitors would also be illegal since they would restrict market access and can
be deemed anti-competitive.
66
21. Reasons for increasing importance of communication: It is true that importance of

communication is increasing day by day in the business organizations. The reasons for
this growth may be stated as follows:
(a) Growth in the size and multiple locations of organization: Most of the
organizations are growing larger and large in size. The people working in these
organizations may be spread over different states of a country or over different
countries. Keeping in touch, sending directions across and getting feedback is
possible only when communication lines are kept working effectively.
(b) Growth of trade unions: Over the last so many decades trade unions have been
growing strong. No management can be successful without taking the trade unions
in confidence. Only through effective communication can a meaningful relationship
be built between the management and workers.
(c) Growing importance of human relations: Workers in an organization are not like
machines. They have their own hopes and aspirations. Management has to
recognize them above all as sensitive human beings and work towards a spirit of
integration with them which effective communication helps to achieve.
(d) Public Relations: Every organization has a social responsibility, towards
customers, government, suppliers and the public at large. Communication with
them is the only way an organization can project a positive image of itself.
(e) Advance in Behavioural Sciences: Modern management is deeply influenced by
exciting discoveries made in behavioural sciences like psychology, sociology,
transactional analysis etc. All of them throw light on subtle aspects of human nature
and help in developing a positive attitude towards life and building up meaningful
relationships. And this is possible only through communication.
(f)
Technological advancement: The world is changing very fast, owing to scientific

and technological advancements. These advancements deeply affect not only
methods of work but also the composition of groups. In such a situation proper
communication between superiors and subordinates becomes very necessary.

67

and affection.
Control is the need to exercise leadership and prove ones abilities.
Affection is the need to develop relationships with people. Groups are an excellent
way to make friends and establish relationships.
23. Consensus Building: Consensus means overwhelming agreement. Most consensus

building efforts set out to achieve unanimity. The key indicator of whether or not a
consensus has been reached is that everyone agrees with the final proposal and it is
important that consensus be the product of a good-faith effort to meet the interests of all
stakeholders. Thus, consensus requires that someone frame a proposal after listening
carefully to everyone's interests. Before the parties in a consensus building process
come together, mediators (or facilitators) can play an important part in helping to identify
the right participants, assist them in setting an agenda and clarifying the ground rules by
which they will operate, and persuading noncompliant parties to participate. Once the
process has begun, mediators (and facilitators) try to assist the parties in their efforts to
generate a creative resolution of differences.
Problem-Solving Orientation - It is important to be constructive and maintain a
problem-solving orientation, even in the face of strong differences and personal
antagonism. It is in every participant's best interest to behave in a fashion they would
like others to follow. Concerns or disagreement should be expressed in an
unconditionally constructive manner.
Engage in Active Listening-Participants in every consensus building process should
be encouraged (indeed, instructed, if necessary) to engage in what is known as active
listening a procedure for checking to be sure that communications are being heard
as intended.
Disagree Without Being Disagreeable-Participants in every consensus building
process should be instructed to "disagree without being disagreeable." This dictum
should probably be included in the group's written ground rules.
Strive for the Greatest Degree of Transparency Possible-To the greatest extent
possible, consensus building processes should be transparent. That is, the group's
mandate, its agenda and ground rules, the list of participants and the groups or
interests they are representing, the proposals they are considering, the decision rules
they have adopted, their finances, and their final report should, at an appropriate
time, be open to scrutiny by anyone affected by the group's recommendations.
68
Strive to Invent Options for Mutual Gain-The goal of a consensus building process
ought to be to create as much value as possible and to ensure that whatever value is
created be divided in ways that take account of all relevant considerations. The key to
creating value is to invent options for mutual gain.
24. Mr. Atul S/o .. resident do hereby agree to indemnify the
Xtra Ltd. for any loss that may occur for seeking release of dividend for 150 shares of
` 1500.
I further declare that personally I have not received the dividend warrant in question.
Mr. Atul
Date:
Signature
Place:
25. Business Letter - acknowledging receipt of goods:
KUNAL CHEMICALS LIMITED
Regd. Office : 15, Okhla Estate, New Delhi - 110016
Phone : 6132757, Fax : 6132767
E-mail: kunalchem@rediffmail.com ,
Messrs. Shippers & Perfect Delivers
website: www.kunalchem.org
Dated:
16, Nariman Point

Mumbai
Sir
Subject: Acknowledging the receipt of Consignment No ______
Reference: Our request 24/FD/55 dated 1st August, 2015
We acknowledge with thanks the receipt of above consignment in our godown and we
are arranging the payment of proceeds towards the said consignment by way of crossed
cheque in favour of your company within a period of next 15 days.
We solicit your relationship in our future dealings.
Thanking you
Yours faithfully
For on behalf of Kunal Chemicals Ltd.
Applicability of Pronouncements/Legislative Amendments/Circulars etc.

for November, 2015 Intermediate (IPC) Examination
Paper 1: Accounting
Accounting Standards
AS
Disclosure of Accounting Policies
AS
Valuation of Inventories
AS
Cash Flow Statements
AS
Depreciation Accounting
AS
Construction Contracts (Revised 2002)
AS
Revenue Recognition
AS
10
Accounting for Fixed Assets
AS
13
Accounting for Investments
AS
14
Accounting for Amalgamations
Note Regarding Applicability for Paper 1 :

The relevant notified Sections of the Companies Act, 2013 up to 31st March, 2015 and for
other legislative amendments including relevant Notifications / Circulars / Rules / Guidelines
issued by Regulating Authority up to 30th April, 2015.
Non-Applicability of Ind ASs:
The Ministry of Corporate Affairs has notified Roadmap for applicability of Indian Accounting
Standards (Ind AS) vide Notification No. G.S.R.(E) dated 16 February, 2015, for
compliance by the class of companies specified in the said roadmap. The notification has
been uploaded on www.mca.gov.in along with the thirty nine (39) Indian Accounting Standards
(Ind AS). Students may note that these Ind ASs are not applicable for November, 2015
Examination.
Paper 2: Business Laws, Ethics and Communication

The Companies Act, 2013 : The relevant sections of the Companies Act, 2013, notified up to 31st
March, 2015 along with significant Rules/ Notifications/ Circulars/ Clarifications/ Orders issued by
the Ministry of Corporate Affairs upto 30th April, 2015.

FOR MAY, 2016 EXAMINATION
I.
Applicability for May 2016 examinations

Applicability of relevant amendments/Circulars/Notifications/Regulations etc. for the
period 1st May 2015 to 31 st October, 2015 relating to Business Law, Ethics and
Communication at Intermediate (IPC) for May 2016, Examination:
(i)

Sl.
No.
Amendment related
to the topic
Content
The
Companies
(Acceptance
of
Deposits)
Second
Amendment
Rules,
2015
Vide Notification No. G.S.R. 695(E) dated 15th

September 2015, the Ministry of Corporate Affairs
makes the Companies (Acceptance of Deposits)
Second Amendment Rules, 2015 further to
amend the Companies (Acceptance of Deposits)
Rules, 2014. This amendment has substituted
sub-clause (viii) of clause (c), sub-rule (1), rule 2.
The
Companies
(Management
and
Administration)
Amendment
Rules,
2015.
Vide Notification No. G.S.R. 669(E) dated 28th

August 2015, the MCA makes the Companies
(Management and Administration) Amendment
Rules, 2015 further to amend the Companies
(Management and Administration) Rules, 2014.
Through this amendment, rule 23, in sub-rule (l)
for the words 'not more than five lakh rupees", the
words 'not less than five lakh rupees' shall be
substituted.
Exemptions
to
companies
covered
under section 8
Vide Notification G.S.R. 466(E) dated 5th June

2015, the Central Government in the interest of
public, hereby directs that certain provisions of
the Companies Act, 2013, shall not apply or shall
apply with certain exceptions, modifications and
adaptations to a body to which a license is
granted under the section 8 of the Act.
Exemptions to private
companies
Vide Notification no. G.S.R. 464(E), dated 5th

June 2015 the Central Government in the interest
of public, hereby directs that certain provisions of
the Companies Act, 2013, shall not apply or shall
apply with certain exceptions, modifications and
adaptations to a private company.
Exemptions to Nidhi
companies
Vide Notification G.S.R. 465(E) dated 5 June

2015 the Central Government hereby directs that
certain provisions of the Companies Act, 2013,
shall not apply or shall apply with such
exceptions, modifications and adaptations to
Nidhis.
Exemptions
Government
Companies
to
Vide Notification dated G.S.R.463(E) dated 5

June 2015 the Central Government hereby directs
that certain provisions of the Companies Act,
2013, shall not apply or shall apply with such
exceptions, modifications and adaptations to a
Government company.
The
Companies
(Amendment)
Act,
2015
Vide Notification dated 29th May 2015, Central

Government declared the date of enforcement of
provisions of sections 1 to 12 and 15 to 23 of the
Companies (Amendment) Act, 2015.
Delegation of power
and
functions
to
Regional
Directors
under section 94 (5) of
the Companies Act,
2013
In exercise of the powers conferred by Section

458 of the Companies Act, 2013 (18 of 20l3), the
Central Government hereby delegates to the
Regional Directors at Mumbai, Kolkata, Chennai,
Noida, Ahmedabed, Hyderabad and Shillong the
powers and functions vested in it under subsection (5) of Section 94 of the Companies Act,
2013, subject to the condition that the Central
Government may revoke such delegation of
powers or may itself exercise the powers under
the said sub-section, it in its opinion such a
course of action h necessary in the public interest.
41
(ii) The Negotiable Instruments (Amendment) Second Ordinance, 2015 : In

exercise of the powers conferred by Article123(1) of the Constitution, the President
promulgated the ordinance called the Negotiable Instruments(Amendment) Second
Ordinance, 2015 with effect from 15 th June, 2015. Amendments is made with an
object to address the difficulties faced by the payee or the lender of the money in
filing cases under section 138 of the said Act, because of which large, large number
of cases are stuck, so the jurisdiction for offence under section 138 has been
clearly defined. For detail click the following linkhttp://www.prsindia.org/uploads/media/Negotiable%20instrument/Negotiable%20Ins
truments%20(A)%20second%20Ordinance.pdf
Students are advised to refer the study material (July 2015 edition) along with the
practice manual (July 2015 edition).
42
II.
INTERMEDIATE (IPC) EXAMINATION: MAY, 2016
Non-Applicability for May 2016 examinations

S.No.
Section No.
Section title
1.
Section 48
Variation of shareholders right
2.
Section 66
Reduction of share capital
3.
Section 75
damages for fraud
4.
Section 97
Power of tribunal to call AGM
5.
Section 98
Power of Tribunal to call meetings of members, Etc.
6.
Section 99
Punishment for default in complying with provisions

of sections 96 to 98

QUESTIONS
1.
(a) Vishal, aged 16 years, was studying in an engineering college. On 1 March, 2013
he took a loan of ` 1 lakh from Shekhar for the payment of his college fee and
agreed to pay by 30 th May, 2014. Vishal possesses assets worth ` 10 lakhs. On due
date Vishal fails to pay back the loan to Shekhar. Shekhar now wants to recover the
loan from Vishal out of his assets. Whether Shekhar would succeed? Decide,
referring to the provisions of the Indian Contract Act, 1872.
(b) What is the meaning of the term Reciprocal Promise. In what forms the
performance of reciprocal promise can take place according to the provision of the
Indian Contract Act, 1872.
2.
(a) Father promised to pay his son a sum of rupees one lakh if the son passed C.A.
examination in the first attempt. The son passed the examination in the first attempt,
but father failed to pay the amount as promised. Son files a suit for recovery of the
amount. State along with reasons whether son can recover the amount under the
Indian Contract Act, 1872?
(b) Mr. Yadav of Delhi engaged Mr. Shekhawat as his agent to buy a house in West
Extension area. Mr. Shekhawat bought a house for ` 50 lakhs in the name of a
nominee and then purchased it himself for ` 60 lakhs. He then sold the same house
to Mr. Yadav for ` 62 lakhs. Mr. Yadav later comes to know the mischief of Mr.
Shekhawat and tries to recover the excess amount paid to Mr. Shekhawat. Is he
entitled to recover any amount from Mr. Shekhawat? If so, how much? Explain.
43

3.
Ram, a legal successor of Shyam, the deceased person, signs a Bill of Exchange in his
own name admitted a liability of ` 1,50,000 i.e. the extent to which he inherits the assets
from the deceased payable to Mohan after 3 months from 1 st January, 2015. On maturity,
when Mohan presents the bill to Ram, he (Ram) refuses to pay for the bill on the ground
that since the original liability was that of Shyam, the deceased, therefore he is not liable
to pay for the bill.
Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether
Mohan can succeed in recovering ` 1,50,000 from Ram.
4.
A draws a bill on B. B accepts the bill without any consideration. The bill is transferred to
C without consideration. C transferred it to D for value. Decide-.
(i)
Whether D can sue the prior parties of the bill, and
(ii) Whether the prior parties other than D have any right of action inter se?
Give your answer in reference to the Provisions of the Negotiable Instruments Act, 1881.
5.
Referring the provisions of the Payment of Bonus Act, 1965, state whether the following
persons are entitled to bonus under the Act:
(i)
An apprentice;
(ii) An employee dismissed on the ground of misconduct;

(iii) A temporary workman;
(iv) A piece-rated worker;
(v) An employee getting a salary of ` 12,000 per month.
6.
Precious Wooden Toys Limited was established at Kolkota in the year 2012 employing
100 workmen. Since then, the company suffered losses, but minimum bonus was paid in
the accounting years of 2013 and 2014. In the accounting year 2015, the company
earned huge profits. After mitigating the previous losses the company is having surplus
profits and wants to pay the bonus to its workmen. Precious Wooden Toys Limited wants
legal advice on the following issues:
(a) How much minimum and maximum bonus may be paid to the workmen?
(b) Whether the company may adjust the puja bonus already paid to the workmen while
calculating the amount of bonus payable to workmen for that accounting year.
(c) Company wants to give wooden toys as bonus instead of cash. Whether the
company can do so?
Advise Precious Wooden Toys Limited, stating the provisions of the Payment of Bonus
Act, 1965.
44

7.
prescribed?
8.
X, an employee in ABC Ltd (covered by the EPF and MP Act, 1952) died in an accident. State
to whom the amount standing in his account to be payable under the provisions of the Act.

