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CMA Inter Gr. I
(2016 Syllabus)
Paper 6 - Laws and Ethics
Editors:
Prof. Arun Kumar CS (Dr.) Himanshu Srivastava
M.Com., D.Phil., AMT (AIMA), M.Com., D.Phil, UGC-NET, LLB,
ISO Lead-Auditor (UK), CISA (USA) NSE (Certificate in Financial Market),
Professor, ACS, Assistant Professor,
Motilal Nehru Institute of Research Motilal Nehru Institute of Research
& Business Administration & Business Administration,
University of Allahabad, University of Allahabad,
Allahabad Allahabad
CA Mohit Bahal
M.Com.,FCA, ISA (ICAI), HDISM,
UGC-NET (Commerce)
UGC-NET (Management)
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Preface to Scanner___________________________________
Laws and Ethics constitute the Paper - 6 of Inter Gr. I Examination

(2016 Syllabus) conducted by the Institute of Cost Accountants of India. This
book is intended to make the study interesting and scoring from the
examination point of view.
It contains solutions to various questions asked in the examination of
Intermediate level conducted by the Institute of Cost Accountants of India.
The answers are presented in lucid and understandable language and style
so that the reader can understand and memorise the contents and face the
exams easily.
This book should always be supplemented with the study material
supplied by the Institute and Bare Acts for better and deeper understanding
of the subject.
Suggestions for improvement are always welcome.
Prof. Arun Kumar

CS (Dr.) Himanshu Srivastava
CA Mohit Bahal
viii
Contents to Scanner_________________________________
Paper - 6_____________________________Laws and Ethics
 Syllabus 6.3
 Examination Trend Analysis 6.5
 Line Chart Showing Relative Importance of Chapters 6.9
 Frequency Table Showing Distribution of Marks 6.10
 Frequency Table Showing Marks of Compulsory Questions 6.12
 Legends for the Graphs 6.14
Section A (Commercial Laws)
1. Contract - Basic Concepts 6.15
2. Quasi, Contingent and Discharge of Contracts 6.65
3. Indemnity and Guarantee 6.81
4. Bailment 6.93
5. Pledge 6.104
6. Laws of Agency 6.111
7. Sale of Goods Act, 1930 6.125
8. Negotiable Instruments Act, 1881 6.174
9. Indian Partnership Act, 1932 6.207
10. Limited Liability Partnership Act, 2008 6.225
Section B (Industrial Laws)
11. Factories Act, 1948 6.239
12. Payment of Gratuity Act, 1972 6.260
13. Employees’ Provident Fund and Miscellaneous Provisions
Act, 1952 6.277
14. Employees’ State Insurance Act, 1948 6.293
15. Payment of Bonus Act, 1965 6.308
16. Minimum Wages Act, 1948 6.327
17. Payment of Wages Act, 1936 6.336
ix
Section - C (Corporate Law)
18. Company Types, Promotion, Formation and Related
Procedures 6.351
19. Directors 6.398
Section - D (Ethics)
20. Business Ethics 6.433
21. Objective Questions 6.485
 Important Glossary 6.525
 Important Highlights of Companies (Amendment) Act, 2017 6.543
 The Companies (Amendment) Ordinance, 2018 6.606
 Question Paper of June, 2018 6.621
 Question Paper of December, 2018 6.627
x
Dedicated To_______________________________________
My Sweet Daughters
Saanvi and Koohu
CS (Dr.) Himanshu Srivastava
Dedicated To_______________________________________
My Cute Daughters
Sumedha and Kamakshi
CA Mohit Bahal
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UNIQUE FEATURES OF THIS EDITION
 An Examination Trend Analysis for question paper based contents of

last five examinations before the paper.
 Questions are arranged according to the subject/topic in ascending
order of examinations/years.
 Graph for every chapter, showing marks allotment for last twenty
examinations amongst Short Notes, Distinguish Between, Descriptive
Questions and Practical Questions.
 Line Chart Showing Relative Importance of Chapters.
 Table Showing Marks of Compulsory Questions at the end of every
chapter.
 Analytical Classification of every Chapter in Four Categories:
(1) Short Notes,
(2) Distinguish Between,
(3) Descriptive Questions and
(4) Practical Questions.
 100% Correct Answers of Practical Questions.
 Complete list of Repeatedly Asked Questions at the end of every
chapter.
 Complete Question Papers of June 2018 and December 2018.
 Pleasant get-up.
xiv
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Section - A
Commercial Laws
Syllabus
Paper 6 Laws and Ethics
A Commercial Laws 30%
B Industrial Laws 25%
C Corporate Law 35%
D Ethics 10%
OBJECTIVES
To give an exposure to some of the important laws essential and relevant
for a business entity. To demonstrate an overview of laws related to
companies. To provide knowledge, comprehension and principles of
corporates. To construct the principles and ethical values of the business
and professionals.
Section A: Commercial Laws [30 marks]
1. Indian Contracts Act, 1872
(a) Essential elements of a contract, offer and acceptance
(b) Void and voidable agreements
(c) Consideration
(d) Legality of object
(e) E-contracts
(f) Constraints to enforce contractual obligations
(g) Quasi-contracts, contingent contracts, termination or discharge
of contracts
(h) Special contracts: Indemnity and Guarantee; Bailment and
Pledge; Laws of Agency
2. Sale of Goods Act, 1930
(a) Definition
(b) Transfer of ownership
(c) Conditions and Warranties
(d) Performance of the Contract of Sale
(e) Rights of Unpaid Vendor
(f) Auction Sales
3. Negotiable Instruments Act, 1881
(a) Definition and Features of Negotiable Instrument
(b) Crossing, Endorsement and Material Alteration
(c) Acceptance, Assignment and Negotiation
6.3
(d) Rights and Liabilities of Parties
(e) Dishonor of a Negotiable Instrument.
4. Indian Partnership Act, 1932
(a) Nature of Partnership
(b) Rights and Liabilities of Partners
(c) Formation, Reconstitution and Dissolution of Firms
5. Limited Liability Partnership Act, 2008
(a) Concept, formation, membership, functioning
(b) Dissolution
Section B: Industrial Laws: Objects, Scope and Applicability of the
following Acts [25 marks]
6. Factories Act, 1948
7. Payment of Gratuity Act, 1972
8. Employees Provident Fund Act, 1952
9. Employees State Insurance Act, 1948
10. Payment of Bonus Act, 1965
11. Minimum Wages Act, 1948
12. Payment of Wages Act, 1936
Section C : Corporate Law [35 marks]
13. Companies Act, 2013
(a) Company types, promotion, formation and related procedures i.e,
Sec. 1 to Sec. 122 of Companies Act, 2013.
(b) Director-Role, Responsibilities, Qualification, disqualification,
appointment, retirement, resignation, removal, remuneration and
powers, Director Identification Number.
Section D : Ethics [10 marks]
14. Business Ethics:
(a) Ethics-meaning, importance, nature and relevance to business
(b) Values and attitudes of professional accountants.
(c) Seven principles of public life-selflessness, integrity, objectivity,
accountability, openness, honesty and leadership.
(d) Ethics in Business
6.4
Examination Trend Analysis
Paper 6
Laws, Ethics & Governance
Question Paper Based Contents of Last Five Examinations
Years Q. No. Chapter Page
No.
No. Name
2016 1. 21 Objective Questions 505
Dec. 2.(a)(i) 4 Bailment 101
(ii) 8 Negotiable Instruments Act, 1881 195
(iii) 7 Sale of Goods Act, 1930 154
(b)(i) 15 Payment of Bonus Act, 1965 320
(ii) 12 Payment of Gratuity Act, 1972 269
(c)(i) 1 Contract-Basic Concepts 63
(ii) 7 Sale of Goods Act, 1930 171
(iii) 9 Indian Partnership Act, 1932 223
(d)(i) 11 Factories Act, 1948 256
(ii) 10 Limited Liability Partnership Act, 2008 235
(iii) 7 Sale of Goods Act, 1930 171
(e)(ii) 13 Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952 286
3.(a)(iii) 18 Company Types, Promotion, Formation and
Related Procedures 385
(b)(i) 19 Directors 418
(ii) 18 Company Types, Promotion, Formation and
(iii) 19 Directors 427
4.(a)(i) 20 Business Ethics 453
(b)(i) 20 " " 479
June 2. (a) 1 Contract-Basic Concepts 47
(b) 2 Quasi, contingent and discharge of contracts 79
6.5
3. (a) 9 Indian Partnership Act, 1932 218
(b) 8 Negotiable Instruments Act, 1881 205
4. (a) 11 Factories Act, 1948 257
(b) 14 Employees’ State Insurance Act, 1948 302
5. 18 Company Types, Promotion, Formation and
6. 19 Directors 419
7. (a) 20 Business Ethics 480
(b) 15 Payment of Bonus Act, 1965 321
8. (a) 1 Contract-Basic Concepts 34
(b) 18 Company Types, Promotion, Formation and
(c) 20 Business Ethics 450
(d) 17 Payment of Wages Act, 1936 339
Dec. 2. (a) 1 Contract-Basic Concepts 48
(b) 1 " " 63
3. (a) 7 Sale of Goods Act, 1930 155
4. (a) 17 Payment of Wages Act, 1936 344
(b) 13 Employees’ Provident Fund and Miscellaneous
5. (a) 18 Company Types, Promotion, Formation and
(b) 18 " " " " 390
6. (a) 19 Directors 421
(b) 19 " " 421
(b) 12 Payment of Gratuity Act, 1972 269
8. (a) 2 Quasi, contingent and discharge of contracts 77
(b) 19 Directors 412
(d) 11 Factories Act, 1948 246
6.6
June 2. (a) 2 Quasi, contingent and discharge of contracts 80
(b) 6 Laws of Agency 121
3. (a) 7 Sale of Goods Act, 1930 172
4. (a) 11 Factories Act, 1948 258
(b) 13 Employees’ Provident Fund and Miscellaneous
5. (a) 18 Company Types, Promotion, Formation and
(b) 18 " " " " 392
6. (a) 19 Directors 423
(b) 19 " " 424
(b) 15 Payment of Bonus Act, 1965 325
(d) 11 Factories Act, 1948 247
Dec. 2. (a) 2 Quasi, contingent and discharge of contracts 78
(b) 1 Contract-Basic Concepts 64
3. (a) 10 Limited Liability Partnership Act, 2008 236
4. (a) 16 Minimum Wages Act, 1948 335
(b) 14 Employees’ State Insurance Act, 1948 304
5. 18 Company Types, Promotion, Formation and
6. 19 Directors 425
(b) 12 Payment of Gratuity Act, 1972 270
6.7
(d) 16 Minimum Wages Act, 1948 332
6.8
6.9
Frequency Table Showing Distribution of Marks
Chap. Years 14 14 15 15 16 16 17 17 18 18
Total Ave.
No. Chapter Name June Dec. June Dec. June Dec. June Dec. June Dec.
1. Contract-Basic Concepts 4 4 9 3 13 5 14 15 5 10 82 8.2
2. Quasi, Contingent and Discharge... 6 5 5 10 26 2.6
3. Indemnity and Guarantee 4 3 7 0.7
4. Bailment 2 3 4 9 0.9
5. Pledge 3 3 6 0.6
6. Laws of Agency 3 10 13 1.3
7. Sale of Goods Act, 1930 8 14 3 6 9 12 8 8 68 6.8
8. Negotiable Instruments Act, 1881 7 12 10 9 8 7 6 7 7 7 80 8.0
9. Indian Partnership Act, 1932 7 3 8 6 7 5 9 45 4.5
10. Limited Liability Partnership Act, 2008 5 4 3 3 5 6 8 34 3.4
11. Factories Act, 1948 3 3 3 6 5 5 13 38 3.8
12. Payment of Gratuity Act, 1972 5 3 8 5 5 5 31 3.1
13. Employees’ Provident Fund and... 3 4 3 6 7 5 5 7 40 4.0
14. Employees’ State Insurance Act, 1948 10 6 16 1.6
15. Payment of Bonus Act, 1965 4 3 2 2 7 5 5 5 33 3.3
16. Minimum Wages Act, 1948 2 2 7 4 14 29 2.9
17. Payment of Wages Act, 1936 2 3 5 10 20 2.0
6.10
Chap. Years 14 14 15 15 16 16 17 17 18 18
Total Ave.
No. Chapter Name June Dec. June Dec. June Dec June Dec. June Dec.
18. Company Types, Promotion, 3 5 4 7 16 10 20 15 20 20 120 12.0
Formation...
19. Directors 5 5 3 10 15 20 15 15 88 8.8