9.
Examine the validity of the following nominations in respect of payment of gratuity as per
the provisions of the Payment of Gratuity Act, 1972. Also specify the provisions in this
reference:
(i)
R who has 4 members in his family wants to nominate one of his friend for the
purpose of gratuity.
(ii) S who has no family, nominated one of his friend for the purpose of gratuity.
Afterwards he acquired family but did not change the nomination.
10. An employee who is governed by the Payment of Gratuity Act, 1972 committed a theft in
the course of his employment. And consequently his services was terminated. State in
this connection, whether the gratuity payable to him shall be wholly or partly forfei ted.
11. Sujeev, a shareholder, holding 2000 shares of ` 100 per share of Touchwood Pharma
Ltd. The company has called and collected ` 60 per share. Sujeev has paid ` 40 per
share (the balance amount not yet demanded by the company) as calls in advance. At
the time of annual general meeting of the company, he demanded that he is entitled to
vote in respect of the advance money paid by him. The directors of the company rejected
his demand. He claimed for refund of calls in advance amount paid by him with interest.
Examine the validity of Sujeevs claim for voting or refund of money with interest with
reference to the provisions of the Companies Act, 2013.
12. Lotus valley Ltd. issued a prospectus with the object of setting up of a chain of hotels.
However, later it decided to set-up a Pharmaceutical Manufacturing unit. Keeping in view
of the provisions of the Companies Act, 2013, state whether Lotus valley Ltd. can do so
and if it can be done, also state the procedure to be followed for variation in the objects
in the prospectus.
13. Can a non-profit organization be registered as a company under the Companies
Act, 2013? If so, what procedure does it have to adopt?
14. ADJ Limited decides to buy-back its own shares. Advise the company's Board of
Directors about the sources out of which the company can buy-back its own shares.
45
What conditions are attached to the buy-back scheme of the company in accordance with
the provisions of the Companies Act, 2013? Explain.
15. Examine the validity of the following decisions of the Board of Directors with reference of
the provisions of the Companies Act, 2013.
(i)
In an Annual General Meeting of a company having share capital, 80 members

present in person or by proxy holding more than 1/10 th of the total voting power,
demanded for poll. The chairman of the meeting rejected the request on the ground
that only the members present in person can demand for poll.
(ii) In an annual general meeting, during the process of poll, the members who earlie r
demanded for poll want to withdraw it. The chairman of the meeting rejected the
request on the ground that once poll started, it cannot be withdrawn.
PART B: ETHICS
16. To pay proper attention to business ethics is certainly beneficial in the interest of
business. Describe four such benefits which may be obtained by paying attention to
business ethics.
17. What is Corporate Social Responsibility? Why it is needed in Indian Business
environment?
18. What do you understand by the term 'discrimination' in employment as sometime found
in an establishment? Explain the basic elements of 'discrimination'.
19. (i)
What is meant by Environmental ethics? How does its non-adoption lead to 3 Ps

Viz., Polluter Pays and Principles? Explain.
(ii) What are the objects of the Central Consumer Protection Council in relation to
protection of rights of the consumers?
20. What are the fundamental principles of ethics applicable to the persons of finance and
accounting profession?
21. What are the factors that lead to grapevine communication?
22. What do you understand by 'Group conflicts'? How shall these be managed effectively?
Explain.
23. State the reasons for accepting the change in the present management set -up of the
corporate culture in a business organisation.
24. Mr. Somnath has not received a dividend warrant of ` 1,700 for 170 shares of Cute
Fabrics Ltd. Draft an indemnity bond, to be given to the company for seeing release of
Dividend.
46
25. Ashoka Paper Limited was incorporated in September, 2015. Now the company wants to
hold its first meeting of the Board of Directors. Draft a notice of the said meeting along
with agenda.
1.
(a) According to Section 11 of the Indian Contract Act, 1872, a person who is of the age
of majority to the law to which he is subject is competent to enter into any contract.
A person who has completed the age of 18 years is a major and otherwise he will
be treated as minor. Thus, Vishal who is a minor is incompetent to contract and any
agreement with him is void [Mohori Bibi Vs Dharmodas Ghose 1903, 30 Cal, 539
(PC)].
Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a
minor for the supply of the things which are the necessaries of life to him. It says
that though minor is not personally liable to pay the price of necessaries supplied to
him or money lent for the purpose, the supplier or lender will be entitled to claim the
money/price of goods or services which are necessaries suited to his condition of
life provided that the minor has a property. The liability of minor is only to the extent
of the minors property. This type of contract is called a Quasi-contract and the right
of the supplier/lender is based on the principle of equity.
Thus, according to the above provision, Shekhar will be entitled to recover the
amount of loan given to Vishal for payment of the college fees from the property of
the minor.
(b) The law relating to reciprocal promise are set out in Sections 51 to 54 of the Indian
Contract Act, 1872.
General observation: A contract may consist of (i) an act and a promise or (ii) two
promises one being the consideration for the other.
The second type of contract which involves two promises, one promise from each to
the other party is known as Reciprocal promise.
The performance of reciprocal promise can take in different forms(i)
Simultaneously performance of reciprocal promise [Section 51]: In this

case, promises have to be performed simultaneously. The conditions and
performances are concurrent. If one of the parties does not perform his
promise, the other also need not perform his promise.
(ii) Performance of reciprocal promise where the order is expressly fixed:

Where the order of performance is expressly fixed, the promise must be
performed in that order only.
47
(iii) Performance of reciprocal promise by implication: Where the performance

of reciprocal promise is not fixed expressly, some times the order is
understood by implication.
(iv) Effect of one party preventing another from performing promise [Section
53]: When in a contract consisting of reciprocal promises one party prevents
the other from performing his promise, the contract becomes voidable at the
option of the party so prevented. The person so prevented is entitled to get
compensation for any loss he may have sustained for the non-performance.
(v) Effects of default as to promise to be performed first: Section 54 of the Act
provides that promises may be such that:
(A) one of them cannot be performed or
(B) its performance cannot be demanded till the other has been performed.
(vi) Position of legal and illegal parts of Reciprocal promises: Reciprocal
promise to do certain things that are legal and certain others that are not legal
Section 57 of the Act provides that if reciprocal promises have two parts, the
first part being legal and the second part being illegal, the legal part is a v alid
contract and the illegal part is void.
(vii) Alternative promise one branch being illegal: In the case of the alternative
promise, one branch of which is legal and the other illegal, the legal branch
alone can be enforced.
2.
(a) Problem asked in the question is based on the provisions of the Indian Contract Act,
1872 as contained in section 10. According to the provisions, there should be an
intention to create legal relationship between the parties. Agreements of a social
nature or domestic nature do not contemplate legal relationship and as such are not
contracts, which can be enforced. This principle has been laid down in the case of
Balfour vs. Balfour (1912 2 KB. 571). Accordingly, applying the above provisions
and the case decision, son cannot recover the amount of ` 1 lakh from father for the
reasons explained above.
(b) The problem in this case, is based on the provisions of the Indian Contract Act,
1872 as contained in Section 215 read with Section 216. The two sections pro vide
that where an agent without the knowledge of the principal, deals in the business of
agency on his own account, the principal may:
(1) repudiate the transaction, if the case shows, either that the agent has
dishonestly concealed any material fact from him, or that the dealings of the
agent have been disadvantageous to him.
(2) claim from the agent any benefit, which may have resulted to him from the
transaction.
48
Therefore, based on the above provisions, Mr. Yadav is entitled to recover ` 12

lakhs from Mr. Shekhawat being the amount of profit earned by Mr. Shekhawat out
of the transaction.
3.
The problem is based on the provisions of the Negotiable Instruments Act, 1881 as
contained in Section 29. A legal representative of a deceased person who signs his own
name on a negotiable instrument, is personally liable for the entire amount thereon,
unless he expressly limits his liability to the extent of the assets received by him as such
(Section 29).
Applying the above provisions to the given problem Mohan is entitled to recover
` 1,50,000/- from Ram. Ram cannot refuse to pay the amount since he has inherited the
assets of the deceased. He will be liable to the extent of the full amount of the bill even if
he inherits the property valued less than the amount of the bill. Thus, in this case he will
be liable to full amount of ` 1,50,000/-.
4.
Problem on Negotiable Instrument made without consideration: Section 43 of the

Negotiable Instruments Act, 1881 provides that a negotiable instrument made, drawn,
accepted, indorsed or transferred without consideration, or for a consideration which
fails, creates no obligation of payment between the parties to the transaction. But if any
such party has transferred the instrument with or without endorsement to a holder for
consideration, such holder, and every subsequent holder deriving title from him, may
recover the amount due on such instrument from the transferor for consideration or any
prior party thereto.
(i)
In the problem, as asked in the question, A has drawn a bill on B and B accepted
the bill without consideration and transferred it to C without consideration. Later on
in the next transfer by C to D is for value. According to provisions of the aforesaid
section 43, the bill ultimately has been transferred to D with consideration.
Therefore, D can sue any of the parties i.e. A, B or C, as D arrived a good title on it
being taken with consideration.
(ii) As regards to the second part of the problem, the prior parties before D i.e., A, B,
and C have no right of action inter se because first part of Section 43 has c learly
lays down that a negotiable instrument, made, drawn, accepted, indorsed or
transferred without consideration, or for a consideration which fails, creates no
obligation of payment between the parties to the transaction prior to the parties who
receive it on consideration.
5.
(i)
An Apprentice is not entitled to bonus within the meaning of Employee under

section 2(13) of the Payment of Bonus Act, 1965 and as also decided in the case
[Wheel RIM Co. Vs. Govt. of Tamil Nadu (1971)]
(ii) An employee dismissed on the ground of misconduct shall be disqualified for any
bonus under section 9 of the Payment of Bonus Act, 1965 only if the misconduct
falls within the meaning of:
49
(a) Fraud; or
(b) Riotous or violent behaviour while on the premises of the establis hment; or
(c) Theft, misappropriation or sabotage of any property of the establishment .
It may be noted from the above grounds of disqualification, that misconduct is not
mentioned. Misconduct is a broad term and can be interpreted to mean many things
such as insubordination, misbehavior or even deliberate sub standard
performance or negligence, but none of these will disqualify an employee from
receiving bonus. Therefore, an employee dismissed on the ground of misconduct
will be disqualified only if the conditions in a, b or c above can be established.
[Pandian Roadways Corporation Ltd. Vs. Presiding Officer (1996)]
(iii) A temporary workman is entitled to bonus on the basis of the total number of days
worked by him.
(iv) A piece-rated worker is entitled to bonus. [Mathuradas Kanji Vs. L.A. Tribunal
(1958)]
(v) Under section 2 (13) of the payment of Bonus Act, 1965 a person drawing a monthly
salary of an amount in excess of ` 10,000, shall not fall within the meaning of an
employee and consequently not eligible to receive bonus under the Act.
6.
Payment of bonus: In accordance with the provisions of Section 10 of the Payment of

Bonus Act, 1965, every employer shall be bound to pay to every employee in respect of
any accounting year, a minimum bonus which shall be 8.33 percent of the salary or wage
earned by the employee during the accounting year or hundred rupees, whichever is
higher, whether or not the employer has any allocable surplus in the accounting year.
Therefore, even in the case of loss, the minimum bonus has to be paid.
Further, in accordance with the provisions of Section 11(1) the maximum bonus payable
to an employee is 20% of the salary or wage earned by him in any accounting year.
Bonus at a rate higher than the minimum bonus of 8.33% is payable only when the
allocable surplus computed in accordance with the provisions of the Payment of Bonus
Act, 1965 exceeds the amount of minimum bonus payable subject to the maximum limit
of 20%.
Section 17 of the Act provides for the adjustment of any customary or puja bonus or any
advance bonus against the bonus payable under this Act for an accounting year and pay
only the balance bonus after such deduction / adjustment to the employee .
Bonus should be paid only in cash by the employer.
The legal advice in the given case may be given on the basis of the provisions of the Act
accordingly:
(a) As regards minimum and maximum bonus: The company has surplus profits
after setting off past losses. It appears therefore, that the allocable surpl us is higher
50
than the minimum bonus payable under the Act which is 8.33%. Hence, the
company is bound to pay bonus at a rate higher than the minimum bonus rate but
upto a maximum of 20%. Therefore, Precious Wooden Toys Ltd is bound to pay
bonus at a rate higher than 8.33% depending on its allocable surplus but upto a
maximum of 20%.
(b) As regards adjustment of Puja Bonus: In accordance with the provisions of
Section 17 of the Payment of Bonus Act, 1965 where, in an accounting year an
employer has paid any puja bonus or other customary bonus to an employee, the
employer shall be entitled to deduct (adjust) the amount of bonu s so paid from the
amount of bonus payable to the employee in respect of that accounting year and the
employee shall be entitled to receive only the balance. Therefore, Precious Wooden
Toys Ltd. may adjust the puja bonus already paid from the amount of bon us payable
to the workmen and the workmen shall be entitled to receive only the balance.
(c) The amount payable to an employee by way of bonus under the Payment of Bonus
Act, 1965, shall be paid only in cash by the employer. Therefore, Precious Wooden
Toys Ltd. cannot distribute wooden toys, instead of cash, as bonus. It is against the
statutory provisions.
7.
Scheme established under the Act.
The employer's contribution shall be 10% of the basic wages, dearness allowance and
retaining allowance, if any payable to each of the employees whether employed by him
directly or by or through a contractor.
The employee's contribution shall be equal to the contribution payable by the employer in
respect of him.
In case the employee so desires, he may contribute an amount exceeding ten percent of
his basic wages, dearness allowance and retaining allowance if any, subject to the
condition that the employer shall not be under an obligation to pay any contribution over
and above his contribution payable under this section.
factory is not working.
The Central Government may by notification make the employer's contribution equal to
12% for certain class of establishments.
8.
As per Section 10 of the Employees Provident Funds and Miscellaneous Provisions Act,
1952, the amount standing to the credit of any member in the fund or of any exempted
employee in a provident fund shall not in any way be capable of being assigned or
charged and shall not be liable to attachment under any decree or order of an y court in
respect of any debt or liability incurred by the member or exempted employee, and
51
neither the official assignee appointed under the Presidency Town Insolvency Act, 1909,
nor any receiver appointed under the Provincial Insolvency Act, 1920, shall be entitled to
or have any claim on, any such amount. This protection also applies to provident fund,
pension and insurance amount receivable by employee under the scheme .
The amount standing to the credit of the person at the time of his death is payable to his
nominees under the scheme or the rules under this Act.
Further, the amount shall be free from any debt or other liability incurred by the deceased
or the nominee before the death of the member or of the exempted employee and shall
also not be liable to attachment under any decree or order of any Court.
9.
The provisions regarding nomination of gratuity under the Gratuity Act, 1972 are as
below:
(i)
Nomination in favour of one or more family members: If an employee has a

family at the time of making a nomination, the nomination shall be made in favour of
one or more members of his family, and any nomination made by such employee in
favour of a person who is not a member of his family shall be void. Therefore, the
nomination of friend by R in the above case is void.
(ii) Nomination by the employee having no family/ subsequently acquiring family:

If at the time of making a nomination the employee has no family, the nomination
may be made in favour of any person or persons but if the employee subseque ntly
acquires a family, such nomination shall forthwith become invalid and the employee
shall make, within such time as may be prescribed, a fresh nomination in favour of
one or more members of his family. Therefore, the nomination in the above case by
S is also void. He has to nominate from his family members for the purpose of
gratuity.
10. Reduction and forfeiture of Gratuity: Under Section 4 (6)(a) of the Payment of Gratuity
Act, 1972, in the case of damage, loss or destruction of property of employe r, due to the
willful omission or negligence of the employee, the amount of gratuity to the extent of
loss or damage shall be forfeited by the employer.
Further, under section 4(6)(b), the gratuity payable to an employee may be wholly or
partially forfeited, where the services of an employee are terminated on the ground of:
(i)
riotous or disorderly conduct or act of violence; or
(ii) committing an offence involving moral turpitude in the course of his employment.
Theft is an offence involving moral turpitude and consequently, if the services of an
employee had been terminated for committing theft in the course of his employment, the
gratuity payable to him under the provisions of the Act shall be wholly forfeited in view of
Section 4(6)(b)(ii). [Bharat Gold Mines Ltd. Vs Regional Labour Commissioner (Central),
(1987) 70 FJR 11 (Kern.)]]
52
11. According to Section 50 of the Companies Act, 2013, a company may, if so authorized by
the Articles, accept from any member, the whole or a part of the amount remaining
unpaid on any shares by him, even if no part of that amount has been called up. The
amount so received or accepted is described as payment in advance of calls. When a
company receives payment in advance of calls, the consequences will be as follo ws:
(i)
The shareholder is not entitled to voting rights in respect of the moneys so paid by him
until the same would, but for such payment, become presently payable [Section 50)].
(ii) The shareholders liability to the company in respect of the call for which the amount
is paid is extinguished.
(iii) The shareholder is entitled to claim interest on the amount of the call to the extent
payable according to articles of association. If there are no profits, it must be paid
out of capital, because shareholder becomes the creditor of the company in respect
of this amount.
(iv) The amount received in advance of calls is not refundable.
(v) In the event of winding up, the shareholder ranks after the creditors, but must be
paid his amount with interest, if any, before the other shareholders are paid off.
(vi) The power to receive the payment in advance of calls must be exercised in the general
interest and for the benefit of the company. (sykes case (1872) L.R. 13 Eq. 255)
Therefore, according to the above provisions:(i)
Sujeev is not entitled to vote in respect of the moneys so paid by him until the same
would, but for such payment, become presently payable.
(ii) As per the provisions of law, the amount received in advance of calls is not
refundable. However, Sujeev is entitled to claim interest on the amount of the call to
the extent payable according to the Articles of Association. If there are no profits, it
must be paid out of capital, because shareholder becomes the creditor of the
company in respect of this amount.
12. As per Section 27 of the Companies Act, 2013, Lotus valley Ltd. can change the object
mentioned in the prospectus. Section 27 of the Companies Act, 2013 deals with variation
in the terms of contract or objects in the prospectus.
To change the object mentioned in the prospectus, Lotus valley Ltd. has to follow the
under mentioned procedure:(1) Vary by special resolution: A company shall not, at any time, vary the terms of a
contract referred to in the prospectus or objects for which the prospectus was
issued, except by way of special resolution.
(2) Notice of resolution to shareholders: The details of the notice in respect of such
resolution to shareholders, shall also be published in the newspapers (one in
English and one in vernacular language) in the city where the registered office of
53
the company is situated indicating clearly the justification for such variation. Also
that such company shall not use any amount raised by it through prospectus for
buying, trading or otherwise dealing in equity shares of any other listed company.
(3) Exit offer to dissenting shareholders: The dissenting shareholders being those
shareholders who have not agreed to the proposal to vary the terms of contracts or
objects referred to in the prospectus, shall be given an exit offer by promoters or
controlling shareholders at such exit price, and in such manner and conditions as
may be specified by the Securities and Exchange board by making regulations in
this behalf.
Thus Lotus valley Ltd. can change the object mentioned in the prospectus from setting up
a chain of hotels to setting up of a pharmaceutical manufacturing unit by following the
above mentioned procedure.
13. Registration of a non-profit organisation as a company: According to section 8 (1) of
the Companies Act, 2013, the Central Government may allow person or an association of
persons to be registered as a Company under the Companies Act if it has been set up for
promoting commerce, arts, science, sports, education, research, social welfare reli gion,
charity, protection of environment or any such other useful object and intends to apply its
profits or other income in promotion of its objects. However, such company has to
prohibit payment of any dividend to its members.
Procedure: An association of persons intending to carry any or all or some of the
activities mentioned in section 8 (1) as mentioned above, has to apply to the Central
Government seeking its permission for being set up as a company under the Act. The
central government if satisfied on the above may by the issue of a licence in such
manner as may be prescribed and on such conditions as it may deem fit, allow such
association to be registered as a limited company under section 8 (1) without the addition
of word Limited or words Private Limited as the case may be, to its name.
After the issue of the licence by the Central Government, an application must be made to
the Registrar in the prescribe form after which the Registrar will register the association
of persons as a company under section 8(1). Under section 8 (2) a company registered
under section 8 (1) as above, shall enjoy all the privileges and be subject to all the
obligations of a limited company.
This licence issued by the Central Government is revocable, and on revocation the
Registrar shall put the words Limited or Private Limited against the companys name in
the Register. But before such revocation, the Central Government must give the
company a written notice of its intention to revoke the licence and provide an opp ortunity
to it to be represented and heard in the matter.
[Note: As per the Notification S.O. 1353(E), dated 9th of July, 2014, the Central
Government. hereby delegates to the ROC the power & functions vested in it under the
section 8(1) of the Companies Act, 2013, subject to the condition that the Central
54
Government may revoke such delegation of powers or may itself exercise the powers &
functions under the said sections, if in its opinion, such course of action is necessary in
the public interest.]
14. Sources of funds for buy-back of shares: Under section 68 (1) of the Companies Act,
2013 a company can purchase its own shares or other specified securities. The purchase
should be out of:
(i)
its free reserves; or
(ii) the securities premium account; or

(iii) the proceeds of the issue of any shares or other specified securities.
However, buy-back of any kind of shares or other specified securities cannot be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.
Specified securities includes employees stock option or other securities as may be
notified by the Central Government from time to time. [Explanation (1) under Section 68],
Requirements to be complied with before buy-back: Under section 68 (2) of the
Companies Act, 2013 a company shall not purchase its own shares or other specified
securities unless:
(a) the buy-back is authorised by its articles;
(b) a special resolution (also Declaration of Solvency to be filed with ROC & SEBI in
case shares are listed on any recognised stock exchange), authorising the buy-back
is passed at a general meeting of the company;
(c) the buy-back is 25% or less than of the aggregate of the paid-up capital and free
reserves of the company;
Provided that the buy-back of equity shares in any financial year shall not exceed
25% of its total paid up equity capital in that financial year.
(d) the ratio of the aggregate of the secured and unsecured debt owed by the company
is not more than twice the capital and free reserves after such buy-back;
Provided that the Central Government may prescribe a higher ratio of the debt than
that specified under this clause for a class or classes of companies. The second
explanation to section 68 clarifies that the expression free reserves shall include
the securities premium account.
(e) all the shares or other specified securities for buy-back are fully paid-up;
(f)
the buy-back of the shares or other specified securities listed on any recognised
stock exchange is in accordance with the regulations made by SEBI in this behalf;
55
(g) the buy-back in respect of shares or other specified securities other than those
specified in Clause (f) above is in accordance with such guidelines as may be
prescribed.
Under section 68 (3) of the Companies Act, 2013 the notice of the meeting at which the
special resolution is proposed to be passed shall be accompanied by an explanatory
statement stating;
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased under the buy - back;
(d) the amount to be involved under the buy-back; and
(e) the time limit for completion of buy-back.
Under section 68 (4) of the Companies Act, 2013 every buy back must be completed
within a period of one year from the date of the passing of the special resolution, or the
Board Resolution where the buy back is upto 10% of the aggregate of the paid up capital
and free reserves of the company.
Under section 68 (5) a company proposing to buy back its own shares must file with the
Registrar and with SEBI a declaration of solvency signed by at least two directors out of
which one must be the Managing Director. This must be filed before proceeding with the
buy back.
Requirements to be complied with after buy-back:
(1) The securities bought back should be extinguished and physically destroyed within
7 days after completion of buy-back [Section 68 (7)].
(2) After completion of buy-back, a company cannot issue same kind of shares or
security (which was bought back) for a period of 6 months. Allotment of rights issue
renounced by members is also not permissible in this period. However, following are
permitted:
(i)
issue of security of a different class that is other than one which was bought
back,
(ii) bonus issue,

(iii) subsisting obligations such as conversion of warrants,
(iv) stock option to employees
(v) sweat equity
(vi) conversion of preference shares or debentures into equity shares [Section
68(8)].
56
(3) The company should maintain a register showing securities bought back and consideration paid for the buy-back, date of cancellation of securities, date of
extinguishment and physical destruction of securities and such other prescribed
particulars [Section 68(9)].
(4) After completion of buy-back, a return has to be filed with the Registrar of Companies and Securities and Exchange Board of India if the company is listed within
30 days giving details as prescribed [Section 68(10)].
(5) If the buy-back is from free reserves, a sum equal to the nominal value of shares
purchased will be transferred to capital redemption reserve account. Details of such
transfer will be disclosed in the balance sheet of the company [(Section 69 (1)].
15. Section 109 of the Companies Act, 2013 provides for the demand of poll before or on the
declaration of the result of the voting on any resolution on show of hands. Accordingly
law says that:Order of demand for poll by the chairman of meeting: Before or on the declaration of
the result of the voting on any resolution on show of hands, a poll may be ordered to be
taken by the Chairman of the meeting on his own motion, and shall be ordered to be
taken by him on a demand made in that behalf:(a) In the case a company having a share capital, by the members present in person or
by proxy, where allowed, and having not less than one-tenth of the total voting
power or holding shares on which an aggregate sum of not less than five lakh
rupees or such higher amount as may be prescribed has been paid-up; and
(b) in the case of any other company, by any member or members present in person or
by proxy, where allowed, and having not less than one tenth of the total voting
power.
Withdrawal of the demand: The demand for a poll may be withdrawn at any time by the
persons who made the demand.
Hence, on the basis on the above provisions of the Companies Act, 2013:
(i)
The chairman cannot reject the demand for poll subject to provision in the articles of
company.
(ii) The chairman cannot reject the request of the members for withdrawing the demand
of the Poll.
16. Benefits which may be obtained by paying attention to business ethics: Ethics is
the concern for good behaviour doing the right thing. In business, self interest prevails
and there is always inconsistency between ethics and business. But it is a well settled
principle that ethical behaviour creates a positive reputation that expands the
opportunities for profit. The awareness regarding products and services of an
organization, and the actions of its employees can affect its stakeholders and society as
57
a whole. Therefore, to pay proper attention to business ethics may be beneficial in the
interest of business. These benefits may be enumerated as follows:
(1) In the recent past ruthless exploitation of children and workers, trust control over the
market, termination of employees based on personalities and other factors had
affected society and a demand arose to place a high value on ethics, fairness and
equal rights resulting in framing of anti-trust laws, establishment of governmental
agencies and recognition of labour unions.
(2) Easier change management: Attention to business ethics is also critical during times
of fundamental change. The apparent dilemma may be whether to be non profit or
for profit. In such situations, often there is no clear moral compass to guide leaders
about what is right or wrong. Continuing attention to ethics in the workplace
sensitises leaders and staff for maintaining consistency in their actions.
(3) Strong team work and greater productivity: Ongoing attention and dialogues
regarding ethical values in the workplace builds openness, integrity and a sense of
community which leads to, among the employees, a strong alignment betwee n their
values and those of the organisation resulting in strong motivation and better
performance.
(4) Enhanced employee growth: Attention to ethics in the workplace helps employees
face the reality - both good and bad in the organisation and gain the confidence of
dealing with complex work situations.
(5) Ethical programmes help guarantee that personnel policies are legal: A major
objective of personnel policies is to ensure ethical treatment of employees. In
matters of hiring, evaluating, disciplining, firing etc. An employer can be sued for
breach of contract for failure to comply with any promise. The gap between
corporate culture and actual practice has significant legal and ethical implications.
Attention to ethics ensures highly ethical policies and procedures in the work place.
Ethics management programmes are useful in managing diversity. Such
programmes require the recognition and application of diverse values and
perspectives which are the basis of a sound ethics management programme. Most
organisations feel that cost of mechanisms to ensure ethical programme may be
more helpful in minimizing the costs of litigations.
(6) Ethical programmes help to detect ethical issues and violations early, so that
criminal acts of omission may be avoided.
(7) Ethical values help to manage values associated with quality management, strategic
planning and diversity management.
17. The concept of Corporate Social Responsibility (CSR) focuses on the idea that beyond
making profit, a business has social obligations. It is the responsibility of the companies to
produce an overall positive impact on the society. CSR is pursued by business to balance
their economic, environmental and social objectives while at the same time addressing
58
stakeholders expectations and enhancing shareholders values. Stakeholders, including

shareholders, analysts, regulators, labour unions, employees, community organisations
and mass media expect companies to be accountable not only for their own performance
but for the performance of their entire supply chain. Issues such as peace, sustainable
development, security, poverty alleviation, environmental quality and human rights have
a profound effect on business and its environment.
Corporate Social Responsibility is the continuing commitment by businesses to behave
ethically and contribute to economic development while improving the quality of life of the
workforce and their families as well as of the local community and society at large.
Need for social responsibility:
1.
The iron law of responsibility
2.
To fulfil long term self-interest
3.
To establish a better public image
4.
To avoid government regulation and control
5.
To avoid misuse of National Resources and Economic Power
6.
To convert Resistances into Resources
7.
To minimise Environmental damage.
18. The root meaning of the term discriminate is to distinguish one object from another .
Employment discrimination is treating one person better than another because of their
age, gender, race, religion or other protected class of status. Discrimination in
employment is wrong because it violates the basic principle of equality. Discrimination is
to treat people differently. It is usually intended to refer to the wrongful act of making a
difference in treatment or favour on a basis other than individual merit.
Elements of Discrimination: Generally, the discrimination means to distinguish one
object from another or treating people differently. It is usually intended to refer to the
wrongful act of making a difference in treatment or favour on a basis other than individual
merit. Such discrimination may also be related in employment in business organization.
The elements which create discrimination may be summarized as follows:
(i)
If the decision against one or more employees is taken which is not based on
individual merit, such as the ability to perform a given job, seniority or other morally
legitimate qualification.
(ii) If the decision has been derived solely from racial or sexual prejudice, false
stereotypes other kind of morally unjustified attitude against members of which the
employee belongs.
(iii) If the decision has a harmful or negative impact on the interests of the employees,
perhaps costing them jobs, promotions or better pay.
59
Discrimination in employment is wrong because it violates the basic principle of justice by