20. Business Ethics 7 12 12 10 7 15 15 15 15 15 123 12.3
21. Objective Questions 16 14 16 13 17 20 25 25 25 25 331 33.1
6.11
Frequency Table Showing Marks of Compulsory Questions
Chap. Years 14 14 15 15 16 16 17 17 18 18
Total Ave.
1. Contract-Basic Concepts
2. Quasi, Contingent and Discharge of...
3. Indemnity and Guarantee
4. Bailment
5. Pledge
6. Laws of Agency
7. Sale of Goods Act, 1930
8. Negotiable Instruments Act, 1881
9. Indian Partnership Act, 1932
10. Limited Liability Partnership Act, 2008
11. Factories Act, 1948
12. Payment of Gratuity Act, 1972
13. Employees’ Provident Funds and ...
14. Employees’ State Insurance Act, 1948
15. Payment of Bonus Act, 1965
16. Minimum Wages Act, 1948
6.12
Chap. Years 14 14 15 15 16 16 17 17 18 18
Total Ave.
17. Payment of Wages Act, 1936
18. Company Types, Promotion, Formation...
19. Directors
20. Business Ethics
21. Objective Questions 16 25 41 4.1
6.13
Short Notes
Distinguish Between
6.14
Legends for the Graphs
Descriptive
Practical
1 CONTRACT - BASIC CONCEPTS
THIS CHAPTER INCLUDES
 Definitions  Void and Voidable Agreements
 Acceptance and Revocation  Discharge of Contract
of offer  E-Contracts
 Capacity to Contract  Fraud
 Free Consent  Undue Influence
 Consideration  Coercion
Marks of Objective, Short Notes, Distinguish Between, Descriptive & Practical Questions
Legend
Objective Short Notes Distinguish Descriptive Practical
For detailed analysis Login at www.scannerclasses.com

for registration and password see first page of this book.
6.15
6.16 O Scanner CMA Inter Gr. I Paper 6A (2016 Syllabus)
CHAPTER AT A GLANCE
Topic Important Highlights

1. Meaning of  Sec. 2(h) of Indian Contract Act defines
Contract contract as:
“An agreement enforceable by law.”
Contract = Agreement + enforceability by law
 Contract is made by acceptance of one party
of an offer made to him by the other party, to
do or abstain from doing some act.
Contract = Agreement + Obligation
2. Meaning of  Sec. 2(e) of Indian Contract Act defines it as,
Agreement and “Every’ promise or every act of promises
Promise forming consideration for each other.”
 It has two characteristics:
(i) Two or more persons are required to
make an agreement.
(ii) Both parties must agree to same thing
in same sense.(Consensus - ad- idem).
 Sec. 2(b) of Indian Contract defines promise
as,
“A proposal when accepted becomes a
promise”.
Agreement = Promise
= Accepted Proposal
= Offer + Acceptance
3. Essential  Sec. 10 of Indian Contract Act says, “All,
elements of a agreements are contracts, if they are made-
valid contract (i) by free consent of parties , competent
to contract,
(ii) for a lawful consideration,
[Chapter  1] Contract - Basic Concepts O 6.17
(iii) with a lawful object, and

(iv) not hereby expressly declared to be
void.
It includes:
(i) Offer and Acceptance
(ii) Intention to create legal relationship
(iii) Lawful consideration
(iv) Capacity to contract
(v) Free consent
(vi) Lawful object
(vii) Agreement not expressly declared
void.
(viii) Consensus -ad- idem i.e. meeting of
minds
(ix) Certainty of meaning
(x) Possibility of performance
(xi) Legal formalities
4. Offer or Proposal  It refers to a proposal by one party to another
to enter into a legally binding agreement with
him.
 Sec. 2(a) of the Act defines it as-
“When one person signifies to another his
willingness to do or abstain from doing
anything, with a view to obtain the assent of
that other to such act or abstinence, he is
said to make a proposal.”
 Offeror or Promisor: The party making an
offer.
 Offeree or Promisee: The party to whom
offer is made.
5. Rules relating to  It must be capable of creating legal relations

offer  It must be certain, definite and not vague
 It may be expressed or implied
 It must be distinguished from an invitation to
offer
 It may be specific or general
 It must be communicated
 It must be made with a view to obtain the
consent of the offeree
 It may be conditional
 It should not contain a term non compliance
of which would amount to acceptance
6. Types of offer General; Specific, Cross, Counter, Open etc.
General and Specific offer:
 Offer made to public at large with or without
any time limit is general offer.
 Offer made to a particular and specified
person/ persons and that can be accepted by
that specific person/ persons only is specific
offer.
Cross offer:
 It occurs when two persons make identical
offers to each other, in ignorance of each
other’s offer.
 It leads to termination of the original offer.
Counter offer:
 Upon receipt of an offer from an offeror, if the
offeree instead of accepting it straightaway,
modifies or varies the offer, he is said to
make a counter offer.
 It leads to rejection of original offer.
Standing/ Continuing / Open Offer:

 Offer which is made to public at large and
kept open for public acceptance for a certain
time period.
 It refers to a tender to supply goods as and
when required.
 Each successive order given creates a
separate contract.
 It does not binds either party unless and until
such orders are given.
Offer and Invitation to offer:
 Offer is made to get the consent of other
party.
 Invitation to offer is made to initiate the offer
according to the invitation.
 Offer is made with an object to make a
contract.
 Invitation to offer does not results in any
contract formation.
7. Acceptance  It means giving consent to the offer.
 Sec. 2(b) of the Contract Act , defines it as-
“A proposal is said to be accepted, when the
person to whom the proposal is made
signifies his assent thereto.”
8. Essentials of a  It must be absolute and unqualified.
valid acceptance  It must be communicated to offeror.
 It must be in the mode prescribed.
 It must be given within reasonable time.
 Mere silence is not acceptance offeror can
prescribe the mode of acceptance but not the
mode of rejection.
 It must be given before the offer lapses or is
revoked.
 It must emanate from offer.
9. Rules of a valid  It must move at the desire of the promisor.

Consideration  It may be done by promisee himself or by any
other person.
 It may be past, present or future.
 It must be real and not vague.
 It must be legal.
 It need not be adequate. (But if not adequate
then consent must be free)
 It must be something more than the promisee
is already bound to do for the promisor.
10. Kinds of  Past Consideration - It refers to something
Consideration wholly done, forgone or suffered before
making of agreement.
 Under English law, “Past consideration is no
consideration.”
 The consideration which is completed or
performed at the time of contract is called
present consideration.
 But past consideration is a consideration as
per the Indian Law.
 Present or Executed Consideration - It
moves simultaneously with promise. The
consideration which is completed or
performed at the time of contract is called
present consideration.
 Future or Executory Consideration - It is to
be moved at a future date i.e promise is to be
performed in future.
11. Exceptions to the  An agreement made is valid if-
Rules, “No – expressed in writing and registered under
consideration, No law,
contract” – made on account of natural love and
affection,
– between parties standing in near relation

to each other.
 A promise is valid if-
– It is a promise to compensate wholly or in
part, a person who has already
voluntarily done something for the
promisor.
– Something which the promisor was
legally compellable to do.
 A promise to pay, wholly or in part, a debt,
which is barred by law of limitation can be
enforced if—
– it is in writing,
– it is signed by the debtor or his
authorised agent.
 It does not applies to completed gifts i.e. gift
given and accepted.
 Consideration is not required to effect a valid
bailment of goods i.e. gratuitous bailment .
 Not required to create an agency.
 If a person promised to contribute anything to
a charity and on his faith, the promisee
undertakes a liability to that extent, the
contract shall be valid.
12. Doctrine of Privity  It means that only those persons, who are
of Contract parties to a contract , can sue and be sued
upon the contract.
 It refers to the relationship between parties
who have entered into the contracts.
 The third party cannot sue upon it, even
though the contact may be for his benefit.
 Thus, “a stranger to the contract” cannot
bring a valid suit under the contract.
 It is different from “stranger to consideration”.
13. Legal Agreement  An agreement which can be enforced legally.

 Illegal Agreements:
(i) It goes beyond the basic public policy,
thus are not enforceable by law.
(ii) It is not only void as between immediate
parties but the collateral transactions also
become illegal.
 Its consequences:
(i) Entirely void
(ii) No action can be brought by or against
any party.
(iii) Money paid or property transferred under
it cannot be recovered
(iv) If its two parts legal and illegal are
separable, only legal part can be
enforced by the courts
(v) Agreement collateral to it are also illegal.
14. Void Agreement  Agreements not enforceable by law are void.
 They are not always illegal and its collateral
transactions are legal.
 It cannot give rise to any legal consequence
 It is void -ab- initio (i.e- void from very
beginning)
 Eg minor’s contract
15. Void Contracts  It is not a contract at all as it is without any
legal effect.
 Section 2(j) of Indian Contract Act, 1872,
defines it as-
“A contract which ceases to be enforceable
by law becomes void when it ceases to be
enforceable.”
16. Voidable  It is an agreement which is binding and

Contracts enforceable but due to lack of one or more of
the essentials of a valid contract, it may be
repudiated.
 Section 2(i) of the Indian Contract Act,
1872 defines it as-
“ All agreements which are enforceable at the
option of any one of the parties, and other
party has no such option, are known as
voidable contracts.”
17. Competency/Cap-  It means that parties to the agreement must
acity of Parties to have capacity to enter into a valid contract.
Contract  Person’s may be either natural or artificial.
 Natural persons means human beings.
 Artificial persons means corporations.
18. Position of (i) An agreement entered into by a minor is
minor’s altogether void i.e. void ab initio
agreement (ii) Minor can be a promisee or a beneficiary
(iii) Minor can always plead minority
(iv) Minor’s agreement cannot be ratified by him
(v) Contract by guardian, is enforceable if-
(a) It is within his competence and authority,
(b) For the benefit of the minor.
(vi) Minor’s property is liable for necessaries.
(vii) Court can never direct specific performance
of the contract
(viii) Minor cannot be a partner in partnership
firm. He can however be admitted to
benefits of partnership firm.
(ix) Minor can act as an agent and bind his
principal without incurring any personal
liability.
(x) Minor can never be adjudicated as an
insolvent.
19. Lunatics  As per Section 12 of the Indian Contract Act,

Agreement “A person is said to be of sound mind for the
purpose of making a contract, if at the time
when he makes it, he is capable of
undertaking it and of forming a rational
judgement as to its effects upon his
interests.”
 A person of unsound mind includes:
(i) Lunatics (ii) idiots, (iii) drunkards
 Such agreement is void.
 Lunatics estate will be liable for any
necessaries supplied to him or his family.
 A person who is usually of unsound mind, but
occasionally of sound mind, may make a
contract when he is of sound mind and he will
be bound by it.
 A person who is usually of sound mind, but
occasionally of unsound mind, may not make
a contract when he is of unsound mind.
20. Persons (i) Alien Enemy-
disqualified by  Alien is a person who is not an Indian
law from entering citizen.
into contract  He becomes alien enemy on
declaration of war between India and
his country.
 He cannot enter into a contract with an
Indian subject.
(ii) Foreign Sovereigns and Ambassadors-
 They enjoy certain special privileges
due to which they cannot be legally
proceeded against in Indian Courts.
 If contracts are entered into through
agents, then agents becomes personally
responsible for the performance.
(iii) Convicts:
 Cannot enter into a valid contract while
undergoing sentence, nor he can sue.
21. Free Consent  As per the Indian Contract Act,
“ Two or more persons are said to consent
when they agree upon the same thing in the
same sense.” (Consensus-ad-idem)
 Free consent means consent given by parties
out of their free will on their own without any
fear, without any force, without any
compulsion or threat from the other party.
 As per Section14, consent is said to be free
when it is not caused by
(i) Coercion
(ii) Undue influence
(iii) Fraud
(iv) Misrepresentation
(v) Mistake
 In the absence of free consent, contract is
usually voidable at the option of the party
whose consent is not free.
22. Coercion  “It is the committing , or threatening to
commit, any act forbidden by the Indian
Penal code (IPC), or the unlawful detaining,
or threatening to detain any property, to the
prejudice of any person, whatever, with the
intention of causing any person to enter into
an agreement.”
 Exceptions of coercion:
The following threats are not coercion-
1. Threat to file a suit,
2. Consent given on the basis of legal
obligations,
3. Threat by workers,
4. Threat to detain property by mortgager.
Relevant Case Law:
* Ram Chandra Vs. Bank of Kolhapur
 It may proceed from any person and may be
directed against any person or goods.
23. Undue Influence  A contract is said to be induced by ‘undue
influence’ where the relations subsisting
between the parties are such that one of the
parties is in a position to dominate the will of
the other and uses that position to obtain an
unfair advantage of the other.
 It has following two elements:
(i) a dominant position,
(ii) the use of it to obtain an unfair advantage.
 A person is deemed to be dominate the will of
another if-
(i) he holds a real or apparent authority over
the other ,or
(ii) he stands in a fiduciary relation to the
other; or
(iii) he makes a contract with a person whose
mental capacity is temporarily or
permanently affected by reason of age,
illness or mental or bodily distress.
 Relationships that are presumed to have
undue influence includes:
(i) Parent and Child
(ii) Guardian and Ward
(iii) Religious/ Spiritual Guru and Discipline
(iv) Doctor and Patient
(v) Solicitor and Client
(vi) Trustee and Beneficiary
(vii) Fiancé and Fiancee
 Relationship where dominant position is not

presumed but has to be proved by the
aggrieved party:
(i) Creditor and Debtor
(ii) Landlord and Tenant
(iii) Husband and Wife.
24. Fraud  Also known as wilful misrepresentation.
 Fraud means and includes any of the
following acts committed by a party to a
contract, or with his connivance or by his
agent with intent to deceive another party
thereto or his party, or to induce him to enter
into the contract-
1. The suggestion, as to fact, of that which
is not true by one who does not believe it
be true,
2. The active concealment of a fact by one
having knowledge or belief of the fact,
3. A promise made without any intention of
performing it,
4. Any other act fitted to deceive,
5. Any such act or omission as to law
specially declared to be fraudulent.
25. Misrepresentation  Where a person asserts something which is
not true, though he believes it to be true, his
assertion amounts to misrepresentation.
 Misrepresentation made by a person may be
either-
1. innocent, or
2. without any reasonable ground.
 The aggrieved party can avoid the contract,
but cannot sue for damages in normal
circumstances.
 Its damages can be obtained in following

cases:
(i) from a director or promoter making
innocent misrepresentation in company’s
prospectus.
(ii) from an agent committing breach of
warranty of authority
(iii) from a person who has made a certain
statement in the Court, relying upon
which a party has suffered damages, is
stopped by the Court from denying it.
(iv) negligent representation made by one
person to another between whom there
exits a confidential relationship.
26. Mistake  It refers to miscalculation or judgmental error
by both or either of the parties.
 It must be a “vital operative mistake.”
 When both the parties to an agreement are
under a mistake to a matter of fact essential
to the agreement, the agreement is
altogether void.
 Unilateral mistake means mistake on part of
only one party.
 Unilateral Mistake is not void.
27. Mistake as to (i) Identity is for material importance to the
identity of person contracts, and
operates if (ii) Mistake is known to the other person.
** Following conditions need to be fulfilled,
for mistake to be void:
(i) The fact is material to the agreement.
(ii) There is mistake of fact.
(iii) Both the parties are at mistake.
28. Transaction with  It means complete seclusion.