differentiating between people on the basis of characteristics (race or sex) that are not
relevant to the tasks they must perform. Looking to these aspects law has also been
changed to conform to these moral requirements and to minimize the discrimination in
employment in this respect.
19. (i)
only for the sake of human beings but also for its own sake. The issue of
environmental ethics goes beyond the problems relating to protection of
environment or nature in terms of pollution, resource utilization or waste disposal.
Business and Industry are closely linked with environment and resource utilization.
Production process and strategy for eco-friendly technologies throughout the
product life cycle and minimization of waste play major role in protection the
environment and conservation of resources. Business, Industry and multinational
corporations have to recognize environmental management as the priority area and
a key determinant to sustainable development. Sound management of wastes is
among the major environmental issues for maintaining the quality of Earths
environment and achieving sustainable development.
If the environmental costs are properly reflected in the prices paid for goods and
services then companies and ultimately the consumer would adjust market
behaviour in a way that would reduce damage to environment, pollution and waste
production. Price signal will also influence behaviour to avoid exploitation or
excessive utilization of natural resources. Such measures would facilitate the
approach of Polluter Pays Principle. Removing subsidies that encourage
environmental damage is another measure.
(ii) The objectives of the Central Consumer Protection Council in India are to promote
and protect the rights of the consumers such as:(a) the right to be protected against the marketing of goods and services which
are hazardous to life and property;
(b) the right to be informed about the quality, quantity, potency, purity, standard
and price of goods/services so as to protect the consumer against unfair trade
practices;
(c) the right to be assured, whichever possible, access to a variety of goods and
services at competitive prices;
(d) the right to be heard and to be assured that consumers interest will receive
due consideration at appropriate terms;
(e) the right to seek redressal against unfair trade practices;
(f)
the right to consumer education.
60
20. Principles of Ethics: The fundamental principles relating to ethics as applicable to

accounting and finance professionals are as follows:
(i)
The principle of integrity: Integrity means veracity. The principle requires all
accounting and finance personnel to be honest and straight-forward in discharging
their respective professional duties.
(ii) The principle of objectivity: The principle requires accounting and financial
professionals to stick to their professional and financial judgement without bias,
conflicting interests, or under influence of others.
(iii) The principle of confidentiality: The principle requires accounting and financial
professionals to refrain from disclosing confidential information related to their work.
(iv) The principle of professional competence and due care: The financial and
accounting professional need to update their professional skill in the modern
competitive environment.
(v) The principle of professional behavior: The principle requires accounting and
financial professional to comply with relevant laws and regulations and avoid such
action which may result into discrediting the profession.
21. The grapevine becomes active when the following factors are present:
(a) Feeling of uncertainty or lack of sense of direction when the organisation is passing
through a difficult period.
(b) Feeling of inadequacy or lack of self confidence on the part of the employee,
leading to the formation of groups.
(c) Formation of a coterie or favoured group by the manager, giving other employees a
feeling of insecurity or isolation. People operating in such circumstances will be
filled with all sorts of ideas and will share them with like minded companions, at
whatever level they may be. Mostly they find them at their own level, but other
levels are not barred. This type of communication is being seriously studied by
psychologists and management experts.
22. Group conflict: Group conflict is an 'express struggle' between two inter-dependent
parties who perceive incompatible goals, scarce resources and interference from the
other party in achieving their goals. There are two aspects in relation to conflict:
1.
Expression: The two sides must communicate/express about the problem for there
to be conflict.
2.
Perception: Conflict evolves perceptions in the two sides may only perceive that
their goals, resources, and interference are incompatible with each other's.
61
Managing conflicts: The climate in which conflict is managed is important. It is

essential to plan communications to foster a supportive climate, marked by
emphasis on
(i)
Presenting ideas or options
(ii) Problem orientation- focusing attention the task

(iii) Spontaneity - Communicating openly and honestly
(iv) Empathy - understanding another person's thoughts.
(v) Equality- asking for opinion s
(vi) Willing to listen to the ideas of others.
Successfully managed conflicts can be constructive and can strengthen
relationships in an organisation.
23. Generally, people resist change in an organization. Even after there are some people
who accept or welcome change due to the following reasons:
1.
2.
Personal Gain: People will be more likely to accept change when they see the
possibility that they will gain in some of the following areas:
Increased security
Money
More authority
Status/Prestige
Better Working Conditions
Self-Satisfaction
Better Personal Contracts
Less time and efforts
Other factors:
Provide a new challenge
Respects/like the source
Likes the way change is being communicated
Reduces boredom
Provides opportunity for input
Improve future
Perception, that the change is necessary.
62
24. Indemnity Bond

Mr. Somnath S/o .. R/o do hereby agree to indemnify the
Cute Fabrics Ltd. for any loss that may occur for seeking release of dividend for 170
shares of ` 1700.
I further declare that personally I have not received the dividend warrant in question.
Mr. Somnath
Date:
Signature
Place:
25.
Notice of the First Meeting of the Board of Directors
Ashoka Paper Limited
To,
Date
(Director)
Dear Sir/Madam,
This is to inform you that the first meeting of the Board of Directors will be held at the
Registered Office of the company on 15 th September, 2015 at 3 p.m. to transact the
business as per the enclosed agenda.
You are requested to please attend the meeting.
Yours faithfully,
Secretary
For and on behalf of the
Board of Directors
Place : ..
Date
Agenda:
(i)
Election of the Chairman of the Meeting.
(ii) To produce the Certificate of Incorporation, the Memorandum and the Articles of
Association.
(iii) Election of the Chairman of the Company.
(iv) Appointment of Managing Director.
(v) Appointment of Secretary.
63
(vi) Appointment of Auditors.

(vii) Appointment of Bankers and approval of the opening of a Bank Account and its
operation.
(viii) Adoption of the company's seal.
(ix) Approval of the statement of preliminary expenses by the promoters and adoption of
the preliminary contracts and underwriting contracts.
(x) Any other business with the permission of the chairman.
PAPER 2: BUSINESS LAW, ETHICS & COMMUNICATION

FOR NOVEMBER, 2016 EXAMINATION
I.
Applicability for Nov 2016 examinations

The study material (July 2015 edition), practice manual (April 2016 edition) along with the
Supplementary Study Paper 2016 for Paper 2: Business Law, Ethics and
Communication (Relevant for students appearing in November 2016 and May 2017
examinations) is relevant for November 2016 examinations. The Supplementary Study
Paper 2016 contains all relevant amendments/ circulars/ notifications etc. in the Business
and the Company law part made from 1st May 2015 to 30th April, 2016 and the same is
reproduced here for reference of the students:

The Negotiable Instruments (Amendment) Act, 2015 received the assent of the president
on 26th December, 2015 and has been notified in the Official Gazette on 29th December,
2015 by the Ministry of Law and Justice.
This is an Act further to amend the Negotiable Instruments Act, 1881 (N.I. Act, 1881) and
shall be deemed to have come into force on the 15th day of June, 2015.
The N.I. Act, 1881 defines promissory notes, cheques and specifies penalties for
bouncing of cheques, and other violations. It does not however specify the jurisdiction of
courts where cheque bouncing cases may be filed.
The Amendment Act, 2015 modifies the definition of a cheque in electronic form given in
section 6,and clarifies the appropriate area of jurisdiction of courts by amendment in
cognizance of offences in section 142 and through insertion of a new section 142A
dealing with the transfer of pending cases related to the dishonour of cheques.
Key Highlights of the Negotiable Instruments (Amendment) Act, 2015:
1.
Amendment in the definition of cheque given under section 6 of the N.I. Act, 1881
(i) Explanation I, for clause (a) in the Principal Act, deals with the following definition(a) Cheque in the electronic form - Under the Negotiable Instruments Act, 1881, this
was defined as a cheque containing the exact mirror image of a paper cheque and
generated, written and signed in a secure system using a digital signature (with /without
biometric signature) and asymmetric crypto system.
This above definition has been amended and substituted with the following namely Cheque in the electronic form-means a cheque drawn in electronic form by using
any computer resource, and signed in a secure system with a digital signature (with
/without biometric signature) and asymmetric crypto system or electronic signature, as
the case may be;
42
(ii) After the Explanation II in the principal Act, the following explanation shall be
inserted, namelyExplanation IIIFor the purposes of this section, the expressions" asymmetric crypto
system", "computer resource", "digital signature", "electronic form" and "electronic
signature" shall have the same meanings respectively assigned to them in the
Information Technology Act, 2000.
2. Amendment of section 142 (Cognizance of offences)- In the principal Act,
section 142 shall be numbered as sub-section (1) thereof and after sub-section (1) as so
numbered, the following sub-section shall be inserted, namely(2) The offence under section 138, which deals with the dishonour of cheque, shall be
inquired into and tried only by a court within whose local jurisdiction,
(a) if the cheque is delivered for collection through an account, the branch of the
bank where the payee or holder in due course, as the case may be, maintains the
account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course,
otherwise through an account, the branch of the drawee bank where the drawer
maintains the account, is situated.
Explanation For the purposes of clause (a), where a cheque is delivered for collection
at any branch of the bank of the payee or holder in due course, then, the cheque shall be
deemed to have been delivered to the branch of the bank in which the payee or holder in
due course, as the case may be, maintains the account."
3. Insertion of new section 142A- Validation for transfer of pending cases Section 142A is the new insertion in the Act. All cases of cheque bouncing which were
pending in any court, before the Act came into force, will be transferred to a court with
the appropriate jurisdiction.
142A (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973
or any judgment, decree, order or direction of any court, all cases transferred to the court
having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable
Instruments (Amendment) Ordinance, 2015, shall be deemed to have been transferred
under this Act, as if that sub-section had been in force at all material times.
(2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section
(1), where the payee or the holder in due course, as the case may be, has filed a
complaint against the drawer of a cheque in the court having jurisdiction under subsection (2) of section 142 or the case has been transferred to that court under subsection (1) and such complaint is pending in that court, all subsequent complaints arising
out of section 138 against the same drawer shall be filed before the same court
irrespective of whether those cheques were delivered for collection or presented for
payment within the territorial jurisdiction of that court.
PAPER 2: BUSINESS LAW, ETHICS AND COMMUNICATION
43
This sub-section deals with respect to filing of subsequent complaints- The payee
has filed a complaint against the drawer in a court with the appropriate jurisdiction, all
subsequent complaints against that person regarding cheque bouncing will be filed in the
same court. This will be irrespective of the mode of presentation of cheque.
(3) If, on the date of the commencement of the Negotiable Instruments (Amendment)
Act, 2015, more than one prosecution filed by the same payee or holder in due course,
as the case may be, against the same drawer of cheques is pending before different
courts, upon the said fact having been brought to the notice of the court, such court shall
transfer the case to the court having jurisdiction under sub-section (2) of section 142, as
amended by the Negotiable Instruments (Amendment) Ordinance, 2015, before which the
first case was filed and is pending, as if that sub-section had been in force at all material
times.
This sub-section deals with where more than one case filed by the same payee
against the same drawer before different courts-If more than one case is filed by the
same payee against the same drawer before different courts, the case will be transferred
to the court with the appropriate jurisdiction before which the first case was filed.
4. Repeal and Savings-(1) The Negotiable Instruments (Amendment) Second
Ordinance, 2015, which was promulgated in September 22, 2015, is hereby repealed.
(2) Notwithstanding such repeal, anything done or any action taken under the principal
Act, as amended by the said Ordinance, shall be deemed to have been done or taken
under the corresponding provisions of the principal Act, as amended by this Act.
[Refer Page 2.6 & Page 2.36 of the Study material (July 2015 edition)]

The Payment of Bonus (Amendment) Act, 2015 is an Act further to amend the Payment
of Bonus Act, 1965. The Act received the assent of the President on the 31st December,
2015, and published in the Official gazette on 1st January 2016 by Ministry of Law and
Justice. It shall be deemed to have come into force on the 1st day of April, 2014.
Highlights to the Payment of Bonus (Amendment) Act, 2015
1. Amendment in Section 2(13)-Section 2(13) of the Payment of Bonus Act, 1965
(i.e., Principal Act) states the definition of employee who is eligible for bonus.
As per the Principal Act, Employee means any person (other than an apprentice)
employed On a salary or wage not exceeding ` 10,000 per mensem in any industry, to
do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or
clerical work, for hire or reward, whether the terms of employment be express /implied.
As per the Payment of Bonus (Amendment) Act, 2015, the eligibility limit for payment
of bonus has been enhanced from ` 10, 000 to ` 21,000 per mensem.
44
2. Amendment in Section 12- Section 12 of the Payment of Bonus Act, 1965 deals
with the calculation of bonus with respect to certain employees. According to the
Principal Act, where the salary or wage of an employee exceeds ` 3,500 per mensem,
the bonus payable to such employee under Section 10 or, as the case may be, under
Section 11, shall be calculated as if his salary or wage were only ` 3,500 per mensem.
This section have been incorporated by the Payment of Bonus (Amendment) Act, 2007
w.e.f. from 1.04.2006.
As per the Payment of Bonus (Amendment) Act, 2015, calculation ceiling for the bonus
has been raised. For the words 3,500 rupees at both the places where they occur, the
words 7,000 rupees or the minimum wage for the scheduled employment, as fixed
by the appropriate Government, whichever is higher shall respectively be
substituted;
Further, Explanation have been inserted at the end of this section, namely:
Explanation.For the purposes of this section, the expression scheduled
employment shall have the same meaning as assigned to it in clause (g) of section 2 of
the Minimum Wages Act, 1948.
3. Amendment in section 38 Section 38 of the Payment of Bonus Act, 1965 deals
with power to make rules. The Principal Act empowers the Central Government to make
rules for the purpose of giving effect to the provisions of this Act. Since the said section
does not provide for the previous publication of the rules.
As per the Payment of Bonus (Amendment) Act, 2015, an enabling provision providing
for the previous publication for the purpose of inviting objections and suggestions in tune
with the other legislations pertaining to welfare of labour have been inserted.
As of that, section 38 of the principal Act, for sub-section (1), the following sub-section
shall be substituted, namely
(1) The Central Government may, subject to the condition of previous publication, by
notification in the Official Gazette, make rules to carry out the provisions of this Act.
[Refer Page 3.4, page 3.19 & page 3.28 of the Study material (July 2015 edition)]

The Companies (Amendment) Act, 2015 and other relevant legislative amendments:
1.
Vide Notification G.S.R.349(E), dated 1st May 2015, the Central Government
through the enforcement of the Companies(Incorporation) Amendment Rules,
2015, hereby inserted relevant Rule 7A and Rule 36 to the Companies
(Incorporation) Rules, 2014 in exercise of the power conferred by sections 3, 4, 5
and 7, read with section 469 sub-section (1) & (2) of the Companies Act, 2013.
(i)
45
Rule 7A. Penalty- If a One Person Company (OPC) or any officer of such
company contravenes any of the provisions of rules related to the formation
and nomination by the subscriber/member of One Person Company, the OPC
or any officer of such company shall be punishable with fine which may extend
to 5000 rupees and with a further fine which may extend to 500 rupees for
every day after the first offence during which such contravention continues.
(ii) Rule 36.Integrated process for incorporation(1) For the purpose of simplifying the filing of forms for incorporation of a
company, the integrated process shall apply with effect from 1st May,
2015.
(2) For the purposes of sub-rule(1), the application for allotment of Director
Identification Number (DIN) upto3 Directors, reservation of a name,
incorporation of company and appointment of Directors of the proposed
company shall be filed in Integrated Form No. INC-29, for One Person
Company, Private company, Public Company and producer company,
with the Registrar within whose jurisdiction the registered office of the
company is proposed to be situated, along with the fee of rupees two
thousand in addition to the registration fee as specified in Companies
(Registration of Offices and Fees) Rules, 2014.
(3) For the purposes of filing Integrated Incorporation form, the particulars of
maximum of 3 directors shall be allowed to be filled in INC-29 and
allotment of DIN of maximum of 3 proposed directors shall be permitted in
Form INC-29 in case of proposed directors not having approved DIN.
(4) The promoter or applicant of the proposed company shall propose only
one name in e-form No. INC-29.
(5) The promoter or applicant of the proposed company may prepare
Memorandum of Association as per templates in Form INC-30 and may
opt for templates of Articles of Association in Form INC-31 in accordance
with the provisions of rule 13 for preparation of Memorandum of
Association and Article of Association.
(6) The promoter or the applicant shall sign and witness, the Memorandum of
Association and Articles of Association in the forms downloaded from the
portal of the Ministry of Corporate Affairs and scanned legibly and attach
to e-form INC-29 in accordance with the provisions of rule16 for
preparation of Memorandum of Association and Articles of Association.
(7) The facility to file Integrated application for incorporation in Form INC-29
is available as an option to the process for separate applications for
allotment of Director Identification Number, reservation of name and
Incorporation of a company as provided in these rules.
46
(8) For an application filed using the Integrated process of incorporation as

provided in this rule, the provisions of sub clause (i) of sub-section (5) of
section 4 of the Act and rule 9 of these rules shall not apply.
(9) A company using the provisions of this rule may furnish verification of its
registered office under sub-section (2) of section 12 of the Act by filling eForm INC -29 in which case the company shall attach along with such eForm INC-29, any of the documents referred to in sub-rule (2) of rule 25.
(10) The requirement of filing e-Form INC-28 may be dispensed with if, the
proposed company maintains its registered office at the given
correspondence address.
(11) The Registrar within whose jurisdiction the registered office of the
company is proposed to be situated shall process INC-29 including
application for allotment of DIN.
(12) (a) Where the Registrar, on examining e-form INC-29, finds that it is
necessary to call for further information or finds such application or
document to be defective or incomplete in any respect, he shall give
intimation to the applicant to remove the defects and re-submit the
e-form within fifteen days from the date of such intimation given by
the Registrar.
(b) After the resubmission of the document, if the registrar still finds that
the document is defective or incomplete in any respect, he shall give
one more opportunity of fifteen days to remove such defects or
deficiencies.
(c) In case, the Registrar is of the opinion that the document is
defective or incomplete in any respect after giving such two
opportunities, the e-form INC-29 of the proposed company shall be
rejected.
(13) The Certificate of Incorporation shall be issued by the Registrar in Form
No. INC-11.
[Refer Para 1.6forPoint (i), Page 6.18for Point (ii) of the Study material
(July 2015 edition)]
2.
Vide Notification No. G.S.R 442(E), dated 29th May 2015, the Central Government
enforced the Companies (Incorporation) Second Amendment Rules, 2015 to
further amend the Companies (Incorporation) Rules, 2014 in exercise of the powers
conferred by section 7 read with section 469 sub-sections (1) & (2) of the
47
According to this Notification, a proviso has been inserted to Rule 12 to the

Companies (Incorporation) Rules, 2014 which is related with the filing of application
for incorporation of companies to registrar under section 7(1).
Provided that in case pursuing of any objects of a company requires registration or
approval from sectoral regulators such as RBI, SEBI, registration or approval, as the
case may be, from such regulator shall be obtained by the company before pursuing
such objects and a declaration in this behalf shall be submitted at the stage of
incorporation of the company.
[Refer Para 1.6, Page 6.18, Point (ii) of the Study material (July 2015 edition)]
3.
Vide Notification No. S.O.1440(E) dated 29th May 2015 Central Government hereby
appointed the 29th May 2015, as the date of enforcement of the provisions of
Sections 1 to 10 and 15 to 23 of the Companies(Amendment) Act, 2015.
The Companies (Amendment) Act, 2015 was notified in the official gazette on 26th
May 2015 to further amend the Companies Act, 2013.
Following are the relevant sections amended by the Companies (Amendment) Act,
2015:
Relevant Provisions of the Amendment by the
Companies Act, 2013
Companies (Amendment)
Act, 2015
In definition of
company given in
2(68)
Reference of the
Page No. of the
study material
(July 2015
edition) covering
the relevant
topics
private The words of one lakh Page 6.7

section rupees or such higher paidup share capital shall be
omitted;
In definition of public In sub-clause (b), the words Page 6.8

company given in section of five lakh rupees or such
2(71)
higher paid-up capital,
shall be omitted.
Effect of Registration given in The words and a common Page 6.20
section 9
seal shall be omitted
Section 11 dealt with Omitted
commencement of business
Page 6.22
48
Registered office of the In sub section(3), for Page 6.23

company given in section 12 clause(b), the following
clause shall be substituted,
namely(b)Having
its
name
engraved
in
legible
characters on its seal, if any,
Execution
exchange,
section 22
of
etc.
bills
given
of (i) in sub-section (2),

Page 6.78
in (a) for the words under its
common seal, the words
under its common seal, if
any, shall be substituted;
(b) the following proviso
shall be inserted, namely:
Provided that in case a
company does not have a
common
seal,
the
authorisation under this subsection shall be made by two
directors or by a director and
the Company Secretary,
wherever the company has
appointed
a
Company
Secretary.;
(ii) in sub-section (3), the
words and have the effect as
if it were made under its
common seal shall be
omitted.
Certificate of shares given in In sub-section (1), for the Page 6.92

section 46
words issued under the
common seal of the
company, the words issued
under the common seal, if any,
of the company or signed by
two directors or by a director
and the Company Secretary,
wherever the company has
appointed
a
Company
Secretary
shall
be
substituted.
Acceptance of deposits from After section 76, the

public by certain companies following new section shall
given in section 76
be inserted, namely:
76A. Where a company
accepts or invites or allows
or causes any other person
to accept or invite on its
behalf any deposit in
contravention
of
the
manner or contravention of
the conditions prescribed
under section 73 or section
76
or
rules
made
thereunder or if a company
fails to repay the deposit or
part thereof or any interest
due thereon within the time
specified under section 73
or section 76 or rules made
thereunder or such further
time as may be allowed by
the Tribunal under section
73,
(a) the company shall, in Page 6.65
addition to the payment of
the amount of deposit or
part thereof and the interest
due, be punishable with
fine which shall not be less
than one crore rupees but
which may extend to ten
crore rupees; and
(b) every officer of the
company who is in default
shall be punishable with
imprisonment which may
extend to seven years or
with fine which shall not be
less than twenty-five lakh
rupees but which may
extend to two crore rupees,
or with both:
49
50
Provided that if it is proved

that the officer of the
company who is in default,
has contravened such
provisions knowingly or
wilfully with the intention to
deceive the company or its
shareholders or depositors
or
creditors
or
tax
authorities, he shall be
liable for action under
section 447.
Resolutions and agreements In sub-section (3),
Page 6.160
to be filed in section 117
(i) in clause (g), the word
and occurring at the end
shall be omitted;
(ii) after clause (g), the
following proviso shall be
inserted, namely:
Provided that no person
shall be entitled under
section 399 to inspect or
obtain copies of such
resolutions; and.
4.
Ministry Vide Notification G.S.R. 466 (E) dated 5th June 2015, directed that certain
provisions of the Companies Act, 2013 shall not apply or shall apply with certain
exceptions, modifications and adaptation to the companies covered under section
8 of the Companies Act, 2013.
Following are the sections which are influenced by this Notification:
Relevant Provisions of
the Act
Amendment through the

Notification
Reference of the
Page No. of the
study material
(July 2015
edition) covering
the relevant
topics
Private company given The requirement of having Page 6.7
under section 2(68)
minimum paid-up share
capital shall not apply.
Public company given The requirement of having

under section 2(71)
minimum paid-up share
capital shall not apply.
Provision
related
to In sub-section (2), after the
Annual
General proviso
and
before
Meeting(AGM)
covered explanation, the following
under section 96(2)
proviso shall be insertedProvided further that the
time, date and place of each
AGM are decided upon
before-hand by the Board of
Directors having regards to
the directions, if any, given in
this regards by the company
in its general meeting.
Provision related to notice For the words twenty one
of meeting given in days, the words fourteen
section 101(1)
days shall be substituted.
Minutes given in section Shall not apply as a whole
118
except that minutes may be
recorded within 30 days of the
conclusion of every meeting in
case of companies where
articles of association provide
for confirmation of minutes by
circulation.
5.
51
Page 6.8
Page 6.128
Page 6.135
Page 6.166
exceptions, modifications and adaptation to a Government company.
Relevant Provisions
of the Act

Notification
Reference of the
Page No. of the
study material
(July
2015
edition) covering
the
relevant
topics
Provision related to Words in the case of a public limited Page 6.25
Memorandum given in company, or the last words Private
section 4(1)(a)
Limited in the case of a private
limited company shall be omitted in
the case of Government company.
52
Provision related to
transfer
and
transmission
of
securities in section
56(1)
After the given proviso, following

provisos shall be insertedProvided further the provisions of
this sub-section, in so far as it
requires a proper instrument of
transfer, to be duly stamped and
executed by or on behalf of the
transferor and by or on behalf of
the transferee, shall not apply
with respect to bonds issued by a
Government company, provided
that an intimation by the
transferee specifying his name,
address, and occupation, if any,
has been delivered to the
company along with the certificate
relating to the bond; and if no
such certificate is in existence,
along with the letter of allotment
of the bond:
Provided also that the provisions
of this sub-section shall not apply
to a Government company in
respect of the securities held by
nominees of the government.
Declaration in respect of Shall not apply
beneficial interest in any
share given in section 89
Investigation
of Shall not apply
beneficial ownership of
shares in certain cases
under section 90
Provision related to For the words some other places
AGM under section within city, town, or village in
96(2)
which the registered office of the
company is situate, the words
such other place as the Central
Government may approve in this
behalf shall be substituted.
6.
Page 6.95
Page 6.121
Page 6.123
Page 6.128
exceptions, modifications and adaptation to a Nidhis.

Relevant Provisions of the
Act
Reference of the
Page No. of the
study material
(July 2015
edition) covering
the relevant
topics
Provision related to service of Shall apply subject to Page 6.39
documents covered under modification, that the
section 20(2)
documents may be
served only on members
who holds shares of
more than ` 1000 in
face value or more than
1% of the total paid up
share capital of the
nidhis whichever is less.
Provisions related to private Shall not apply
Page 6.59
placement under section 42,
except
sub-section(1),
explanation(II) to Sub-section
(2), sub-sections (4),(6),(8),
(9) & (10)
Voting rights given in section Shall apply subject to Page 6.84
47
modification that no
member shall exercise
voting rights on poll in
excess of 5% of total
voting rights of equity
shareholders.
Further issue of share capital Shall not apply
Page 6.84
covered in section 62
Provision related to Restriction Shall not apply, when Page 6.67
on purchase by company or share are purchased by
giving of loans by it for the company from a
purchase of its shares given member on his ceasing
in section 67(1)
to be a depositor or
borrower and it shall not
be
considered
as
reduction of capital
under section 66 of the
Amendment through
the Notification
53
54
7.
exceptions, modifications and adaptation to a Private company.
Relevant Provisions of
the Act

Notification
Reference of the
Page No. of the
study material (July
2015 edition)
covering the
relevant topics
Kinds of share capital Shall not apply where Page 6.80 and page
given in section 43 and memorandum/ articles of 6.84
Voting rights under private
company
so
section 47
provides.
Provisions related to
further issue of share
capital given under
section 62(1)(a)(i)& (2)
Shall apply with following Page 6.84

modifications:
Following proviso has been
inserted under clause (a),
sub-clause (i)Provided
that
notwithstanding
anything
contained in this sub-clause
and sub-section (2) of this
section, in case 90% of the
members of a private
company have given their
consent in writing or in
electronic mode, the periods
lesser than those specified
in the said sub-clause or
sub-section shall apply.
further issue of share
capital given under
section 62(1)(b)
For the words Special Page 6.84

resolution,
the
words
ordinary resolution shall be
substituted.
Restriction on purchase
by company or giving of
loans by it for purchase
of its shares given in
section 67
Shall not apply to private Page 6.67

companies(i) In whose share capital
no other body corporate has
invested and money;
55
(ii) If the borrowings of

such
company
from
banks/financial institutions/
anybody corporate is less
than twice its paid up share
capital/ 50 crore rupees,
whichever is lower; and
(iii) Such company has no
default in repayment of such
borrowings subsisting at the
time of making transactions
under this section.
8.
prohibition
on
acceptance of deposits
from
public
under
section 73(2)(a) to
73(2)(e)
Shall not apply to a private Page 6.63

company which accepts
from its members monies
not exceeding 100% of
aggregate of the paid up
share capital and free
reserves, and such company
shall file the details of
monies so accepted to the
registrar in such manner as
may be specified.
notice of meeting,
statement annexed with
the notice, quorum,
chairman of meetings,
proxies, restrictions on
voting rights, voting by
show of hands and
demand for poll covered
under sections 101- 107
& 109
Shall apply unless otherwise Page 6.134 to page

specified
in
respective 6.156
sections or articles of the
company provide otherwise.
Provisions related to Shall not apply