pardanashin  Women fixing and collecting rents from
women tenants and communicating business matters
with men other than own family members is
not a pardanashin women.
 It is founded on equity and good conscience.
 Person entering into a contract with parda-
nashin women has to prove that:
(i) no undue influence was used
(ii) she had free and independent advice
(iii) she fully understood the contents of
the contract
(iv) she exercised her free will
 She has been given a special cloak of
protection by law
29. Agreement  Certain agreements have been expressly
Expressly declared as void by Contract Act.
Declared Void  They are void ab initio.
 It includes:
(i) Consideration unlawful in part
(Sec. 24)
 “If any part of a single consideration
for one or more objects, or any one
or any part of any one of several
considerations for a single object, is
unlawful, the agreement is void.”
 Where the legal part of an contract
can be severed from the illegal part,
the bad part may be rejected and the
good one can be retained”
 Where the illegal part cannot be
severed, the contract is altogether
void.
(ii) Agreement the meaning of which is

uncertain (Sec. 29)
An agreement, the meaning of which is
not certain, is void but where the
meaning thereof is capable of being
made certain, the agreement is valid.
(iii) Wagering Agreement (Sec. 30)
 Wager means ‘bet’.
 They are ordinary betting
agreements.
 It refers to an agreement between
two parties by which one promises to
pay money or money’s worth on the
happening of some uncertain event
in consideration of the other party’s
promise to pay if the event does not
happen.
 Such an agreement is void.
 If one of the parties has control over
the event, agreement is not a wager.
 Though wagering contracts are void,
transactions incidental to wagering
transactions are not void.
SHORT NOTES
2008 - Dec [4] (a) Write explanatory notes on :

(i) Time is the essence of contract; (4 marks)
(iv) Misrepresentation. (4 marks)
Answer :
(i) The time is an essence of contract according to Section 55 of the
Indian Contract Act, 1872 which provides that :
When time is of essence : If the promisor fails to perform his
obligation within the time limit set in the contract, the contract becomes
voidable at the option of the promisee. The promisee can decide
whether to continue with the contract or to discontinue it. If he decides
to continue with the contract in spite of delay, he will not have any
claim on compensation for the delay. But if he decides to continue with
claims for damages for delay in performance, he should give a notice
in this regard to the promisor at the time of giving his acceptance for
continuance of the contract.
(iv) Misrepresentation : (Section 18 of the Indian Contract Act, 1872)
Where a person asserts something which is not true, though he
believes it to be true, his assertion amounts to misrepresentation.
Misrepresentation may be either innocent or without reasonable
ground.
Misrepresentation means and includes:
1. The positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true;
2. Any breach of duty which, without an intent to deceive, gains an
advantage to the person committing it, or any one claiming under
him, by misleading another to his prejudice or to the prejudice of
anyone claiming under him;
3. Causing, however innocently, a party to an agreement to make a
mistake as to the substance of the thing which is the subject of the
agreement.
Space to write important points for revision
2009 - June [4] (a) Write explanatory note on :

(i) Effects of 'coercion' on a contract. (4 marks)
Answer :
Effects of Coercion
Coercion (compulsion, force) Coercion is the committing or threatening
to commit any act forbidden by the Indian
Penal Code with the intention of causing
any person to enter into an agreement.
It is immaterial whether the Indian Penal
Code is or is not in force in the place
where the coercion is employed.
Following are the effects of (i) The aggrieved party whose consent
coercion was obtained by coercion may
cancel the contract or may continue
with the contract at its option.
Worded differently Contract
induced (to induce means to make,
to bring, to persuade, to convince)
by coercion is voidable at the
option of aggrieved party whose
consent was obtained by coercion.
(Section 19)
(ii) The aggrieved party can change or
cancel the consent given by it
under coercion and may continue
with the contract.
(iii) If the aggrieved party decides to
cancel the contract, it can claim for
compensation for any damage or
loss suffered because the contract
was not fulfilled.
(iv) If the aggrieved party decides to
rescind (means to cancel) the
contract, it will have to return all the
benefits received by it from such
contract. (Section 64)
(v) The aggrieved party can insist that

contract be performed.
2010 - June [3] (a) Write short note on :

(i) Undue influence (4 marks)
Answer :
Undue Influence :
 When two parties enter into contract with each other and one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other party, such contract
is said to be induced by 'undue influence'.
 If a person having a dominant position over another person and he
enters into contract with such person then the burden of proof that the
contract was not done under undue influence, is on the person holding
the dominant position.
A person is said to be having a dominant position if.
(i) He makes contract with a person who is not of sound mind because
of age, illness, mental instability or bodily distress etc.
(ii) He holds some control over the other person
(iii) He holds some monetary obligation over the other person.
2010 - Dec [3] (a) Write short note on :

(i) Effects of ‘coercion’ on a contract. (4 marks)
Answer :
Please refer 2009 - June [4] (a) (i) on page no. 31
2012 - June [4] (a) Write short note on:

(ii) Counter Offer; (4 marks)
Answer :
Counter offer is a new offer which is made in response to offer made earlier.
Suppose A offers to sell his house to B for INR 10.0 lacs and B offers to buy
it in say 9.0 lacs, the offer of B would be called Counter offer. In general the
terms and conditions of Offer are same for Counter Offer as well.
2012 - Dec [4] (a) Write short notes.

(iv) Lawful consideration (4 marks)
Answer :
Lawful consideration The consideration or object of an agreement is
lawful unless:
(a) It is forbidden by law; or
(b) Is of such a nature that if permitted, it would
defeat the provisions of any Law or any rule
for the time being in force in India ; or
(c) Is Fraudulent; or
(d) It involves or implies injury to the person or
property of another; or
(e) The Court regards it as immoral or opposed to
public policy.
In each of these cases, the consideration or
object of an agreement is said to be unlawful.
Every agreement of which the object or
consideration is unlawful is void.
2017 - June [8] Write short note on the following:

(a) E-Contracts (5 marks)
Answer:
E-Contracts
Electronic contracts are paperless contract. It is in electronic form. It is the
change of technology and legal requirements lead the contract to be in
electronic form. E-contract is a contract modeled, specified, executed and
deployed by a software system. They are conceptually very similar to

traditional commercial contracts. E-contract also requires the basic elements
of a contract. The following are ingredients of the e-contracts:
• An offer is to be made;
• Offer is to be accepted;
• There shall be a lawful consideration;
• There shall an intention to create legal relations;
• The parties must be competent to contract;
• There must be free and genuine consent;
• The object of the contract must be lawful;
• There must be certainty and possibility of performance.
2018 - June [8] Write short note on out of the following term:
(a) Undue Influence. (5 marks)
Answer:
Undue Influence
A Contract is said to be induced by ‘undue influence’ where the relations
subsisting between the parties are such that one of the parties is in a
position to dominate the Will of the other and uses that position to obtain an
unfair advantage over the other.
In particular and without prejudice to the generality of the foregoing principle,
a person is deemed to be in a position to dominate the Will of another:
• Where he holds a real or apparent authority over the other, or where he
stands in a fiduciary relation to the other; or
• Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or mental
or bodily distress.
• Where a person who is in a position to dominate the Will of another,
enters into a contract with him, and the transaction appears, on the face
of it or on the evidence adduced, to be unconscionable, the burden of
proving that such contract was not induced by undue influence shall be
upon the person in a position to dominate the Will of the other.
2018 - Dec [8] Write short notes on:
(a) E-Contracts (5 marks)
DESCRIPTIVE QUESTIONS
2008 - Dec [1] {C} Comment on the following statements based on legal
provisions :
(a) An agreement with insufficiency of consideration is void ab initio;
(2 marks)
Answer :
False : It is neither void nor voidable agreement. The consideration should
be of some value in the eyes of law. Even the smallest consideration is
sufficient provided it has some value. The law simply provides that a contract
should be supported with consideration subject to certain exceptions.
2009 - June [1] {C} Comment on the following statements based on legal
provisions:
(d) Every person is competent to contract. (2 marks)
(g) 'A' saved life of 'B', who was drowning. Later 'A' demanded remuneration
from 'B' for saving him since saving of life was valid consideration, 'A'
would succeed. (2 marks)
Answer :
(d) Section 11 of the Contract Act reads “Every person is competent to
contract who attains age of majority according to the law to which he is
subject and who is of sound mind and is not disqualified from contracting
by any Law to which he is subject.’’
(g) Consideration should be at the desire of promisor. 'A' cannot demand
payment for his service to save 'B's life because (1) it was voluntary
gratuitous act and (2) not at the desire of 'B'.
Where, however, a ‘Person’ lawfully does anything for “another person”

not intending to do so gratuitously and such other person enjoys the
benefit thereof, the “another person” is bound to make compensation to
the “person” in respect of the thing so done.
2009 - June [3] (i) What is fraud under Indian Contract Act. 1872?
(2 marks)
Answer :
As per Section 17 of Indian Contract Act, Fraud means and includes any
of the following acts committed by a party to contract or with his connivance
(means support or responsibility), or by his agent with intent to deceive
another party there to or his agent or to induce him to enter into a contract.
1. The suggestion as a fact, or that which is not true by one who does not
believe it to be true.
2. Active concealment of a fact by one having knowledge or belief of the
fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudulent.
2009 - June [3] (b) A minor can be appointed as agent. —Comment.

(2 marks)
Answer :
False : Any person may become an agent between the principal and third
party. An agent is supposed to be responsible to the principal hence no
person who is not major and of sound mind can become an agent.
2009 - Dec [4] (f) In a contract with employer an employee agrees not to
institute any legal proceeding against his employer. Can the agreement be
enforced by the employer? (2 marks)
Answer :
The employer will not be in position to enforce the contract because an
agreement restricting the right of legal proceedings is null and void ab-initio
as per Section 28 of Indian Contract Act.
2010 - June [2] (b) A contract without adequate consideration is not a

contract-offer your views. (2 marks)
Answer :
 It is nowhere laid down that consideration should be adequate to the
promise.
 Adequacy is for the parties to decide at the time of making the
agreement.
 Inadequacy of consideration is no ground for refusing the performance
of the promise, unless it is evidence of fraud.
 The consideration should be of some value in the eyes of law.
 Even the smallest consideration is sufficient provided it has some value.
 If a person gets what was promised to him at the time of making
contract, the Court will not inquire whether it was equivalent to the
promise which he gave in return.
 Where one party alleges that his consent was not free while determining
consideration, the Court will take the inadequacy of consideration as
evidence in support of allegation.
2010 - Dec [1] {C} Comment on the following based on legal provisions (No
marks for wrong reasons/justification)
(e) A counter offer constitutes an acceptance of an offer. (2 marks)
(f) Death or insanity of the proposer automatically revokes the proposal.
(2 marks)
Answer :
(e) Wrong. A counter offer is distinct and different from the original offer.
Original offer must be accepted unconditionally and without any
modification. Hence, a counter offer is not deemed as acceptance of
original offer.
(f) No. The revocation of offer takes place only when the acceptor comes
to know about the death of person making the offer. If the acceptor
accepts the offer and then he comes to know that person making the
offer is dead, his acceptance would be valid acceptance in the eyes of
law.
2010 - Dec [2] (d) Performance of a contract may be made only by the
parties to the contract – Comment. (2 marks)
Answer :
The statement is partly true. The contract can be performed by the promisor
or any of his representative or agent. When some expertise is necessary and
that expertise is with the contractor, the contract must be performed by him
only.
2011 - June [2] (f) What is 'fraud'? (4 marks)