Page 6.161
resolutions
and
agreements to be filed
given
in
section
117(3)(g)
Vide General Circular No. 09/2015 dated 18th June 2015, clarification has been
issued by the Ministry on repayment of deposits accepted by the companies before
56
the commencement of the Companies Act, 2013 under section 74 of the said Act
and filing of the prosecutions against defaulting companies.
Government vide removal of difficulties(second)order, dated2nd June 2014 and
removal of difficulties(Fourth)order, dated 6th June 2014 has clarified that the CLB
has been empowered to exercise the powers of the NCLT under section 73(4) and
section 74(2) of the Companies Act, 2013 till it is constituted.
Thus, depositor is free to file an application under section 73(4) with the CLB if the
company fails to make repayment of deposits accepted by it. Further the company
may also file application under section 74(2) with CLB seeking extension of time in
making repayment of deposits accepted by it before the commencement of the
provisions of the said Act.
Also clarified that there is no bar on the registrar of companies for filing of
prosecution against a company if such company fails to make repayment of
deposits accepted by it under the provisions of the companies Act, 1956 or
Companies Act, 2013, subject to the terms and conditions for which the deposits
had been accepted.
[Refer Page 6.64 of the study material (July 2015 edition)]
9.
Vide Notification G.S.R. 669(E), dated 28 August, 2015, the Central Government
hereby enforced the Companies (Management and Administration) Amendment
Rules, 2015 further to amend the Companies (Management and Administration)
Rules, 2014, namelyIn rule 23, in sub-rule (1) for the words not more than five lakh rupees, the words
not less than five lakh rupees shall be substituted.
10. Vide Notification No. G.S.R. 695(E) dated 15th September 2015, in exercise of the
powers conferred by section 73 and 76 read with section 469 sub-sections (1) & (2)
of the Companies Act, 2013, Central Government further amended the Companies
(Acceptance of Deposits) Rules, 2014 by the enforcement of the
Companies(Acceptance of Deposits) Second Amendment Rules, 2015.
In clause(c), for sub-clause(viii), the following shall be substituted, namely(viii) any amount received from the person who, at the time of the receipt of the
amount, was a director of the company or a relative of the director of the private
company:
57
Provided that the director of the company or relative of the director of the private
company, as the case may be, from whom money is received, furnishes to the
company at the time of giving the money, a declaration in writing to the effect that
the amount is not being given out of funds acquired by him by borrowing or
accepting loans or deposits from others and the company shall disclose the details
of money so accepted in the Boards report;
11. Vide Notification No. G.S.R. 841(E), dated 6th November 2015 Central
Government enforced the Companies (Share Capital and Debentures) Third
Amendment Rules, 2015 to further amend the Companies (Share Capital and
Debentures) Rules, 2014.
In the Companies (Share Capital and Debentures) Rules, 2014, in rule 18, in subrule (1), in clause (a) for sub-clause (iii) following sub-clauses shall be substituted,
namely:
(iii) infrastructure Debt Fund Non-Banking Financial Companies as defined in
clause (b) of direction 3 of Infrastructure Debt Fund Non-Banking Financial
Companies (Reserve Bank) Directions, 2011;
(iv) Companies permitted by a Ministry or Department of the Central Government or
by Reserve Bank of India or by the National Housing Bank or by any other statutory
authority to issue debentures for a period exceeding ten years.
12. Vide Notification No. G.S.R. 99(E), dated 22nd January, 2016, Central Government
hereby makes the amendments in rule 36 sub-rule (12) to further amend the
Companies (Incorporation) Rules, 2014. Rule 36 deals with the Integrated process
for incorporation which was notified vide Notification no. G.S.R.349(E), dated 1st
May 2015.
(i) After sub-clause (b), the following shall be inserted(ba) After the re-submission of the documents and on completion of second
opportunity, if the registrar still finds that the documents are defective or incomplete,
he shall give third opportunity to remove such defects and deficiencies;
Provided that the total period for re-submission of documents shall not exceed a
total period of 30 days.
(ii) In sub-clause(c), for the words three opportunities shall be substituted.
[Refer Para 1.6, Page 6.18, Point (ii) of the Study material (July 2015 edition)]
58
II.
Non-Applicability of the following relevant sections of the Companies Act, 2013 for
November 2016 examinations
S.No.
Section No.
Section title
1.
Section 48
Variation of shareholders right
2.
Section 66
Reduction of share capital
3.
Section 75
damages for fraud
4.
Section 97
Power of tribunal to call AGM
5.
Section 98
Power of Tribunal to call meetings of members, Etc.
6.
Section 99
Punishment for default in complying with provisions of

sections 96 to 98
QUESTIONS

1.
(a) Examine what is the legal position, as to the following:

(i)
Mohit offered to sell his land to Neha for ` 12,80,000/-. Neha replied
purporting to accept the offer and enclosed a cheque for ` 80,000/-. She also
promised to pay the balance of ` 12,00,000/- in monthly installments of
` 50,000/- each.
(ii) Aditya offered to sell his house to Babban for ` 10,00,000/-. Babban replied
that he can accept the house for only ` 8,00,000/-. Aditya rejected Babbans
counter offer to buy the house for ` 8,00,000/-. Babban later changed his mind
and is now willing to buy the house for ` 10,00,000/-.
(b) Red Shirt Textile enters into a contract with Retail Garments Show Room for supply
of 1,000 pieces of Cotton Shirts at ` 300 per shirt to be supplied on or before 31st
December, 2015. However, on 1st November, 2015 Red Shirt Textile informs Retail
Garments Show Room that it is not willing to supply the goods as the price of cotton
shirts in the meantime has gone upto ` 350 per shirt. Examine the rights of Retail
Garments Show Room in this regard.
2.
(a) Do the following statements amount to involvement of fraud?
(i)
59
Where the vendor of a piece of land told a prospective purchaser that, in his
opinion, the land can support 2000 heads of sheep whereas, in truth, the land
could support only 1500 sheep.
(ii) X bought shares in a company on the faith of a prospectus which contained an

untrue statement that one Z was a director of the company. X had never heard
of Z and the untrue statement of Z being a director was immaterial from his
point of view. Can X claim damages on grounds of fraud?
(b) Mr. N is employed as a cashier on a monthly salary of ` 2,000 by XYZ bank for a
period of three years. A gave surety for Ns good conduct. After nine months, the
financial position of the bank deteriorates. Then N agrees to accept a lower salary
of ` 1,500/- per month from Bank. Two months later, it was found that N has
misappropriated cash since the time of his appointment. What is the liability of A?
3.
A draws and B accepts the bill payable to C or order, C endorses the bill to D and D to E,
who is a holder-in-due course. From whom E can recover the amount? Examining the
right of E, state the privileges of the holder-in-due course provided under the Negotiable
Instruments Act, 1881.
4.
Who will exercise jurisdiction for filing of complaints under Section 138 of the Negotiable
Instruments Act, 1881 as amended by the Negotiable Instruments (Amendment) Act,
2015. Explain.

5.
Mr. Eager joined as supervisor on monthly salary of ` 13,400 on 1. 02. 2016 and
resigned from his job on 29. 02. 2016. The company declared a bonus of 20% to all
eligible employees and paid it on time. Mr. Eager knowing the facts made a claim to
HRD, which in turn rejected the claim. Examine the validity in the light of the provisions
of the Payment of Bonus Act, 1965.
6.
During the financial year 2014-2015 Mr. Ram who was a temporary employee in Ayurved
Products Limited and was drawing a salary of ` 6000/- per month . On the basis of charge
of violent behavior within the premises of the company, he was prevented from working
in the company for 60 days pending inquiry. Since there was no adverse conclusion
against him, he was reinstated in the service with back salary. He worked for the
remaining ten months in that financial year and thereafter resigned from the service.
Afterwards, when bonus was paid to others employees, the company refused to pay
bonus to Mr. Ram. Decide, whether Mr. Ram will be entitled to bonus under the
provisions of the Payments of Bonus Act, 1965?

7.
An employee of a limited company filed a claim for provident fund settlement with the
Provident Fund Commissioner. However, he did not get any settlement from the authority
60
even after six months. Referring to the Employees Provident Funds and Miscellaneous
Provisions Act, 1952 what course of action an authority should have taken in this respect.
8.
Explain briefly the mode of recovery that may be followed by the recovery officer under
the Employees Provident Funds and Miscellaneous Provisions Act, 1952 for recovering
the amount due from an employer.

9.
Asma who was an employee of Aron Publishing Limited, retired on 1st January 2015
after 30 years of continuous service. The company did not pay the amount of gratuity to
Asma till the end of December 2015. Now, Asma claims the amount of gratuity along
with interest. Decide, under the Payment of Gratuity Act, 1972, whether Asma will
succeed in his claim?
10. An employee, working in an establishment which is governed by the Payment of Gratuity

Act, 1972, committed a theft in the course of his employment. And consequently his
services was terminated. State in this connection, whether the gratuity payable to him
shall be wholly or partly forfeited.
11. John, an assessee, was a wealthy man earning huge income by way of dividend and
interest. He formed three Private Companies and agreed with each to hold a block of
investment as an agent for them. The dividend and interest income received by the
companies was handed back to John as a pretended loan. This way, John divided his
income into three parts in a bid to reduce his tax liability.
Decide, for what purpose the three companies were established? Whether the legal
personality of all the three companies may be disregarded.
12. (a) Explain in the light of the provisions of the Companies Act, 2013, the circumstances
under which a subsidiary company can become a member of its holding company.
(b) With reference to the Companies Act, 2013, examine the position of the following
with regard to membership in a company:
(i)
Partnership Firm
(ii) An Insolvent
13. A company wants to get registered with the Registrar of companies. As a Chartered
Accountant advise as to how it can get itself incorporated as per the Integrated Process
of Incorporation under the provisions of the Companies Act, 2013.
14. The object clause of the Memorandum of Association of Miranda Private Ltd, Kolkata
authorized it to do trading in fruits and vegetables. The company, however, entered into a
Partnership with Mr. Karan and traded in steel and incurred liabilities to Mr. Karan. The
company, subsequently, refused to admit the liability to Karan on the ground that the deal
61
was Ultra Vires the company. Examine the validity of the companys refusal to admit the
liability to Karan. Give reasons in support of your answer.
15. Mr. Ashok, the transferee, acquired 250 equity shares of KPMC Limited from Mr. Deepak,
the transferor. But the signature of Mr. Deepak, the transferor, on the transfer deed was
forged. Mr. Ashok after getting the shares registered by the company in his name, sold
150 equity shares to Mr. Sanjay on the basis of the share certificate issued by KPMC
Limited. Mr. Ashok and Mr. Sanjay were not aware of the forgery. State the rights of Mr.
Deepak, Ashok and Sanjay against the company with reference to the aforesaid shares.
PART B: ETHICS
16. State the objectives of the Central Consumer Protection Council in India.
17. What is the difference between Morals and Ethics?
18. What reasons force a marketing executive to adopt ethical practices in marketing?
Explain.
19. Write note on:
(i)
Harassment at workplace.
(ii) Ecological ethics

20. Explain the reasons for unethical behaviour among finance and accounting professionals.
21. Write Short Notes On:
(a) Advantages of Ethical Communication
(b) Organization Values
23. Once the process of consensus building has begun, mediators try to assist the parties in
their efforts to generate a creative resolution of differences". Examine this statement and
also state in brief the process which should be followed by mediators to resolve the
differences between the parties.
24. The Board of Safe Investments Pvt. Ltd., appoint and authorize Mr. Alok giving powers to
sell and sign transfer deeds for transfer of shares and debentures by executing an
instrument of the "Power of Attorney". Draft such instrument of "Power of Attorney".
25. Symphony Ltd. wants to hold its Annual General Meeting on 5th August, 2016 to discuss
the matters relating to ordinary business. Draft a notice in brief for calling Annual General
Meeting of its shareholders.
62
1.
(a) To conclude a contract between the parties, the acceptance must be communicated
in some perceptible form. Any conditional acceptance or acceptance with varying or
too deviant conditions is not acceptance. Such conditional acceptance is a counter
proposal and has to be accepted by the proposer, if the original proposal has to
materialize into a contract. Further when a proposal is accepted, the offeree must
have the knowledge of the offer made to him. If he does not have the knowledge,
there can be no acceptance. The acceptance must relate specifically to the offer
made. Then only it can materialize into a contract. With the above rules in mind, we
may note that the following is the solution to the given problems:
(i)
It is not a valid acceptance and no contract can come into being. Here, Mohit
offered to sell his land to Neha for ` 12,80,000/-. Neha replied purporting to
accept the offer but enclosed a cheque for ` 80,000/- only. She promised to
pay the balance of ` 12,00,000 by monthly installments of ` 50,000.
The facts of the given situation are similar to the case of Neale vs. Merret.
Thus, applying the above judgement to the given situation, Neha cannot
enforce her acceptance because it was not an unqualified one.
(ii) In the given situation Aditya offered to sell his house to Babban for
` 10,00,000/-, to which Babban replied that he can pay ` 8,00,000 for it.
Consequently, the offer of Aditya is rejected by Babban as the acceptance is
not unqualified. But when Babban later changes his mind and is prepared to
pay ` 10,00,000/-, it becomes a counter offer and it is up to Aditya whether to
accept it or not. This problem is similar to the facts of Union of India v. Bahulal
case.
In the light of decided case law, in the given situation, when Babban later
changes his mind and is prepared to pay ` 10,00,000/-, it becomes a counter
offer and it is up to Aditya whether to accept it or not.
(b) In the given problem Red Shirt Textile has indicated its unwillingness to supply the
cotton shirts on 1st November 2015 itself when it has time upto 31st December 2015
for performance of the contract of supply of goods. It is therefore called anticipatory
breach of contract. Thus, Retail Garments showroom can claim damages from Red
Shirt Textile immediately after 1st November, 2015, without waiting upto 31st
December 2015. The damages will be calculated at the rate of ` 50 per shirt i.e. the
difference between ` 350/- (the price prevailing on 1st November) and ` 300/- the
contracted price.
2.
(a) (i) The problem is based on the facts of the case Bisset vs Wilkinson (1927). In the
given problem the vendor says that in his opinion the land could support 2000
63
heads of sheep. This statement is only an opinion and not a representation and
hence cannot amount to fraud.
(ii) The problem is based on the facts of the case Smith vs Chadwick (1884). In
the problem though the prospectus contained an untrue statement, however,
that untrue statement was not the one that induced X to purchase the shares.
Hence, X cannot claim damages.
(b) According to section 133 of the Indian Contract Act, 1872, if any variance is made
without suretys consent, in terms of the contract between the principal debtor and
creditor, it discharges the surety as to transaction subsequent to the variance. In the
instant case A is liable as a surety for the loss suffered by the bank due to
misappropriation of cash by N during the first nine months but not for
misappropriations committed after the reduction in salary.
3.
Section 36 of the Negotiable Instruments Act, 1881 describes the liabilities of prior
parties to the holder in due course. This section says that a holder in due course has
privilege to hold every prior party to a negotiable instrument liable on it until the
instrument is duly satisfied. Here, the holder in due course can hold all the prior parties
liable jointly and severally. Prior parties includes the maker or drawer, the acceptor and
endorsers. Accordingly, in the given problem, E, a holder in due course can recover the
amount from all the prior parties i.e., D & C (the endorsers), B (acceptor) and A (the
drawer).
Privileges of a Holder in Due Course: According to the provisions of the Negotiable
Instruments Act, 1881, a holder in due course has the following privileges:i.
A person signing and delivering to another a stamped but otherwise inchoate

instrument is debarred from asserting, as against a holder in due course, that the
instrument has not been filled in accordance with the authority given by him, the
stamp being sufficient to cover the amount (Section 20).
ii.
In case a bill of exchange is drawn payable to drawers order in a fictitious name

and is endorsed by the same hand as the drawers signature, it is not permissible
for acceptor to allege as against the holder in due course that such name is
fictitious (Section 42).
iii.
In case a bill or note is negotiated to a holder in due course, the other parties to the
bill or note cannot avoid liability on the ground that the delivery of the instrument
was conditional or for a special purpose only (Sections 42 and 47).
iv.
The person liable in a negotiable instrument cannot set up against the holder in due
course the defences that the instrument had been lost or obtained from the former
by means of an offence or fraud or for an unlawful consideration (Section 58).
v.
No maker of a promissory note, and no drawer of a bill or cheque and no acceptor

of a bill for the honour of the drawer shall, in a suit thereon by a holder in due
64
course be permitted to deny the validity of the instrument as originally made or

drawn (Section 120).
vi.
4.
No maker of a promissory note and no acceptor of a bill payable to order shall, in a

suit thereon by a holder in due course, be permitted to deny the payees capacity to
endorse the same (Section 121).
According to section 142(2) of the Negotiable Instrument Act, 1881, the offence under
section 138, which deals with the dishonour of cheque, shall be inquired into and tried
only by a court within whose local jurisdiction,
(a) if the cheque is delivered for collection through an account, the branch of the bank
where the payee or holder in due course, as the case may be, maintains the
account, is situated; or
(b) if the cheque is presented for payment by the payee or holder in due course,
otherwise through an account, the branch of the drawee bank where the drawer
maintains the account, is situated.
Explanation. For the purposes of clause (a), where a cheque is delivered for collection
at any branch of the bank of the payee or holder in due course, then, the cheque shall be
deemed to have been delivered to the branch of the bank in which the payee or holder in
due course, as the case may be, maintains the account.
5.
Under section 8 of the Payment of Bonus Act, 1965 an employee is entitled for bonus in
an accounting year if he has worked in the establishment for not less than thirty working
days in that year. Under section 2 (13), an employee is defined to include an employee
drawing a salary of less than ` 21,000 per month.
In the given case, Mr Eager was an eligible employee within the meaning of the term
under section 2 (13) but became ineligible to receive bonus as he worked in the
accounting year only for 29 days and hence will not be entitled to receive bonus.
6.
As per Section 9 of the Payment of Bonus Act, 1965, an employee shall be disqualified
from receiving bonus under this Act, if he is dismissed from service for (a) fraud; or
(b) riotous or violent behavior while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.
The above provision involves the following legal process:
(i)
When an employee is charged for any of the above acts, an inquiry is essential;
(ii) The allegedly guilty employee is suspended for the period of the inquiry till
submission of the inquiry report. In case he is found guilty, he may be dismissed or
reinstated after warning but without wages for the period of suspension. On the
other hand if he is found innocent, he will have to be reinstated with back wages as
per the various labour laws including the Industrial Disputes Act.
65
(iii) It makes no difference whether the employee is temporary or permanent

It is clear from the above provision that if an employee is reinstated with back wages, it
means he did not commit the disqualifying act and hence his disqualification does not
arise. Therefore, he is entitled to receive bonus for the full year.[Gammon India Ltd. Vs.
Niranjan Das (1984)].
Therefore, refusal of company is not valid and Mr. Ram will be entitled to the bonus
under the Payment of Bonus Act, 1965.
7.
The Provident Fund claims complete in all respects submitted along with the requisite
documents are required to be settled and the benefit amount paid to the beneficiaries
within 30 days from the date of its receipt of the complete claims by the Commissioner.
If there is any deficiency in the claim, the same shall be recorded in writing and
communicated to the applicant within 30 days from the date of receipt of such
application.
In case the Commissioner fails without sufficient cause to settle a claim complete in all
respects within 30 days, the Commissioner shall be liable for the delay beyond the said
period and penal interest at the rate of 12% per annum may be charged on the benefit
amount and the same may be deducted from the salary of the Commissioner.
8.
Section 8 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952
(EPF & Misc Provisions Act, 1952) deals with the Mode of recovery of moneys due from
employers. Under section 8B (1) of the EPF & Misc Provisions Act, 1952 where any
amount is an arrear under section 8 of EPF & MP Act, 1952 the authorised officer may
issue to the Recovery Officer a certificate under his signature specifying the amount of
arrears. The Recovery Officer, on receipt of such certificate shall proceed to recover the
amount specified therein from the establishment or as the case may be, the employer by
one or more of the modes mentioned below:
(a) attachment and sale of the movable or immovable property of the establishment or,
as the case may be, the employer;
(b) arrest of the employer and his detention in prison;
(c) appointing a receiver for the management of the movable or immovable properties
of the establishment or, as the case may be, the employer;
The attachment and sale of any property under section 8B shall first be effected against
the properties of the establishment. Where such attachment and sale is insufficient for
recovery the whole of the amount of arrears specified in the certificate, the Recovery
Officer may then take proceedings against the property of the employer for recovery of
the whole or any part of such arrears.
Under section 8B(2) it is further provided that the authorised officer may issue a
certificate under section 8B(1) notwithstanding the fact that proceedings for recovery of
the arrears by any other mode have been taken.
66
Further, according to section 8E, notwithstanding that a certificate has been issued to the
Recovery Officer for the recovery of the amount, the authorised officer may grant time for
the payment of the amount, and thereupon the recovery officer shall stay the proceedings
until the expiry of the time so granted.
9.
As per the provisions of section 4(1) of the Payment of Gratuity Act, 1972, gratuity shall
be payable to an employee (defined in section 2(e) of the Act) on the termination of his
employment after he has rendered continuous service for not less than 5 years
On his superannuation or
On his retirement or resignation or
On his death or disablement due to accident or disease;
Further, as per the provisions of section 7(3), the employer shall arrange to pay the
amount of gratuity within thirty days from the date it becomes payable to the person as
gratuity, whether the application for the payment of gratuity has been given or not by the
employee.
Section 8 of the Act deals with Recovery of gratuity If the amount of gratuity payable
under this Act is not paid by the employer, within the prescribed time, to the person
entitled thereto, the controlling authority shall, on an application made to it in this behalf
by the aggrieved person, issue a certificate for that amount to the Collector, who shall
recover the same, together with compound interest thereon at such rate as the Central
Government may, by notification, specify, from the date of expiry of the prescribed time,
as arrears of land revenue and pay the same to the person entitled thereto provided that
the controlling authority shall, before issuing a certificate under this section, give the
employer a reasonable opportunity of showing cause against the issue of such certificate
provided further that the amount of interest payable under this section shall, in no case
exceed the amount of gratuity payable under this Act.
Applying the above provisions of law to the question, Asma will succeed and the
company Aron Publishing Limited, is required to pay gratuity along with interest.
10. Reduction and forfeiture of Gratuity: Under Section 4(6)(a) of the Payment of Gratuity
Act, 1972, in the case of damage, loss or destruction of property of employer, due to the
willful omission or negligence of the employee, the amount of gratuity to the extent of
loss or damage shall be forfeited by the employer.
Further, under section 4(6)(b), the gratuity payable to an employee may be wholly or
partially forfeited, where the services of an employee are terminated on the ground of:
(i)
riotous or disorderly conduct or act of violence; or
(ii) committing an offence involving moral turpitude in the course of his employment.
Theft is an offence involving moral turpitude and consequently, if the services of an
employee had been terminated for committing theft in the course of his employment, the
67
gratuity payable to him under the provisions of the Act shall be wholly forfeited in view of
Section 4(6)(b)(ii). [Bharat Gold Mines Ltd. Vs Regional Labour Commissioner (Central),
(1987) 70 FJR 11 (Kern.)]].
11. The House of Lords in Salomon Vs Salomon & Co. Ltd. laid down that a company is a
person distinct and separate from its members, and therefore, has an independent
separate legal existence from its members who have constituted the company. But under
certain circumstances the separate entity of the company may be ignored by the courts.
When that happens, the courts ignore the corporate entity of the company and look
behind the corporate faade and hold the persons in control of the management of its
affairs liable for the acts of the company. Where a company is incorporated and formed
by certain persons only for the purpose of evading taxes, the courts have discretion to
disregard the corporate entity and tax the income in the hands of the appropriate
assessee.
(1) The fact of the case says that the three companies were formed by the assessee
purely and simply as a means of avoiding tax and the companies were nothing more
than the faade of the assessee himself. Therefore, the whole idea of Mr. John was
simply to split his income into three parts with a view to evade tax. No other
business was done by the company.
(2) Therefore, the legal personality of the three private companies may be disregarded
because the companies were formed only to avoid tax liability. It carried on no other
business, but was created simply as a legal entity to ostensibly receive the dividend
and interest and to hand them over to the assessee as pretended loans. The same
was upheld in Re Sir Dinshaw Maneckji Petit AIR 1927 Bom.371 and Juggilal vs.
Commissioner of Income Tax AIR (1969) SC (932).
12. (a) In accordance with the provisions of Section 19 of the Companies Act, 2013, a
subsidiary company cannot either by itself or through its nominees hold any shares
in its holding company and no holding company shall allot or transfer its shares to
any subsidiary companies. Any such allotment or transfer of shares in a company to
its subsidiary is void. The section however does not apply where:
(i)
the subsidiary company holds shares in its holding company as the legal
representative of a deceased member of the holding company, or
(ii) the subsidiary company holds such shares as a trustee, or

(iii) the subsidiary company was a shareholder in the holding company even
before it became its subsidiary.
(b) Position of the following with regard to membership in a company:
(i)
Partnership Firm: Section 2 (55) of the Companies Act 2013 defines a

member as a subscriber to the memorandum of association whose name is
entered in the Register of Members following the incorporation of the company,
every other person who agrees in writing to become a member of the company
68
and whose name is entered in the register of members of the company and
any person holding shares in a company and whose name is entered as the
beneficial owner in the records of the depository.
A partnership firm may therefore hold shares in a company provided its name
appears in the register of members of the company. However, as a firm is not
a legal entity it will be able to hold shares in the individual names of partners
as joint shareholders. However, this will not apply to a Limited Liability
Partnership. (Ganesh Das Ram Gopal v. R.G. Cotton Mills Ltd.)
Under section 8 (3) of the Companies Act 2013, a firm may be a member of a
company incorporated under section 8 i.e. a company formed as a charitable
or social venture.
(ii) An Insolvent: An insolvent may be a member of a company. So long as his
name appears in the register of members, he is a member and is entitled to
vote even though his shares vest in the Official Assignee or Receiver. (Morgan
v. Gray).
13. The Ministry of Corporate Affairs vide Notification G.S.R. 349(E), dated 1st May 2015,
through the enforcement of the Companies (Incorporation) Amendment Rules, 2015,
inserted Rule 36 to the Companies (Incorporation) Rules, 2014 in exercise of the power
conferred by sections 3, 4, 5 and 7, read with section 469 sub-section (1) & (2) of the
As per Rule 36:
(1) For the purpose of simplifying the filing of forms for incorporation of a company, the
integrated process shall apply with effect from 1st May, 2015.
(2) For the purposes of sub-rule (1), the application for allotment of Director
Identification Number (DIN) upto3 Directors, reservation of a name, incorporation of
company and appointment of Directors of the proposed company shall be filed in
Integrated Form No. INC-29, for One Person Company, Private company, Public
Company and producer company, with the Registrar within whose jurisdiction the
registered office of the company is proposed to be situated, along with the fee of
` 2,000 in addition to the registration fee as specified in Companies (Registration of
Offices and Fees) Rules, 2014.
(3) For the purposes of filing Integrated Incorporation form, the particulars of maximum
of 3 directors shall be allowed to be filled in INC-29 and allotment of DIN of
maximum of 3 proposed directors shall be permitted in Form INC-29 in case of
proposed directors not having approved DIN.
(4) The promoter or applicant of the proposed company shall propose only one name in
e-form No. INC-29.
(5) The promoter or applicant of the proposed company may prepare Memorandum of
Association as per templates in Form INC-30 and may opt for templates of Articles
69
of Association in Form INC-31 in accordance with the provisions of rule 13 for

preparation of Memorandum of Association and Article of Association.
(6) The promoter or the applicant shall sign and witness, the Memorandum of
Association and Articles of Association in the forms downloaded from the portal of
the Ministry of Corporate Affairs and scanned legibly and attach to e-form INC-29 in
accordance with the provisions of rule16 for preparation of Memorandum of
Association and Articles of Association.
(7) The facility to file integrated application for incorporation in Form INC-29 is available
as an option to the process for separate applications for allotment of Director
Identification Number, reservation of name and Incorporation of a company as
provided in these rules.
(8) A company using the provisions of this rule may furnish verification of its registered
office under sub-section (2) of section 12 of the Act by filling e-Form INC -29 in
which case the company shall attach along with such e-Form INC-29, any of the
documents referred to in sub-rule (2) of rule 25.
(9) The Registrar within whose jurisdiction the registered office of the company is proposed
to be situated shall process INC-29 including application for allotment of DIN.
(10) (a) Where the Registrar, on examining e-form INC-29, finds that it is necessary to
call for further information or finds such application or document to be
defective or incomplete in any respect, he shall give intimation to the
application to remove the defects and re-submit the e-form within fifteen days
from the date of such intimation given by the Registrar.
(b) After the resubmission of the document, if the registrar still finds that the
document is defective or incomplete in any respect, he shall give one more
opportunity of fifteen days to remove such defects or deficiencies.
(c) In case, the Registrar is of the opinion that the document is defective or
incomplete in any respect after giving such two opportunities, the e-form INC29 of the proposed company shall be rejected.
(11) The Certificate of Incorporation shall be issued by the Registrar in Form No. INC-11.
14. In terms of section 4(1)(c) of the Companies Act, 2013, the powers of the company are
limited to:
(i)
Powers expressly given in the Objects Clause of the Memorandum (which is