Answer :
Please refer 2009 - June [3] (i) on page no. 37
2011 - June [3] (e) All consideration or objects of an agreement are not
lawful-justify. (2 marks)
Answer :
The consideration of an agreement is treated as lawful, unless :
1. It is forbidden by law;
2. It is of such nature that if permitted it would defeat the provisions of any
law;
3. It is fraudulent;
4. It involves injuries to the person or property of another;
5. It is regarded as immoral, or opposed to public policy.
2011 - Dec [1] {C} Comment on the following based on legal Provisions:
(f) A minor can neither undertake liabilities nor receive benefit under the
contract.– Comment. (2 marks)
Answer :
Although a minor cannot be a party to a contract, but he can receive all the
benefits from any contract. He can be beneficiary of any contract.
2011 - Dec [2] (b) An illegal agreement is void but void agreement is not
necessarily illegal. - Explain. (3 marks)
Answer :
Illegal agreements are those agreements which are against the law. All
illegal agreements are against the law and hence they all are invalid and
void.
A void agreement may not be against the law hence it may be valid. An
agreement with uncertain parameters is void but is not illegal.
When an agreement is illegal, all agreements made on the basis of
illegal agreement, are also illegal and void. If the basic agreement is void but
not illegal, further agreements made on the basis of this agreement, may be
valid.
2011 - Dec [3] (a) "Void Agreement" and "Void Contract" are same. Offer
your views based on Rule Provision. (4 marks)
Answer :
Void agreement and void contract are not the same. The points of difference
are as follows:
Void Agreement Void Contract
1. It is void in the beginning. 1. It is valid in the beginning.
2. It remains void throughout its 2. It becomes void due to
life. circumstances.
3. It is not enforceable by law from 3. It is enforceable by law at the

the very beginning. beginning but becomes
unenforceable due to certain
reasons.
A contract becomes void due to (i) impossibility of performance (ii) change
of law or (iii) due to any other reason. A promised B to marry. Later B died.
A valid contract becomes void due to death of B.
2012 - June [1] {C} Comment on the following based on legal provisions:
(b) Remaining silent with respect to the known defects is fraudulent.
(2 marks)
Answer :
The statement is false. Silence is not fraud. Silence may be treated as fraud
if it leads to breach of trust between the two parties.
2012 - June [3] (e) State the essentials of a valid contract. (5 marks)
Answer :
Legal relationship is imperative (means important, basic, essential)
component of agreement. There are certain conditions and ingredients which
make an agreement enforceable by law and make this a valid contract as per
the Law of Contract. These elements are described below:
1. Offer and Parties entering into agreement must have
acceptance lawful offer and lawful acceptance. Mere
mental acceptance is no acceptance.
2. Intention to create There must be intention of the parties

legal relationships concerned towards making agreement and the
agreement should result in legal relationship.
An agreement to play cards or to go to picnic
does not create legal relationship among the
parties and hence not enforceable in law.
3. Lawful consideration Subject to certain exceptions, there must be

lawful considerations by one party to the other
party in a contract. An agreement to do
something for nothing is not enforceable in law.
The something given or obtained is termed as
consideration which must be lawful i.e. it
should not be fraudulent, forbidden by law, or
against the public interest.
4. Capacity of the The parties entering into agreement must be
parties capable of doing so. For example, a minor,
lunatic, drunk, or idiot is not supposed to have
the capacity to constitute a contract.
5. Free consent The consent of both the parties must be free.
An agreement executed by coercion, undue
influence, mistake, threat, misunderstanding,
misrepresentation, or fraud is invalid.
6. Legality of object Illegal object makes the contract illegal as well.
The purpose or objective of the agreement
must be lawful i.e. it should not be fraudulent,
forbidden by law, or against the public interest.
7. Certainty The agreement must be certain and not vague
or ambiguous.
8. Possibility of Performance promised must be possible and
performance feasible. Promise to do the impossible is not
enforceable by law.
9. Void agreements Agreements
(i) in restraint of marriage of any person
other than a minor,
(ii) in restraint of trade
(iii) in restraint of legal proceedings
(iv) having uncertain meanings,
(v) wagering, gambling, betting, are void
and not enforceable in law.
10. Writing, registration In certain cases such as gift, lease, sale or

and legal formalities mortgage of immovable property, a written
contract is essential.
2012 - Dec [2] (e) A deceit which does not deceive is not fraud. Comment.
(2 marks)
Answer :
Fraud should actually exist for taking action against it. If no one is deceived,
there is no case of fraud. An attempt to fraud is not a fraud unless the party
is actually deceived.
2012 - Dec [3] (b) While discussing, Rajib told his friends that Contracts
need not be performed under certain circumstances. Deepak objected to it.
State the correct position. (4 marks)
Answer :
Yes, it is possible. Section 62 to 67 of the Contract Act are listed under the
heading “Contracts which need not be performed”. The relevant provisions
are as follows:
(i) If by mutual agreement there is Novation, Rescission or Alteration, the
original contract need not be performed (Sec. 62).
(ii) Where the promisee waives or remits the performance of promise
made to him, wholly or in part or extends the time of performance or
accepts any other satisfaction for it (Sec. 63).
(iii) When a voidable contract is rescinded, the other party need not to
perform his promise (Sec. 64).
(iv) If the promisee neglects or refuses to afford the promisor reasonable
facilities of the performance of his promise, the promisor is excused by
such neglect or refusal as to any non-performance caused thereby
(Sec. 67).
Under the Law of Contract, the following agreements need not be
performed.
(i) Unlawful consideration and object – Sec. 23.
(ii) Where the performance is unlawful or illegal – Sec. 56.
(iii) When performance become impossible.
2013 - June [2] (a) A patient in a lunatic asylum can also enter into a valid
contract. State the position based on legal provision. (2 marks)
Answer :
A person having a sound mind can enter into a valid contract. If a person is
usually of unsound mind, who is at intervals of sound mind, may contract
during those intervals when he is of sound mind.
2013 - Dec [2] (a) (i) Does silence amount to fraud? (3 marks)
Answer :
 When a party to contract maintains silence over some of the facts
relating to contract, such silence may or may not amount to fraud
depending upon the circumstances and facts of each case.
 Explanation to Section 17 of the Indian Contract Act, 1872, provides
that mere silence as to facts likely to affect the willingness of a person
to enter into a contract is not fraud unless the circumstances of case are
such that having regard to them it is the duty of the person keeping
silence to speak or unless silence itself is equivalent to speech.
 When the circumstances of contract are such that a person should
speak and he does not speak but keeps silence then such silence will be
treated as fraud.
Exceptions to the General Rule:
The general rule that silence does not amount to fraud has the following
exceptions:
(In the following cases silence will amount to fraud)
(i) When the parties stand in fiduciary relationship (i.e., relationship of
faith and trust, parent and child, etc.)
(ii) Where silence is equivalent to speech.
(iii) Half Truth – It is worse than a blatant lie. Partial truthful disclosures
may easily deceive the other party.
2014 - June [3] (a) (ii) X buys from Y a painting which both believe to be
work of an old masterpiece and for which X pays a high price. The painting
turns out to be only a modern copy. Discuss the validity of the contract.
(2 marks)
Answer:
The Contract is absolutely void as there is a mutual mistake of both the
parties as to the substance or quality of the subject-matter going to be the
very root of the contract. In case of bilateral mistake of essential fact, the
agreement is void ab-initio, as per Section 20 of the Indian Contract
Act,1872.
2016 - June [2] Answer the question:

(a) (i) What are essential elements of a valid acceptance? (8 marks)
Answer :
(a) Acceptance must As per Section 7 in order to convert a proposal
be absolute and into a promise, the acceptance must:
unqualified; it 1. Be absolute and unqualified: If the parties
must conform to are not ad idem on all matters concerning
the offer the offer and acceptance, there is no
contract. An invitation with variation is no
acceptance, it is simply a counter proposal,
which must be accepted by the original
proposer before any contract is made.
2. Be expressed in some usual and
reasonable manner, unless the proposal
prescribes the manner in which it is to be
accepted. If the proposal prescribes a
manner in which it is to be accepted, and the
acceptance is not made in such a manner,
the proposer may, within a reasonable time
after the acceptance is communicated to
him, insist that his proposal shall be
accepted in the prescribed manner, and not

otherwise; but if he fails to do so, he accepts
the acceptance.
In Surender Nath Vs Kedar Nath AIR 1936
Cal 87 the Calcutta High Court held that
where an offeror requires that the
acceptance should be sent to a particular
person in writing, Section 7 was not violated
when the offeree instead of writing to the
particular person, sent his agent in person to
communicate the acceptance.
(b) Specific offer can Whereas general offer can be accepted by
be accepted by anyone competent to contract and meeting the
the person to conditions of offer. It was held in Boulton Vs
whom it is made Jones (1857)27 LJ ex 117 case that a specific
offer can be accepted only by the person to
whom it is made. A general offer can be
accepted by any one as held in case of Carlill Vs
Carbolic Smoke ball Co, Harbans Lal Vs
Harbanslal, already discussed earlier in this
study note.
(c) Acceptance may As per Section 9 in so far as the proposal or
be express or acceptance of any promise is made in words, the
implied promise is said to be express. In so far as such
proposal or acceptance is made otherwise than
in words, the promise is said to be implied. It can
be inferred from the conduct of the parties. When
a person boards in Metro Rail it is an implied
acceptance.
(d) Acceptance Acceptor should accept the whole proposal in
should be of the total and not in parts. Part acceptance is no
whole proposal acceptance binding upon the proposer.
and not in part
(e) Acceptance Acceptor cannot accept the proposal in a

should be manner different from the manner prescribed in
according to the the offer. If no such mode is prescribed it should
mode prescribed be usual and reasonable mode. Silence cannot
or usual and be a mode of acceptance.
reasonable mode In Surender Nath Vs Kedar Nath, AIR 1936 cal
87, the Calcutta High Court held that where an
offeror requires that the acceptance should be
sent in writing to a particular person, Section 7
of the contract act is not violated when the
offeree instead of writing to particular person,
sent his agent in person to communicate the
acceptance.
(f) Communication A me n t a l determination t o a cce p t
of acceptance is unaccompanied by any external indication will
must not be sufficient acceptance. To constitute an
acceptance such acceptance must be commun-
icated to the offeror or his authorized agent.
(g) Acceptance must Acceptance must be given before the offer
be given before lapses by expiry of time fixed or by expiry of
its lapse reasonable time if no time is so fixed or before it
is withdrawn or revoked by the offeror.
In Ramasgate Victoria Hotel co. Vs.
Montefoire (1866)LR 1 Exch 109 it was held
that a person who applied for shares in a
company in June was not bound by any
allotment made in November.
2017 - June [2] (a) Does silence amount to fraud? Explain with exceptions
and types of silence amount to fraud. (9 marks)
Answer:
Fraud: [Sec. 17]
Explanation to Section 17 of the Indian Contract Act provides that mere
silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud unless the circumstances of case are such that having
regard to them it is the duty of the person keeping silence to speak or unless
silence itself is equivalent to speech.
Thus we can say that there is exception to the rule that mere silence does
not amount to fraud. These two exceptions are provided in explanation to
Section 17 as under which we have already discussed above.
(i) When there is a duty to speak.
(ii) Where silence is equivalent to speech.
However, in the following two types of cases, silence amounts to fraud, as
held by the courts in various cases:
(a) Where there is change in circumstances: A representation may be
true when made but with the passage of time or changed circumstances
it may become false. Accordingly this must be communicated to other
party otherwise it amount to fraud.
(b) When there is half-truth: Thus even when a person is not bound to
disclose a fact he may be held guilty of fraud if he volunteers to disclose
a state of fact partly. This is so when the undisclosed part renders the
disclosed part false.
2017 - Dec [2] (a) What are the position of Minor’s agreement and effect
thereof? (10 marks)
Answer:
The position of Minor’s agreement and effect thereof is as under:
1. An agreement with a minor is void ab-initio.
2. The law of estoppels does not apply against a minor. It means a minor
can always plead his minority despite earlier misrepresenting to be a
major. In other words he cannot be held liable on an agreement on the
ground that since earlier he had asserted that he had attained majority.
3. Doctrine of Restitution does not apply against a minor. In India the rules
of restitution by minor are similar to those found in English laws. The
scope of restitution of contract by minor was examined by the Privy
Council in Mohiri Bibi case when it has held that the restitution of money
under section 64 of the Indian Contract Act cannot be granted under
section 65 because a minor’s agreement is not voidable but absolutely
void ab-initio. Similarly no relief can be granted under section 65 as this
section is applicable where the agreement is discovered to be void or the
contract becomes void.
4. No Ratification on Attaining Majority - Ratification means approval or
confirmation. A minor cannot confirm an agreement made by him during
minority on attaining majority. If he wants to ratify the agreement, a fresh
agreement and fresh consideration for the new agreement is required.
5. Contract beneficial to Minor - A minor is entitled to enforce a contract
which is of some benefit to him. Minority is a personal privilege and a
minor can take advantage of it and bind other parties.
6. Minor as an agent - A minor can be appointed an agent, but he is not
personally liable for any of his acts.
7. Minor’s liability for necessities - If somebody has supplied a minor or his
dependents with necessities, minor’s property is liable but a minor
cannot be held personally liable
8. A minor cannot be adjudged insolvent as he is incapable of entering into
a contract.
9. Where a minor and an adult jointly enter into an agreement with another
person the minor is not liable and the contract can be enforced against
the major person.
PRACTICAL QUESTIONS
provisions :
(c) Mr. X offers to sell his Maruti car to Mr. Y for an intended sum of
` 90,000/- but by mistake he makes an offer in writing for ` 70,000/-
instead of ` 90,000. Mr. X can plead mistake as defence. (2 marks)
(d) Mr. X delivered 1000 mt. steel pipes to Mr. Y. 100 mt. were not as per
specification, hence Mr. Y refused to accept and informed Mr. X to take
back at his cost and risk. Mr. X rejected Mr. Y’s request and demanded
to return to Mr. X freight paid. State the correct position. (2 marks)
Answer :
(c) As the offer is accepted, he cannot plead defence. He has offered
` 70,000 and the offer was accepted. According to Sec. 22 of Contract
Act, a contract is not voidable merely because it was caused by one of
the parties under a mistake as to a fact mentioned in the agreement.
(d) The buyer is required to inform the seller regarding inferior quality of
goods within reasonable time. Unless otherwise stated in the agreement,
the buyer is not bound to return goods to seller, it is duty of the seller to
lift the poor quality goods at his own cost and risk.
2008 - Dec [2] (a) Mr. Ramesh promised to pay ` 10,000/- on 30.10.08
jointly to Mr. Bhabesh and Mr. Naresh for some consideration. Mr. Bhabesh
died on 1.9.08. On 30.10.08 Mr. Naresh demanded payment of whole
amount of ` 10,000/-. Whether Mr. Naresh is justified ? (2 marks)
(g) Mr. Ramesh direct his agent to sell his Maruti car. Agent buys the car for
himself but in the name of his friend at ` 50,000/- against market price
of ` 70,000/- without the consent of Mr. Ramesh. What action Mr.
Ramesh can take ? (2 marks)
Answer :
(a) No, Naresh is not justified. The nature of promise made by Ramesh to
pay ` 10,000 jointly to Bhabesh and Naresh does not undergo any
change after the expiry of Bhabesh as Bhabesh’s representative or legal
heir will take his place. Thus Naresh has no right to claim the whole
amount and payment of ` 10,000 will be jointly paid to Naresh and legal
heirs of Bhabesh.
(g) The principal has all the rights to reject and repudiate the actions of
agent if the agent deals on his own account without the knowledge of the
principal. In this case, the action of agent has been detrimental to the
interests of principal and he should repudiate the action taken by the
agent.
2009 - June [3] (f) As per sales order, A is to supply 20 MT of sugar to B. A

however supplied 22 MT and billed for accordingly. B paid cost of 20 MT
which was ordered by B. Can A take any action against B? (2 marks)
(h) A Railway company refuses to deliver certain goods to the consignee
except upon payment of ` 2,000 being excess/illegal charge. The
consignee paid the said amount in order to obtain the goods. Is there
any remedy? (2 marks)
Answer :
(f) As B has accepted all the quantity supplied by A hence “B” is to pay in
full. As per Sale of Goods Act, B may accept quantity of 2 MT or he may
reject the whole lot. Since “B” has accepted 22 MT, he is liable to pay
the value of 22 MT.
(h) The consignee is entitled to recover the amount as was illegally
excessive because a person to whom money has been paid or anything
delivered, by mistake or under coercion must repay or return it.
2009 - June [4] (b) Mr. B (a broker) by the orders of Mr. A purchases 10
Drums of oil for A from Mr. C. Afterwards Mr. A refuses to receive oil. Mr. C
sues Mr. B who informs Mr. A but Mr. A repudiates the contract. Although Mr.
B defends but failed. Mr. B has to pay cost, damages and incurs expense.
Can B recover any amount from A. (2 marks)
Answer :
In this case “A” is liable to “B” for such damages, costs and expenses
because the employer of an agent is bound to indemnify him against the
consequences of all lawful acts done by such agent in exercise of the
authorities conferred upon him. B acted on the instruction of A which makes
A liable to take responsibility of all lawful acts done by B on his behalf.
2009 - Dec [2] (d) ‘B’ offered to sell his car to ‘A’ for ` 75,000. ‘A’ accepts to
purchase at ` 74,950. ‘B’ refuses. Subsequently ‘A’ agrees to purchase at
` 75,000 but ‘B’ refused. ‘A’ sued ‘B’ for specific performance of the contract.
State legal position. (2 marks)
(h) Mr. A approached Union Bank for loan of ` 1,00,000 which was not
available from others due to tight money market. Bank agreed but at a
high rate of interest. Mr. A accepted. Can he repudiate on the ground of
undue influence? (2 marks)
Answer :
(d) No, A cannot sue B for specific performance of contract. B's initial offer
is already rejected by A and there is no offer available for acceptance
subsequently.
(h) A agreed to the terms and conditions of the loan on his own and his
consent was free, and there was no pressure or undue influence from
the bank. Bank has not forced its terms on A. A can not deny the terms
and conditions subsequently. Undue Influence : When two parties enter
into contract with each other and one of the parties is in position to
dominate the will of the other and uses that position to obtain an unfair
advantage over the other party, such contract is said to be induced by
'undue influence.'
2009 - Dec [4] (c) On 30.11.09 Mr. Sham agrees to sell a painting to
Mr. Ram for ` 5,000/- but Mr. Sham died on 8.12.09. Mr. Sham’s son claimed
` 10,000/-. Can Mr. Ram obtain the painting at ` 5,000/-which was agreed
to by Mr. Sham? (2 marks)
(d) Mr. Sham informs Mr. Ram that Mr. Sham’s estate is free from
encumbrances. Mr. Ram buys the property fully relying on Mr. Sham.
Subsequently it revealed that the estate was mortgaged. What will be
the position of Mr. Ram? (2 marks)
Answer :
(c) The validity period of contract is not mentioned in the question. If Sham
dies after the validity of contract period, no question of painting to Mr.
Ram because the contract was already over during Sham's life time.
Assuming that the contract was alive at the time of death of Sham, Mr.
Ram can force the legal heirs of Sham to respect the contract and sell
the painting at ` 5,000 as agreed to by Mr. Sham.
(d) Mr. Ram can file suit against Mr. Sham for misinformation, fraud and
cheating. He can obtain mortgage free estate from Mr. Sham. It is also
questionable how could original registry be available with Mr. Sham
because the authority keeps the original registry with him at the time of
mortgage. Mr. Ram should have taken due care and diligence before
relying on Sham's statement.
provisions: (c) Mr. Roy sells by auction, to Mr. Paul a cow which Mr. Roy
knows to be unsound. Mr. Roy says nothing to Mr. Paul about the cow’s
unsoundness. This is a clear case of fraud by Mr. Roy. (2 marks)
Answer :
Mere silence over a fact does not amount to fraud as per the Indian Contract
Act. Mr. Paul has all the opportunities to examine the cow. Mr. Roy is not
supposed to bring to light the unsoundness of cow.
2010 - June [2] (a) Mr. ‘A’ agrees that Mr. A shall sell Mr. B a house for
` 1,00,000 but if Mr. B uses the house for ‘Gambling House’ then Mr. B shall
pay ` 1,50,000 for the same. Explain the legality. (2 marks)
Answer :
The contract is valid if the purpose is lawful and is void if the purpose is
unlawful. First part is a valid contract while the second part is void as using
the house as 'gambling house' is unlawful. Consideration does not matter in
deciding the lawfulness of the purpose.
2010 - June [4] (b) A saved life of ‘B’, when ‘B’ was drowning. Later ‘A’ sued
‘B’ for remuneration/reward because saving life was the consideration
received by ‘B’. State based on Rules whether ‘A’ would succeed?
(2 marks)
Answer :
There was no contract or agreement between A and B in this respect. As
there was no contract at the first place, the question of any consideration
does not arise whatsoever. It was a voluntary act on part of A, hence, A will
not succeed.
2010 - Dec [2] (c) Mr. X buys a ring from Mr. Y at a low price employing
‘undue influence’ and sells the ring to Mr. Z who purchased against
consideration and without knowing of Mr. X’s ‘undue influence’. Can Mr. Y
recover the ring from Z? (2 marks)
Answer :
No, Y cannot get the ring from Z. Mr. Z paid the amount to Mr. X in good
faith. However, Mr. Y can file a suit against Mr. X regarding the 'undue
influence' placed by X on Y but He (Y) can not claim the ring from Z as Z is
not concerned about Y.
2010 - Dec [4] (a) (ii) A. Das entered into contract to sing for B. Roy at a
concert for `10,000/- which was received in advance. A. Das being too ill
could not sing. B. Roy demanded compensation for loss of profit which he
would have made if A. Das had been able to sing. State B. Roy’s right.
(2 marks)
Answer :
This is doctrine of frustration also known as doctrine of supervening
impossibility. At the time of contract, Das was able to sing but later it became
impossible for him to sing because of illness. Hence, Das is not bound to pay
any damages to B, however, Das should refund the amount of advance to
B.
(b) Mr. Sadhu offers to sell his house to Mr. Sarkar at ` 221 lakh but by
mistake makes the offer in writing for ` 212 lakh which was accepted by
Mr. Sarkar. Can Mr. Sadhu plead the mistake as defence ? (2 marks)
Answer :
The offer was made in writing for ` 212 lacs and it was duly accepted by
Sarkar. Sadhu cannot deny the offer of ` 212 as it was made by him in
writing. He can not take any defense regarding this amount.
2011 - June [2] (d) Mr. Adarsh was due to perform on 20th February but on
17th February 2011 repudiated his obligation. On 25th February the Contract
become illegal through a change in Law. Mr. Vasant the other Party
requested you to give advice on action against Mr. Adarsh. (2 marks)
(e) Mr. Bose directs Mr. Roy to sell wheat for which Mr. Bose agreed to pay
10% commission on the price fetched by the Goods. Mr. Bose
afterwards by a letter revokes Mr. Roy's Authority. But before receiving
that revocation letter Mr. Roy sold wheat for ` 10,000/-. Mr. Bose refused
to pay commission to Mr. Roy. Offer your views. (2 marks)
Answer :
(d) Adarsh was due to perform on 20th Feb but he failed to fulfil his
promise. This is a breach of contract. The repudiation on 17th February,
2011 amounts to breach of contract and Vasant is entitled to claim
damages. But Vasant is not entitled to claim 'specific performance' as
the contract has become illegal.
(e) Roy sold the goods before receiving the revocation (cancellation) letter,
hence sale is binding on Bose and Roy is entitled to claim commission
of ` 1,000/-. The agency is supposed to be terminated when the
termination comes to the knowledge of the agent.
2011 - Dec [2] (a) Mr. Ardhendu and Mr. Barun entered into a contract to
build a house for a specified consideration. Clause 14 of contract provides
that in case of disputes, neither party may move to Court of Law but must
accept the decision of an Arbitrator named in the contract. Does this clause
violate the provisions of law ? (3 marks)
Answer :
No this does not violate any provision of law. When both the parties agree
to settle their dispute on the decision of an arbitrator, such provision is in
consistency with the law.
According to Section 28 of Indian Contract Act if any party to a contract
stops any party to go to Court such condition is invalid in the eyes of law.
The exception is in this case when all the parties agree to settle their
disputes with the guidance of an arbitrator.
2012 - June [3] (d) Arun seeing a watch in Barun’s shop marked for sale for
INR 1,000 entered the shop, places INR 1000 on the counter and asks for
the watch. Barun refused. Can Barun refuse to sell the watch? Give reasons.
(2 marks)
Answer :
No, Barun is not bound to sell the watch. Price label on article only amount
to an invitation to offer and not an offer.
Placing of ` 1,000 by Arun amounts to an offer which may or may not be

accepted by Barun. [Ref. Pharmaceutical Society of Great
Britain-Vs-Boots Cash Chemists Ltd, (1953) 1 Q. B. 401].
2012 - Dec [1] {C} Comment on the following based on legal provisions:
(a) Mr. Menon offered on 1st December, 2012 to sell his house to Mr. Polson
at INR Thirty Five Lakhs. Mr. Polson accepted by email on 2nd
December, 2012 at 8 A.M. At 10 A.M. Mr. Polson sent a Fax revoking
the acceptance. Both email (i.e. acceptance) and Fax (i.e. revocation)
reached Menon at the same time. Hence this was valid. (2 marks)
Answer :
When the letter of acceptance and letter of revocation of acceptance reach
the person at the same time, the effective letter will be that letter which the
receiver opens first. In the given case, if Menon opens the letter of
acceptance first, the contract would be treated as accepted. If Menon opens
the letter of revocation (cancellation) first the contract would be treated as
revoked (cancelled).
(a) Mr. A offers to buy Mr. B's house on certain terms. Acceptance was to
be sent by 'B' within 6 (six) weeks. B within one week sent a letter
accepting the offer with an alteration of one term. A then withdrew his
offer. B writes again within three weeks accepting the terms originally
proposed by 'A'. Hence this is a valid contract. (2 marks)
Answer :
The original proposal of A was altered by B. This amounts to death of
original proposal. B’s proposal is a counter offer which is to be treated as a
fresh proposal. This is not a valid contract even if B agrees to accept the
original terms because the original contract was dead when its terms were
first altered.
2013 - June [4] (a) Referring to a quarrel and disagreement between
husband and wife, the husband agreed to execute and register a document
in favour of his wife to transfer one of his properties to his wife. Later on
husband refused. Whether wife can enforce? (3 marks)
Answer :
The wife will not succeed because the contract is without consideration. If the
transfer is without consideration but there is an existence of mutual love and
affection, such transfer is valid in the eyes of law. In the present case the
transfer is due to quarrel and arguments and is without consideration, this
does not fulfil the essentials of a valid contract.
2013 - Dec [2] (c) Arun, Varun and Tarun are partners of software business
and jointly promise to pay INR 60,000 to Karun. Over a period of time, Varun
becomes insolvent, but his assets are sufficient to pay one-fourth of his
debts. Tarun is compelled to pay the whole. Decide whether Tarun is
required to pay whole amount to Karun in discharging joint promise?
(3 marks)
Answer :
According to Section 43 of Indian Contract Act,1872 when two or more
persons make a joint promise, promisee may, in absence of express
agreement to the contrary compel any one or more for such joint promisors
to perform the whole of the promise. Further, if any one of two or more joint
promisors makes default in such contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares. Therefore, in
this case, Tarun is entitled to receive INR 5000 (one fourth of Varun share
of debt) from Varun’s assets and balance INR 27500 from Arun.
2014 - June [2] (a) (ii) W offered to sell his house to M for ` 40 lakhs. M
replied purporting to accept the offer and enclosed a cheque for ` 20 lakhs.
He also promised to pay the balance amount in twenty equal installments.
Examine the validity of the contract. (2 marks)
Answer:
Conditional acceptance is no acceptance at all. Acceptance of an offer must
be absolute and unqualified i.e., it must conform to the offer. An acceptance,
in order to be binding, must be absolute and unqualified [Sec. 7(1)] in
respect of all terms of the offer, whether material or immaterial, major or
minor. In the case provided, the acceptance is a qualified acceptance; hence
it would not result in a valid contract.
2014 - Dec [2] (b) (i) W, the wife of H, who is lunatic, purchases a diamond
set of ` 10 lacs from a jeweller on credit. Referring to the provisions of the
Indian Contract Act, 1872, decide whether the jeweller is entitled to claim the
above amount from the property of H. (4 marks)
Answer :
 The problem relates to the provisions of quasi-contract. It is to be noted
that minors, persons of unsound mind or lunatics and other disqualified
persons are incompetent to contract.
 But, under the provisions of Section 68 of Indian Contract Act, 1872
“if necessaries are supplied to a person, who is incompetent to contract,
the supplier is entitled to claim the reimbursement from the estate of
such person”.
 A supplier would also be entitled to recover the price of necessaries
supplied to wives or minor child of the incompetent person, as he is
legally bound to support them.
 Also necessaries would mean ‘goods suitable to the condition in the life
of such person’ and not luxuries.
 Again person liability is not accrued for minors and lunatics; it is only
their estate that would be liable. If there is no property nothing would be
realizable.
 To establish his claim the supplier must prove not only that the goods
were supplied to the person who was a minor or a lunatic, but also that
they were suitable to his requirement at the time of sale and delivery.
 It is also to be noted that a person of unsound mind, who has intervals
of sound mind can enter into a contract during such period.
 Thus the burden to prove that H is lunatic and he was of unsound mind
when entered into the contract lies on the seller.
 In the given problem, the jeweler would not be entitled for the claim, as
a diamond set worth `10 lakhs for the wife of H, is not a necessity and
is surely a luxury.
2015 - June [2] Answer the questions:

(b) (i) Abhay, UG degree student was induced by his lecturer to sell his
brand new car to the later at less the purchase price to secure more
marks in the University examination. Accordingly the car was sold.
However, the father of Abhay persuaded him to sue his lecturer. State
whether Abhay can sue against the lecturer? (3 marks)
(d) (i) Anita and Binita are friends, Binita treats Anita during Anita’s illness.
Binita does not accept payment from Anita for treatment and Anita
promises Binita’s son Sunit to pay him ` 12,000. Anita being in poor
circumstances is unable to pay. Sunit sues Anita for the money. Can
Sunit recover? (3 marks)
(e) (i) Arvinda took a bet of ` 20,000 with Bannerjee that a certain horse
would win the race. Arvinda and Bannerjee both residents of Kolkata.
Arvinda borrowed ` 20,000 from his friend Chatterjee for this purpose.
Arvinda lost the bet and paid ` 20,000 to Bannerjee. Can Chatterjee
recover the loan amount from Arvinda? Give reasons. What would
have been the difference had the transaction took place in
Ahmedabad between the parties residing there? (3 marks)
Answer:
(b) (i)  Yes, Abhay can sue against his lecturer on the ground of influence
under the provisions of the Indian Contract Act, 1872.
 A contract brought as a result of coercion, undue influence, fraud,
misrepresentation would be voidable at the option of the person
whose consent was caused.
 As per Sec. 19-A when consent to an agreement is caused by
undue influence, the agreement is a contract voidable at the
option of the party whose consent was so caused.
 Any such contract may be set aside either absolutely or, if the
party who was entitled to avoid it has received any benefit
there-under, upon such terms and conditions as the Court may
seem just.
(d) (i)  No, Sunit cannot recover the money from Anita. The agreement
between Sunit and Anita is not a contract in the absence of
consideration. In this case, Sunit’s mother, Binita, voluntarily treats
Anita during her illness.
 Apparently it is not a valid consideration because it is voluntary
whereas consideration to be valid must be given at the desire of
the promisor-void Section 2(d).
 The question now is whether this case is covered by the exception
given in Section 25(2) which inter-alia provides.
 “If it is a promise to compensate a person who has already
voluntarily done something for the promisor …..”
 Thus as per the exception the promise must be to compensate a
person who has himself done something for the promisor and not
to a person who has done nothing for the promisor.
 As Binita’s son, Sunit to whom the promise was made, did nothing
for Anita, So Anita’s promise is not enforceable even under the
exception.
(e) (i)  Yes, Chatterjee can recover the loan amount from Arvinda.
 The transaction between Arvinda and Chatterjee is a collateral
transaction which is valid, though the main transaction between
Arvinda and Bannerjee is void, being a wager.
 Had the transaction took place in Ahmedabad, Chatterjee could
not have recovered the loan as in Ahmedabad the wager
transactions are illegal and a transaction collateral to it is also void
on the ground of illegality.
2015 - Dec [2] (e) (i) The father of a minor girl, Anu, entered into an
agreement for her marriage with Vishal. Afterwards, Vishal refused to marry
Anu. On attaining majority, Anu filed a suit against Vishal for damages for
breach of promises to marry. Vishal contended that Anu cannot enforce the
contract as she was not a party to the agreement between him and Anu’s
father. Is Vishal’s contention valid? (3 marks)
Answer:
An agreement is made in connection with marriage, partition or other family
arrangements, and a provision is made for the benefit of some person.
In such cases, a person, for whose benefit the provision is made in such
family arrangements, can enforce the agreement even if he is not a party to
it.
It may, however, be noted that provision must be made for the benefit of
the person who wants to enforce such marriage arrangements.
No, Vishal’s consent is not valid.
The marriage agreement or other family arrangements where a provision
is made for the benefit of some person can be enforced by the beneficiary
even if he is not a party to the same.

(e) (i) X Father promised to pay his son Y a sum of ` One lakh if Y (son of
X) passed CMA examination in the first attempt. Y passed the CMA
examination in his first attempt, but X failed to pay the amount as
promised. Y files a suit for recovery of the said amount. State along
with reasons whether Y can recover the amount under the Indian
Contract Act, 1872. (5 marks)
Answer :
 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.
 Agreement of a social nature or domestic nature do not contemplate legal
relationship and as such are not contracts, which can be enforced.
 This principal has been laid down in the case of Balfour Vs. Balfour.
 Accordingly, applying the provisions and the ease decision, in the case
Y cannot recover the amount of Rupees one lakh from X for the reasons
explained above.
2016 - Dec [2] Answer the question:

(c) (i) A, aged 16 years, was studying in an engineering college. On 1 June,
2015 he took a loan of ` 2 Lakhs from B for the payment of his college
fee and agreed to pay by 31st July 2016. A possesses assets worth
` 20 Lakhs. On due date, A fails to pay back the loan to B. B now
wants to recover the loan from A out of his assets. Whether B would
succeed? Decide, referring to the provisions of the Indian Contract
Act, 1872. (5 marks)
Answer:
The problem in question is covered under the exceptions. As per Section 68
of the Indian Contract Act, 1872 though a minor is not personally liable to
pay the price of necessaries supplied to him or money lent for the purpose,
this 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 minor's
property. This type of contract is called a Quasi-contract and the right of the
supplier/tender is based on the principle of equity.
Hence, in the given case B will be entitled to recover the amount of loan
given to A for payment of college fees from the property of A, the minor.
2017 - Dec [2] (b) A agreed to become an assistant for five years to B who
was a doctor practicing at Chennai. It was also agreed that during the term
of agreement A will not practice on his own account in Chennai. At the end
of one year, A left the assistantship of B and began to practice on his own
account. Referring to the provisions of the Indian Contract Act, 1872, decide
whether A could be restrained from doing so. (5 marks)
Answer:
According to the provisions of the Indian Contract Act, 1872, as contained -
Section 27 any agreement through which a person is restrained from
exercising a lawful profession or trade/business is void.
But an agreement of service by which a person binds himself during the
term of the agreement not to take service with anyone else directly or
indirectly to promote any business in direct competition with that of his
employer is not in restraint of trade.
Therefore, ‘A’ cannot be restrained by an injunction from doing so.
2018 - Dec [2] (b) C is the wife of A. She purchased some sarees on credit
from B. B demanded the amount from A. A refused. B filed a suit against A
for the said amount. Decide in the light of provisions of the Indian Contract
Act, 1872, whether B would succeed. (5 marks)
Repeatedly Asked Questions

No. Question Frequency
1 Write short notes on Effects of ‘coercion’ on a contract.
09 - June [4] (a) (i), 10 - Dec [3] (a) (i) 2 Times
2 Write short notes on out of the following term:
Undue Influence. 10 - June [3] (a) (i), 18 - June [8] (a) 2 Times
3 Write short notes on out of the following term:
E-Contracts 17 - June [8] (a), 18 - Dec [8] (a) 2 Times
2 QUASI, CONTINGENT
AND DISCHARGE OF CONTRACTS
 Contingent Contracts  Quasi Contracts
Legend

6.65
CHAPTER AT A GLANCE

1. Quasi  An obligation is imposed by law upon a person for
Contract the benefit of another even in the absence of a
contract. They are known as quasi contracts.
 They are based on principles of equity, justice and
good conscience.
 They are termed as certain relations resembling
those created by contracts.
 It is also known as Law of Restitution.
 It has following features:
(i) It does not arises from any agreement
between the parties but is imposed by law.
(ii) It is a right only available against a particular
person or persons and not against the entire
world.
2. Type of Responsibility of finder of goods (Sec. 71)
Quasi  “A person who finds goods belonging to another and
Contract takes them into custody, is subject to the same
responsibility as a bailee”.
 He should act like a man of ordinary prudence i.e.
(a) he shall take proper care of goods
(b) he must take reasonable steps to trace the
owner
(c) he should sell the goods, if they are in
deteriorating condition and remit the proceeds
to the owner.
 He is entitled for the reward if any, offered by the
owner.
 He is also entitled for the refund of any expenses if
incurred in protecting and preserving the property.
[Chapter  2] Quasi, Contingent and Discharge... O 6.67
Person receiving goods or money by mistake

(Sec. 72)
 “A person to whom money has been paid ,or
anything delivered by mistake or under coercion,
must repay or return it”
 Mistake need not be unintentional. It may be even
intentional.
Performance of Contracts (Sec. 37)
 It is one of the modes of discharging the contract. It
is the completion or fulfilment of obligations by the
respective parties to a contract.
 As per Sec. 37 of the Indian Contract Act, the
parties to the contract must either-
(1) Perform their respective promises, or
(2) Offer to perform the same unless such
performance is dispensed with or excused
under the provision of any other law.
3. Contingent  It refers a contract to do or not to do something, if
Contract some event, collateral to such contract, does or
(Sec. 31) does not happen.
 E.g: Contracts of insurance, indemnity and
guarantee etc.
4. W a g e r i n g (a) It is void.
Agreements (b) It is a game of chance.
(c) Future event is the primary factor.
(d) Consists of reciprocal promises.
(e) Every wager is essentially contingent in nature.
5. Contracts  Promisor himself - Sec. 40 states that “ if it
to be appears from the nature of the case that it was the
performed intention of the parties to any contract that any
by whom. promise contained in it needs to be performed by the
promisor himself, such promise must be performed
by the promisor. “Contracts involving the exercise of
personal skill or diligence , or which are founded on

the personal confidence between the parties need to
be performed by promisor himself.
 Agent: If the contract is not founded on the personal
consideration, the promisor or his representative
may employ a competent person to perform it.
 Representatives: Contract involving the use of
personal skill or founded on personal consideration
comes to an end on the promisor’s death. In other
cases, the legal representatives of the deceased
partner are bound to perform it unless the contrary
intention appears from the contract; but their liability
is limited to the value of the property they inherit
from the deceased.
 Third persons: As per Sec. 41, “if the promisee
accepts the performance of the promise by a third
person , he cannot afterwards enforce if against the
promisor.”
 Joint promisors: In case of joint promise, promisee
may compel or one more of the joint promisors in
the absence of contract to the contrary. If any of
them dies, his legal representatives must perform
the promise jointly with the surviving promisors.
6. Who Can Promisee: Only promisee can demand the performance
Demand of the promise irrespective of the fact that it is for the
Perform- benefit the promisee or any other person.
ance?  Third party: In some cases, like trust, marriage
settlements etc. third party can enforce the promise
against the promisor even though he is not a party
to the contract.
 Representatives: In case of death of the promisee
his representative may ask for the performance of
the promise under a contract.
7. Ty pe s of It is of following two types:

P e r f o r m -  Actual Performance
ance. The promisor makes all offer of the performance of
the promise and the offer to perform is accepted by
the promisee. Thus, when both the parties perform
their respective obligations, the contract comes to an
end.
 Attempted Performance (Tender) (Sec. 38)
The promisor makes an offer of performance to the
promisee, but the offer to perform is not accepted by
the promisee.
8. Types of  Tender of goods - attempted performance of