popularly known as express power), or conferred by the Companies Act, or by any
other statute and
(ii) powers reasonably incidental or necessary to the companys main objects (termed
as Implied powers).
The Act further provides that the acts beyond the powers of a company are ultra vires
and void and cannot be ratified even though every member of the company may give his
consent [Ashbury Railway Carriage Company Vs Richee]
70
The objects clause enables the shareholders, creditors or others to know what its powers
are and what is the range of its activities. The objects clause therefore is of fundamental
importance to the shareholders, creditors and every other person who deals with the
company in any manner what so ever. A company being an artificial legal person can act
only within the ambit of the powers conferred upon it by the Memorandum through the
Objects Clause.
Every person who enters into a contractual relationship with a company on any matter is
presumed to be aware of its objects and is supposed to have examined the Memorandum
of Articles of the company to ensure proper contractual agreement. If a person fails to do
so, it is entirely at his own peril.
It is also pertinent to note that the objects of a company may be changed by following the
provisions for the change of Memorandum as laid out in section 13 of the said Act.
Miranda Pvt. Ltd is authorised to trade directly on fruits and vegetables. It has no power
to enter into a partnership for iron and steel with Mr. Karan. Such act cannot be treated
as being within either the express or implied powers of the company. Mr Karan who
entered into partnership is deemed to be aware of the lack of powers of Miranda Pvt. Ltd.
In the light of the above, Mr. Karan cannot enforce the agreement or liability against
Miranda Pvt. Ltd under the Companies Act, 2013. Mr. Karan should be advised
accordingly.
However, under the Indian Contract Act, 1872 where a person derives any benefit either
in the absence of a contract or under a void agreement, will be liable to make a
reasonable payment for the value of such benefit.
15. According to Section 46(1) of the Companies Act, 2013, a share certificate once issued
under the common seal, if any, of the company or signed by two directors or by a director
and the Company Secretary, wherever the company has appointed a Company
Secretary, specifying the shares held by any person, shall be prima facie evidence of the
title of the person to such shares. Therefore, in the normal course the person named in
the share certificate is for all practical purposes the legal owner of the shares therein and
the company cannot deny his title to the shares.
However, a forged transfer is a nullity. It does not give the transferee (Mr. Ashok) any
title to the shares. Similarly any transfer made by Mr. Ashok (to Mr. Sanjay) will also not
give a good title to the shares as the title of the buyer is only as good as that of the
seller.
Therefore, if the company acts on a forged transfer and removes the name of the real
owner (Mr. Deepak) from the Register of Members, then the company is bound to restore
the name of Mr. Deepak as the holder of the shares and to pay him any dividends which
he ought to have received (Barton v. North Staffordshire Railway Co. 38 Ch D 456).
71
In the above case, therefore, Mr. Deepak has the right against the company to get the
shares recorded in his name. However, neither Mr. Ashok nor Mr. Sanjay have any rights
against the company even though they are bona fide purchasers.
However, since Mr. Deepak seems to be the perpetrator of the forgery, he will be liable
both criminally and for compensation to Mr. Ashok and Mr. Sanjay.
16. The objectives of the Central Consumer Protection Council in India are to promote and
protect the rights of the consumers such as:(i)
the right to be protected against the marketing of goods and services which are
hazardous to life and property;
(ii) the right to be informed about the quality, quantity, potency, purity, standard and
price of goods/services so as to protect the consumer against unfair trade practices;
(iii) the right to be assured, whichever possible, access to a variety of goods and
services at competitive prices;
(iv) the right to be heard and to be assured that consumers interest will receive due
consideration at appropriate terms;
(v) the right to seek redressal against unfair trade practices;
(vi) the right to consumer education.
17. Moral vs. Ethics: Following are the points of difference between Ethics and Moral:
(i)
The word thics is derived from Ancient Greek thikos meaning haracter. The
word moral is derived from Latin mos meaning ustom.
(ii) Character is the essence of values and habits of a person or group. It severs the
analysis and employment of concepts such as right and wrong, good and evil and
acting with responsibility. Moral is defined as relating to principles of right and
wrong.
(iii) Character is a personal attitude, while custom is defined by a group over a period of
time. For example People have character, Societies have custom.
(iv) Morals are accepted from an authority (such as cultural, religious etc.) while ethics
are accepted because they follow from personally accepted principles. An ethical
view might be based on an idea of personal property that should not be taken
without social consent. Moral norms can usually be expressed as general rules and
statements such as always tell the truth.
(v) Morals work on smaller scale than ethics, more reliably, but by addressing human
needs for belonging and emulation, while ethics has a much wider scope.
18. Pragmatic reasons for maintaining ethical behaviour: Marketing executives should
practice ethical bahaviour because it is morally correct. To maintain ethical behaviour in
marketing, the following positive reasons may be useful to the marketing executives:
72
1.
To reverse declining public confidence in marketing: Sometime misleading

package labels, false claim in advertisement, phony list prices, infringement of
trademarks pervert the market trends and such behaviour damages the marketers
reputation. To reverse this situation, business leaders must demonstrate
convincingly that they are aware of their ethical responsibility and will fulfil it.
Companies must set high ethical standards and enforce them. Moreover, it is in
managements interest to be concerned with the well-being of consumers, since
they are the lifeblood of a business.
2.
To avoid increase in government regulation: Business apathy, resistance, or

token responses to unethical behaviour increase the probability of more
governmental regulation. The governmental limitations may also result from
managements failure to live up to its ethical responsibilities. Moreover, once the
government control is introduced, it is rarely removed.
3.
To retain power granted by society: Marketing executives wield a great deal of

social power as they influence markets and speak out on economic issues.
However, there is a responsibility tied to that power. If marketers do not use their
power in a socially acceptable manner, that power will be lost in the long run.
4.
To protect the image of the organisation: Buyers often form an impression of an

entire organisation based on their contact with one person. That person represents
the marketing function. Sometimes, a single sales clerk may pervert the market
opinion in relation to that company which he represents.
Therefore, the ethical behaviour in marketing may be strengthened only through the
behaviour of the marketing executives.
19. (i)
Harassment at workplace: Harassment is tormenting by subjecting to constant

interference or intimidation. Law prohibits harassing acts and conduct that creates
an intimidating hostile or offensive working environment, which could be a term or
condition of an individuals employment, either explicitly or implicitly or such conduct
which has the purpose or effect of unreasonably interfering with an individuals work
performance or creating an intimidating, hostile or offensive working environment.
Another type of harassment is sexual harassment situations in which an employee
is coerced into giving in to another employees sexual demands by the threat of
losing some significant job benefit, such as a promotion, raise or even the job.
Sexual harassment is prohibited and an employer is held responsible for all sexual
harassment engaged in by employees, regardless of whether the employer knew or
should have known the harassment was occurring and regardless of whether it was
forbidden by the employer.
(ii) Ecological Ethics: The problem of pollution and other environmental issues can
best be framed in terms of our duty to recognize and preserve the ecological
systems within which we live. An ecological system is an interrelated and
interdependent set of organisms and environments, such as a lake, in which the fish
73
depend on small aquatic organisms, which in turn live off decaying plant and fish
waste products. Since the various parts of an ecological system are interrelated,
the activities of one of its parts will affect all other parts. Business and all social
firms are parts of a larger ecological system.
Business firms depend on the natural environment for their energy, material
resources, waste disposal and that environment in turn is affected by the
commercial activities of business firms. Unless business recognize the
interrelationship and interdependencies of the ecological systems within which they
operate and unless they ensure that their activities will not seriously injure these
systems one cannot hope to deal with the problem of pollution.
only for the sake of human being but also for its own sake. The issue of
environmental ethics goes beyond the problem relating to protection of environment
or nature in terms of pollution, resource utilization or waste disposal. It is the issue
of exploitive human nature and attitudes that should be addressed in a rational way.
Problems like global warming, ozone depletion and disposal of hazardous waste
that concern the entire world. They require international co-operation and have to
be tackled at the global level.
20. The reasons which lead to unethical behaviour are as follows:
1.
Emphasis on short term results.

This is one of the primary reasons which has led to the downfall of many companies
like Enron and Worldcom.
2.
Ignoring small unethical issues.

It is a known fact that most of the compromises we make are small but however
they lead us into committing large infractions. And ignoring minor lapses, lead to
bigger and more huge mistakes.
3.
Economic cycles.
In good times, companies are relaxed in their accounting procedures or disclosures,
as there is a pervasive feel-good effect. But when times of hardship follow, then the
hit taken by them is almost fatal, as was proved in the Enron case. So companies
need to watch out for economic cycles and be vigilant in good times as well as bad.
4.
Accounting rules.
In the era of globalization and massive cross border flow of capital, accounting rules
are changing faster than ever before. The rules have become more complex and it
is difficult to identify deviations from these complex set of requirements. The
complexity of these principles and rules and the difficulty associated with identifying
abuse are reasons which may promote unethical behaviour.
74
21. (a) Advantages of Ethical Communication: Ethical communication promotes longterm business success and profit. However, improving profits isn't reason enough to
be ethical, as soon as the cost of being ethical outweighes the benefits, ethical
choices would no longer be possible. One advantage of ethics is long-term integrity.
Survey reports that all employees want to work for organizations with high ethical
standards. Competent people are likely to search for organizations that maintain
high ethical standards. When competent people migrate toward ethical firms,
everyone benefits because both competence and ethics are perpetuated.
(b) Organization Values: Values are the principles and ideas that people or
organizations strongly believe in and consider important. When people are in doubt
about decisions, they frequently rely on deep-seated values to help them make the
right choice. In organizations, reliance on shared values makes setting goals easier
in the face of the competing ideas, desires, and objectives of individual employees.
One can get a good idea about the values of an organization by examining its vision
and mission statement. These statements are short descriptions of the purpose of
organizations and the directions they try to take to achieve success. Many
organizations post their vision and mission statements in several places so that employees know what the organization values are.
and affection.
Control is the need to exercise leadership and prove one's abilities.
Affection is the need to develop relationships with people. Groups are an excellent way
to make friends and establish relationships.
75
23. Process which should be followed by mediators to resolve the differences between
the parties- Efforts which help to generate a creative resolution are:
(i)
Problem solving orientation It is important to be constructive and maintain a

problem solving orientation, even in the face of strong differences and personal
antagonism. It is in every participants best interest to behave in a fashion, they
would like others to follow. Concerns or disagreement should be expressed in an
unconditionally constructive manner.
(ii) Engage in active listening Participants in every consensus building process

should be encouraged (indeed, instructed, if necessary) to engage in what is known
as active listening.
(iii) Disagree without being disagreeable Participants in every consensus building
process should be instructed to disagree without being disagreeable.
(iv) Strive for the greatest degree of transparency possible To the greatest extent
possible, consensus building process should be transparent. That is, the groups
mandate, its agenda and ground rules, the list of participants and the groups or
interests they are representing, the proposals they are considering, the decision
rules they have adopted, their finances and their final report should, at an
appropriate time, be open to scrutiny by anyone affected by the groups
recommendations.
(v) Strive to invent options for mutual gain The goals of a consensus building
process ought to be to create as much value as possible and to ensure that
whatever value is created be divided in ways that take account of all relevant
considerations. The key to creating value is to invent options for mutual gain.
24. Power of Attorney to execute a deed for the transfer of shares & debentures:BY THIS POWER OF ATTORNEY, Safe Investments Pvt. Ltd. (full details), the company
hereby appoints Mr. Alok (full details) as Attorney of the company, to act in his name and
on his behalf and to do or execute all or any of the acts or things relating to transfer of
shares and debentures, that is to say:
1.
To receive from(Full details), the transferee the sum of `.(Rupees...

only) being the price agreed to be paid to the company by the said transferee for the
purchase of (full description of shares and debentures) under an agreement
datedand to give proper receipt and discharge for the same.
2.
To execute a transfer deed of the said shares and debentures
3.
To present the said transfer deed for registration before the proper registration
authority, to admit the execution thereof, to do all acts, deeds and things which may
be necessary for registering the said transfer deed.
4.
To execute or to do all acts, things or deeds or assurance for the completion of the
transfer of the said shares and debentures.
76
AND, the company DO HEREBY AGREE to ratify all acts, things, deeds or proceedings
lawfully done by the said Attorney on behalf of the company and in the name of the
company by virtue of this power of attorney and the same shall be binding on company in
full force or effect.
IN WITNESS WHEREOF the company have
..this..day of..20.
executed
this
power
at
Witness:
1 _______
Signature
2 _______
(Executant)
25. Draft of notice for Calling Annual General Meeting:

Notice
Notice is hereby given that the 3rd annual general meeting of the Symphony Ltd. will be
held on Friday, the 5th of August, 2016, at the registered office of the company at 123,
tower complex, Lucknow Distt. Lucknow (U.P.) at 11.00 a.m. to transact the following
ordinary business:
1.
To receive, consider and adopt the audited balance sheet of the company as on 31 st
March 2016 and the profit and loss account for the year ended and the auditors and
directors reports there on.
2.
To declare dividend for the year ending 31st March 2016.
3.
To appoint a director in place of Mr. Yuvraj Sharma, who retires by rotation and
being eligible, offers himself for re-appointment.
4.
To appoint a director in place of Mr. Yash Singh, who retires by rotation and being
eligible, offers himself for reappointment.
5.
To appoint statutory auditors of the company and fix their remuneration.
Regd. Office
For and on behalf of Board of Directors.
123, Tower complex

Distt. Lucknow (U.P.)
Dated:
Sd/Chairman of the meeting

the Board of Directors
Place : ..
Date

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PAPER 2: BUSINESS LAWS, ETHICS & COMMUNICATION

The Negotiable Instruments Act, 1881

X who obtains a cheque drawn by Y by way of gift.

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

The Payment of Bonus Act, 1965

An employee working in an establishment commits fraud during the accounting year

The Employees Provident Funds and Miscellaneous Provisions Act, 1952

The Payment of Gratuity Act, 1972

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

A refused to surrender the occupied land belonging to the company.

B committed theft under law involving offence of moral turpitude.

Matters considered in determining the terms and conditions of such conversion.

(iii) Remedy available to the company if conversion or terms of conversion is not

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

Person to be called as a holder: As per section 8 of the Negotiable Instruments Act,

Yes, X can be termed as a holder because he has a right to possession and to

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

Accordingly, the refusal of an employee to surrender the occupied land belonging to

Closing of register of members, debenture holders or other security holder by

(ii) If the register of members or of debenture-holders or of other security holders

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

In case of default with respect to the closure of register of member / register of

Such statement or omission in the prospectus was immaterial, or

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

The financial position of the company;

(iii) The rate of interest payable on the debentures or the loans;

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

The procedure laid down in Section 192A is as under:

Notice to shareholders: Where a company decides to pass any resolution by

Notice shall be sent by registered post acknowledgement: The notice shall be

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

Act contrary to law or regulation.

Act contrary to technical or professional standards.

Facilitate unethical or illegal earnings management strategies.

Lie to, or otherwise intentionally mislead (including misleading by remaining silent)

The auditors of the employing organization; or

Issue, or otherwise be associated with, a financial or non-financial report that

The Institute of Chartered Accountants of India

PAPER 2: BUSINESS LAWS, ETHICS AND COMMUNICATION

The financial statements; Tax compliance; Legal compliance; or Reports required by

Commitment to diversity in hiring employees and barring discrimination;

Management teams that view employees as assets rather than costs;

Adoption of operating policies that exceed compliance with social and

Advanced resource productivity, focused on the use of natural resources in a more

The Institute of Chartered Accountants of India

INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2014

21. Process of Communication: Communication is a two-way process in which there is an

Message: A message refers to what is being communicated. It may be verbal or

Channel: Channel is the medium through which message is transmitted to the