Tender promise to do something.
 Tender of money - attempted performance of
promise to pay something.
Essentials of a Valid Tender
 Must be unconditional
 Must be for the whole obligation
 Must be given at a proper time
 Must be given at a proper place
 Must give a reasonable opportunity of inspection
 Party giving tender must be willing to perform his
obligation
 Must be made to the proper person
 Must be made for the exact amount of money.
Effect of Refusal of party to perform promise
(Sec. 39)
The aggrieved party can-
(i) terminate the contract
(ii) indicate by words or by conduct that he is
interested in its continuance.
If promisee decides to continue the contract, he

would not be entitled to put an end to the contract
on this ground immediately.
In both cases, promisee would be entitled to claim
damages that he suffered as a result of breach.
9. Joint When, two or more person enter into a joint agreement
Promise with one or more persons, it is known as joint promise.
Devolution
It means to pass over from one person to another - In
case of joint promise, two problems arises-
(i) who is liable to perform the promise,
(ii) who can demand such performance.
This problem is solved by devolution.
Liability of Joint Promisors
 Sec. 42: If two or more persons have made a joint
promise, ordinarily all of them during their life time
must jointly fulfil the promise. *After the death of any
of them, his legal representative jointly with the
survivor or survivors should do so.
 Sec. 43:
(1) All the joint promisor are jointly and severally
liable. However, the contract between the joint
promisor may provide otherwise.
(2) A joint promisor may claim contribution from
other joint promisors, if he is compelled to
perform the whole promise.
(3) A joint promisor may claim contribution from
other joint promisors, if any other joint promisor
makes a default in performance of his promise.
 Sec. 44: Where one of the joint promisors is
released, other joint promisors shall continue to be
liable.
10. Rights of  U/s Sec. 45:

Joint When a person has made a promise to several
Promisees: persons, then unless a contrary intention appears
from the contract, the right to claim performance
rests between him and them during their lifetime.
 When one of the promisees dies, the right to claim
performance rests with the legal representatives
jointly with the surviving promisees.
 When all the promisees dies, the right to claim
performance rests with their legal representatives
jointly.
11. Assignment  Promisee may assign the rights and benefits of
contract.
 Assignee will be entitled to demand performance by
the promisor.
 It must be made by an instrument in writing .
 Obligation or liability under a contract cannot be
assigned.
Differences between succession and assignment
Succession Assignment
1 Transfer of rights and liabilities Transfer of rights by a person to
of a deceased person to his a n o t h e r p e r s o n is ca lle d
legal representative is called assignment.
succession.
2 It takes place on death of a It takes places during the lifetime of
person. a person.
3 It is not a voluntary act. It is a voluntary act.
4 It may take place even without It requires execution of assignment
a written document. deed.
5 All rights and liabilities of a Only rights of a person are

person are transferred. transferred.
6 No notice is required to be Notice must be given to the creditor.
given to any person.
7 No consideration is required. Consideration is required.
12. Contracts Sec. 62: If the parties to the contract agrees to
which need (i) Substitute a new contract for it, or
not be (ii) rescind it, or
performed (iii) alter it.
Sec. 63: If the promisee-
(i) dispenses with or remits, wholly or in part, the
performance of the promise made to him.
(ii) extends the time for such performance
(iii) accepts any satisfaction for it.
Sec. 64: If the person at whose option it is voidable
rescinds the contract.
Sec. 64: If the promisee neglects or refuses to afford the
promisor reasonable facilities for the performance of the
promise.
13. Discharge It means termination of contractual relations between the
of parties to a contract.
Contracts Modes of Discharge of Contract
1. By Performance: It occurs when the parties to the
contract fulfil their obligations arising under the
contract within the time and in prescribed manner. It
may be -
(i) Actual performance
(ii) Attempted performance.
2. By Mutual Agreement: The parties may enter into
a fresh agreement which provides for the
extinguishment of their rights and liabilities of
original contract. Important methods of discharge by
a fresh contract -
(i) Novation: It occurs when an existing contract is

substituted by a new one, either between same
parties or between the new ones.
(ii) Rescission: It occurs when only the old
contract is cancelled and no new contract
comes to exist in its place.
(iii) Alteration: It occurs when the terms of contract
are so changed by mutual agreement that have
the effect of substituting a new contract for the
old one.
(iv) Remission: It refers to acceptance of lesser
fulfilment of the terms of promise.
(v) Waiver: It refers to the abandonment of the
rights by the party who is entitled to claim
performance of the contract.
(vi) Acceptance of any other satisfaction: It
occurs when the party entitled to claim
performance accepts any other satisfaction
instead of the performance of the contract.
3. By Lapse of time: It occurs if a contract is not
performed within a specified period as prescribed by
the Limitation Act, 1963.
4. By Operation of law
It occurs when the contract is discharged by
operation of law which includes -
(i) Material alteration: where it is done without the
knowledge and consent of the other, contract
can be avoided by other party.
(ii) Insolvency: it can be done under certain
particular circumstances.
(iii) Death of a promisor: contracts involving
personal skill or expertise of promisor. When
promisor dies, it cannot be performed by
anyone else and hence comes to an end.
(iv) Merger of rights: if an inferior right in a

contract is merged into a superior right by the
party.
5. By Impossibility of performance / frustration
(Sec. 56)
(i) Discharge by supervening impossibility is
done in following ways-
(i) Death or personal incapacity
(ii) Destruction of subject-matter
(iii) Non - existence or non- occurrence of
certain essential things
(iv) Change of Law
(v) Declaration of war
(ii) Discharge by supervening illegality
If after making the contract, its performance
becomes impossible due to alteration of law or
act of any person, it is discharged.
(iii) Cases not covered by subsequent
impossibility
(i) Partial impossibility
(ii) Commercial impossibility
(iii) Difficulty of performance
(iv) Default of a third party.
(v) Strikes, lockouts, etc.
(iv) It is also known as frustration under English
law.
SHORT NOTES
2013 - June [3] (a) Write short notes on:
(i) Quasi contract (4 marks)
(v) Discharge of contract (4 marks)
Answer:
(i) Quasi Contract:
Quasi contract is a fictitious contract in which the concerned parties do
not intend to create a contract between them. In such contract, there
is no regular offer and acceptance and no agreement between the
parties, even then there exists a contract which is imposed by Court
of law. Even in the absence of a contract, social relationships require
certain duties to be performed by a certain persons. If a person finds
some goods belonging to another person, he is required to return
those goods to the actual owner even though there is no contract
between the owner of goods and finder of goods. This is an example
of quasi contract.
Quasi contract creates the same obligation (duty, responsibility,
commitment) as the regular contract. Quasi contracts are based on the
principles of equity, justice and good conscience.
Quasi contracts are also called Constructive contracts or
Implied-in-law contracts.
The basic principle lying behind quasi contract is that no person
should be allowed to gain something at the expense of some other
person.
This type of contract is designed to remedy the cases of unjust
enrichments or unjust benefits.
Features of Quasi contract :
1. It is imposed by law. It does not arise by offer, acceptance and
agreement.
2. It is based on the duty of a party and not the promise of that party.
3. It is a right which is available not against the whole world, but
against a particular person or persons only. In this respect it is
similar to a regular contract.
4. It can be sued in a Court of law. This way it is also similar to
regular contract.
(v) Discharge of Contracts: A contract can be discharged or terminated
by any of the following eight ways :
1. By Performance The contract is completed on terms and conditions
or by Completion as stipulated in the agreement and it comes to an
end after successful execution of all the items of
contract. This is also called discharge by
performance.
2. By Mutual When the parties to the contract mutually agree to

Consent (a) by novation i.e. to substitute a new contract or
(b) to withdraw and cancel it or (c) to alter or modify
it (d) by remission i.e. reduction in performance
required.
3. By Doctrine of When a contract becomes impossible to be

Frustration performed at a future date after the agreement, it is
called supervening impossibility or Doctrine of
Frustration.
If the impossibility existed at the time of agreement,
it falls under the category of impossibility of
performance and the contract is void ab-initio.
Subsequent to agreement, the impossibility of
performance may be due to the following reasons:
(a) Non existence or non occurrence of a
particular state of things;
(b) Breaking out of war;
(c) Illegality of performance at a subsequent date;
e.g. insolvency etc
(d) By death or disablement of parties.
(e) Destruction of subject matter e.g. A house is to
be let out as per agreement and that house is
destroyed in fire or earthquake.
4. By Breach of When there is a default on the part of one party

contract regarding its performance in the contract, there is
a breach of contract. It can be actual breach or
anticipatory breach. When one party leaves the
contract before its due date of completion, it is
called anticipatory breach. The suffering party is
entitled to compensation for damage.
5. By Lapse of time Contract should be completed before the
application of Law of limitation which states that the
contract should be performed before the expiry
time limit set for it. In other words the contract
should be performed before it is barred by law of
limitation. In such a case there is no remedy is left
for the contractor (promisee).
6. By Operation of When the client dies or goes insolvent, there is
law discharge by operation of law.
7. On the ground of Any party is satisfied in any manner by the other
accord and party, in lieu of contract, this is called discharge by
satisfaction accord and satisfaction.
8. By non- If the client does not provide reasonable facilities or
cooperation of opportunities for performance to the contractor, the
client contract is assumed to be discharged.
2017 - Dec [8] Write short note on the following term:

(a) Contingent Contract (5 marks)
Answer:
Section 31 defines ‘contingent contract’ as a contract to do or not to do
something, if some event, collateral to such contract, does or does not
happen. The following are the essentials of contingent contract-
• Uncertainty and futurity of the event to which it is related;
• Uncertain future event must be collateral to the contract.
An agreement to sell unspecified half share in the property is not contingent
contract as held in ‘Harbakhash Singh Gill V. Ram Rattan’ AIR 1988 P&H
60. In ‘Bhairon Prasad Chaurasiya V. Smt. Tara Devi’ – AIR 1980 All. 36
it was held that an agreement to sell a house is by no means a ‘contingent
contract’. An agreement to purchase a property is neither a contingent
contract nor can it be characterized as a mere possible right or interest. It
was contended that the contract is a ‘contingent contract’ because of either
of the parties to the contract may refuse to perform his part on the contract.
The Court held that the argument is fallacious. Such a contingency would not
be a collateral to a contract. An agreement to purchase a property is neither
a ‘contingent contract’ nor can it be characterized as a mere possible right
of interest. Reciprocal promises are not contingent contracts as they cannot
be said to be collateral to each other. The law allows the enforcement of a
contingent contract after the event upon which it was contingent has
happened. The contingency which is the essence of a condition must be
distinguished from mere futurity. An obligation is not to be classified as
conditional because its performance is not yet due.
A contingent contract need not necessarily be independent on any external
event. It may be conditional on the voluntary act or the future conduct of one
of the parties or a third person.
2018 - Dec [2] (a) Explain the meaning of ‘Quasi-Contracts’. State the
circumstances which are identified as quasi-contracts by the Indian Contract
Act, 1872. (10 marks)
PRACTICAL QUESTIONS
2013 - June [4] (b) X agrees to pay Y a sum of money if Y marries Z. Z
however marries F, who died subsequently. After the death of F, Z marries
Y. Whether X is legally bound to pay the agreed sum of money to Y?
Comment. (2 marks)
Answer:
Any contract of restraining the marriage is invalid. The original contract was
dead at the time when Z married F. X is not legally bound to pay any sum
to Y.
2017 - June [2] (b) Mr. P and Mr. Q bet as to whether there would be rain on
a particular day of December. Mr. P promises to pay ` 5,000 to Mr. Q if there
is rain on that day and Mr. Q promises an equal amount to Mr. P if there is
no rain on the day. Suppose, there is no rain on that specific day of
December and Mr. Q filed a suit for recovery of ` 5,000 from Mr. P. Can Mr.
Q recover the amount under Indian Contract Act, 1872? (6 marks)
Answer:
In this case Mr. P bet with Mr. Q on the possibility of having rain on a specific
day of December. Section 30 provides that agreement by way of wager are
void and no suit shall be brought for recovering anything alleged to be won
on any wager or entrusted to any person to abide the result of any game or
other uncertain event on which any wager is made. Therefore, the
agreement between Mr. P and Mr. Q is of wagering nature and hence void.
Thus, despite of no rain on specific day of December, Mr. Q cannot recover
the amount of ` 5,000 from Mr. P for the reason of entering into an
agreement of a wagering nature.
2018 - June [2] (a) Mr. X, a businessman has been fighting a long drawn
litigation with Mr. Y, another businessman. To support his legal campaign Mr.
X enlists the services of Mr. Z, a legal expert, stating that an amount of ` 10
lakhs would be paid, if Mr. Z does not take up the brief of Mr. Y. Mr. Z
agrees, but at the end of the litigation Mr. X refuses to pay.
Decide whether Mr. Z can recover the amount promised by Mr. X under the
provisions of the Indian Contract Act, 1872. (5 marks)
Answer:
The problem as asked in the question is based on one of the essentials of
a valid contract. Accordingly, one of the essential elements of a valid contract
is that the agreement must not be one which the law declares to be either
illegal or void. Further Contract Act specifies that any agreements in restraint
of trade, marriage, legal proceedings etc. are void agreements.
Thus Mr, Z cannot recover the amount of ` 10 lakhs promised by Mr. X
because it is an illegal agreement and cannot be enforced by law.
3 INDEMNITY AND GUARANTEE
 Contract of Indemnity  Surety
 Contract of Guarantee  Co-surety
Legend

6.81
CHAPTER AT A GLANCE

1. Contracts of  As per Sec. 124, A contract by which one party
Indemnity promises to save the other from loss caused to
him by the conduct of the promisor himself or the
conduct of any person is called a contract of
indemnity.
 Contract of Indemnity are a part of general class of
contingent contacts, thus are conditional.
 Parties of Indemnity Contract
(i) Indemnifier - The person who promises to
make good the loss.
(ii) Indemnified or Indemnity Holder - The
person whose loss is to be made good.
 It does not includes events or accidents. which do
not depend upon the conduct of any person.
Eg: Contract of insurance etc. (except life
insurance)
 Modes
(i) Expressed
(ii) Implied
2. Essential (i) All essential elements of a valid contract must be
Elements of present.
Contracts of (ii) A loss should be incurred or loss has become
Indemnity certain.
(iii) Its purpose is to protect the indemnity holder
against any loss.
(iv) It must specify that the indemnity holder is
protected from loss caused due to;
1. action of the promisor himself
2. action of any other person
3. any act, event or accident which is not in the
control of parties.
[Chapter  3] Indemnity and Guarantee O 6.83
3 Rights of (i) Right to recover damages

Indemnity (ii) Right to recover costs
Holder (Sec. (iii) Right to recover sums paid
125)
4 Contracts of  It is a contract to perform the promise or
Guarantee discharge the liability incurred by a third person
(Sec. 126) in case of his default.
 Parties to the contract
(i) Surety- The person who gives the guarantee.
(ii) Principle Debtor- The person in respect of
whose default the guarantee is given.
(iii) Creditor - The person to whom the guarantee
is given.
5 Essential (i) Must have all essentials of a valid contract
Elements of EXCEPTIONS:
Contracts of (a) Consideration received by the Principal
Guarantee Debtor is a sufficient consideration to the
surety for giving the guarantee.
(b) Contract is valid even if the principal debtor
is incompetent to contract.
(ii) The principal debtor is primary liable.
(iii) Debt must be legally enforceable
(iv) Debt must not be a time barred debt.
(v) Liability of surety is secondary and conditional
(vi) The creditor should disclose all the facts which
are likely to affect the surety’s liability.
(vii) Contract may be either oral or written.
6 Nature and (i) Liability of surety is same as that of principal
extent of debtor.
Surety’s (ii) Where a debtor cannot be held liable on account
Liability (Sec. of any defect in the document, the liability of the
128) surety also ceases.
(iii) Surety liability continues even if the principal

debtor has not been sued or omitted to be sued.
Thus, surety’s liability is separate on the
guarantee.
7 Kinds of (i) Specific Guarantee
Guarantee  It is given for a single debt
 It comes to an end when the debt
guarantee has been paid.
(ii) Continuing Guarantee (Sec. 129)
 It extends to a series of transactions.
 Surety’s liability extends to all the
transactions contemplated until the
guarantee’s is revoked.
8 Revocation of (i) It may be revoked at any time by the surety as to
Continuing the future transactions by giving notice to
Guarantee creditors (Sec. 130)
(ii) Upon the death of surety, it is revoked for all the
future transactions in the absence of the contract
to the contrary. (Sec. 131)
9 Rights of (i) Against the principal debtor
Surety (a) Right of Indemnity (Sec. 145): Surety is
entitled to recover from principal debtor all
payment properly made.
(b) Right of Subrogation (Sec. 140): It means
substitution of one person for another. On
payment of a debt, surety shall be entitled to
all the rights which the creditor can claim
against the principal debtor.
(ii) Against the creditor
(a) Right to claim securities (Sec. 141): Surety
is entitled to benefit of every security, which
creditor has against the principal debtor,
whether surety knows of it or not.
If creditor loses or parts with security without

surety’s consent , surety is discharged to the
extent of security’s value.
(b) Right to set off: Surety can ask the creditor to
set off or adjust any claim which the debtor
has against creditor.
(c) Right to share reduction: If the principal
debtor becomes insolvent , surety may claim
proportionate reduction in his liability.
(iii) Against Co - Sureties.
(a) Right to contribution (Sec. 146): All the co-
sureties contribute equally except in following
cases:
(1) Co- sureties may fix limits on their
respective liabilities.
(2) Contract may provide co-sureties to
contribute in some other proportion.’
10 Right to share  Discharge of a surety
benefit of Sec. 130: By giving notice to creditor for future
securities transactions in case of continuing guarantee.
Sec. 131: In absence of any contract to the
contrary , continuing guarantee is revoked on
death of surety.
Sec. 133: Where there is any variance in the term of
contract between the principal debtor and creditor
without surety’s consent, it would discharge the
surety in respect of all the transactions taking place
subsequent to such variance.
Sec. 134: The surety is discharged, if the principal
debtor is discharged by-
(i) a contract
(ii) any act or
(iii) any omission, the result of which is the
discharge of principal debtor.
Sec. 135: If the creditor makes an arrangement

with the principal debtor for composition, for giving
time or for not suing him without surety’s consent.
Sec. 139: If creditor does any act or omission ,
there by impairing sureties eventual remedy.
Sec. 141: If the creditor loses or parts with security
without surety’s consent, surety is discharged to
the extent of security’s value.
2010 - Dec [4] (a) (i) How the surety is discharged from liability? (4 marks)
Answer :
The surety (guarantor) is discharged when :
(a) Under any of the following conditions, a surety is discharged from
liability :
(i) A new contract is made in place of the old contract;
(ii) Surety (guarantor) is dead ;
(iii) Surety gives notice that he is no longer surety (notice of revocation)
(iv) The contract itself becomes void.
(b) From the conduct of the creditor :
(i) Change in terms of contract between creditor and debtor without
the consent of surety;
(ii) Release or discharge of the debtor by the creditor on any grounds;
(iii) if the creditor loses any security given by surety, the surety is
discharged with the value of such security.
2011 - Dec [3] (b) Mr. Barick owes Banker a debt guaranteed by both Mr.
Arora and Mr. Bora. The Banker releases Mr. Arora one of the co-sureties.
Hence the remaining i.e. other surety (Mr. Bora) is also released
automatically. Offer views. (2 marks)
Answer :
When a loan is guaranteed by more than one person, all persons
(guarantors) are responsible for the payment of loan. If bank releases one
person from guarantorship, that does not mean that the other guarantors are
automatically discharged of guarantee. In the present case, Mr. Bora is still
a guarantor and he is not discharged from his surety ship.
2012 - June [4] (b) In the event of principal debtor being a minor, creditor
can not recover his money, from the surety-offer your views. (2 marks)
Answer :
The statement is true. As the liability of minor is nil, the liability of the surety
of minor would also be nil. There are contrary judgments about this matter.
Some decisions of some courts say that the surety is liable to pay the
creditor if the principal debtor who is a minor, fails to pay. There are some
judgments which state that as the liability of a minor is nil, the surety can not
be forced to pay if minor debtor fails to pay.
(f) A surety is discharged from his liability where there is failure of
Consideration between the Creditor and the Principal Debtor in a
Contract of Guarantee. (2 marks)
Answer :
According to the Indian Contract Act, 1872, consideration is an essential
element of any contract. If there is no consideration there is no contract. In
the present case, there is a failure of consideration between the creditor and
the principal debtor, hence the surety has no responsibility towards such
contract because it is no contract at all. In such case the surety is
discharged.
2014 - June [6] (c) (ii) In a contract of Guarantee, A surety is discharged
from his liability where there is a failure of consideration between the creditor
and the principal debtors. Comment. (2 marks)
Answer :
According to the provisions of the Indian Contract Act,1872, presence of a
lawful consideration is an essential element for a valid contract. Therefore,
where in a contract of guarantee, there is a failure of consideration between
the creditor and the Principal Debtor, the surety is discharged.
2014 - Dec [2] (e) (i) State the circumstances in which surety is not
discharged. (3 marks)
Answer :
As per provisions of Indian Contract Act, 1872 Surety is not discharged in
following circumstances
(a) When Agreements made Where a contract to give time to the
with third person to give principal debtor is made by the creditor
time to principal debtor with a third person and not with the
(Section 136) principal debtor, the surety is not
discharged.
(b) Creditor's Forbearance Mere forbearance on the part of the
to Sue (Section 137) creditor to sue the principal debtor or to
enforce any other remedy against him
does not, in the absence of any provision
in the guarantee to the contrary, discharge
the surety.
(c) R e l e a s e of O n e Where there are co-sureties, a release by
Co-Surety (Section 138) the creditor of one of them does not
discharge the others: neither does it free
the surety so released from his
responsibility to the other sureties.
PRACTICAL QUESTIONS
2008 - Dec [2] (b) BEE owes ` 10,000/- to CEE. Amount was guaranteed by
GEE. Said debt becomes payable on 25.10.07. CEE does not sue BEE.
Hence due to delay GEE is automatically discharged from his surety
ship.Comment. (2 marks)
Answer :
False : Gee is not automatically discharged from his suretyship just because
CEE does not sue BEE unless such provision is expressed in the guarantee
agreement. GEE still remains guarantor for BEE to CEE.
2009 - June [2] (c) 'A' executed a guarantee in favour of State Bank of India
as Security for a loan to 'B'. Later 'A' contended that the guarantee was not
enforceable as it was not supported by consideration as he was not paid
guarantee commission. Is 'A's stand correct in law? (2 marks)
Answer :
Lawful consideration is an essential component of a contract of guarantee.
Sufficiency of consideration is not required and it is not necessary that
something must have been done for the benefit of the Guarantor. Anything
done or any promise made for the benefit of the principal debtor is a
sufficient consideration to the surety/guarantor for giving the guarantee.
2009 - Dec [4] (i) Statesman publishes at the request of Mr. D.D. a libel upon
Mr. S.S.,Mr. D.D. agrees to indemnify the Statesman the consequences of
the publication if any. Mr. S.S. sued Statesman to pay damages. Statesman
paid ` 2,00,000 to Mr. S.S. and demanded the amount from D.D. who
refused. State legal provision. (2 marks)
Answer :
(Libel means defamation) Statesman has done a criminal act against Mr.
S.S. When one person employs another to do an act which is criminal, the
employer is not liable to the agent. There is no right way to do the wrong
thing. Mr. D.D. is not liable to pay. Statesman is accountable for its criminal
act and it does not matter who instigated it to do the crime.
2010 - Dec [2] (b) Mr. Bose is indebted to Mr. Das and Mr. Ghosh is the
surety. When Mr. Bose & Mr. Ghosh refused to pay, Mr. Das sued the surety
(Mr. Ghosh) who paid the amount & cost as per orders of the Court. Can the
surety recover the amount from Mr. Bose? (2 marks)
Answer :
Yes, It is implied condition in the contract of guarantee that the guarantor can
recover the amount from the debtor. In this case the debtor Mr. Bose did not
pay the amount to his creditor Mr. Das. Mr. Das went to Court and as per
order of the Court the guarantor Mr. Ghosh paid the debt. Mr. Ghosh can
recover the said amount from Mr. Bose.
(e) Mr. Ray made a contract with Mr. Basu to grow vegetables on Mr. Ray's
land and to deliver to Mr. Basu at a fixed rate. Mr. Karmakar guarantees
Mr. Ray's performance of this contract. Mr. Basu diverts stream of water
which is necessary for production thereby prevented Mr. Ray to grow
vegetables. Mr. Ray fails to supply as per contract. Hence Mr. Basu sues
Mr. Karmakar (guarantor), for non-performance. — Advise. (2 marks)
Answer :
As per Section 67 of the Indian Contract Act, 1872, contracts need not be
performed when promisee neglects or refuses to afford the promisor
reasonable facilities for performance of promise. Mr. Karmakar is no longer
liable on his guarantee as Mr. Basu violated the contract by not supplying
stream of water to Mr. Ray.
2012 - Dec [2] (d) Mr A, Mr B & Mr C are Sureties to Mr D for the sum of INR
6000 lent to Mr E. Mr E failed to repay on due date. Mr A one of the sureties,
disagreed to Pay. Advise whether ‘A’ is right. (2 marks)
Answer :
All sureties are equally responsible for the debt. As the debt was for INR
6000, and there are three sureties each surety will be responsible for
one-third of the amount i.e. for INR 2000. Any surety cannot escape from this
responsibility.
2013 - June [4] (c) Mr. Mitra guarantees payment to Mr. Basu to the extent
of INR 50,000 for time to time supply of paper by Mr. Basu to Mr. Chandan.
Basu supplies paper to Chandan more than the value of INR 50,000 and Mr.
Chandan pays. Later on Mr. Basu, at the request of Chandan, supplies
paper valued INR 60,000. This time Chandan fails to pay. What action Basu
can take against Mitra? (2 marks)
Answer :
In this case, guarantee given by Mr. Mitra is a continuing guarantee
(Sec.129) and accordingly Mr. Mitra being guarantor of INR 50,000, he is
liable to Mr. Basu to the extent of INR 50,000 only. Mr. Basu can recover the
balance amount from Chandan.
2014 - June [2] (a) (i) ‘A’ contracts with ‘B’ for a fixed price to construct a
house for ‘B’ with stipulated time. ‘B’ would supply the necessary material to
be used in the construction. ‘C’ guarantees A’s performance of the contract.
‘B’ does not supply the material as per the agreement. Is ‘C’ discharged from
his liability? (2 marks)
Answer:
 In this case C is surety for A’s performance. Performance of A depends
on the supply of material by B. B does not supply the required material
which makes A unable to perform his part of contract.
 According to the Section 134 of the Indian Contract Act, 1872, the
surety is discharged by any contract between the creditor and the
principal debtor, by which the principal debtor is released or by any act
or omission of the creditor, the legal consequence of which is the
discharge of the principal debtor.
 In the given case, B omits to supply the necessary material.
 Hence, C is discharged from his liability.
4 BAILMENT
 Bailment  Finder of Lost Goods
 Types of Bailment  Restoration of goods
 Bailor’s duty and Obligation  Bailee’s Lien
Legend

6.93
CHAPTER AT A GLANCE

1. Contracts of  As per Sec 148, Bailment is an act whereby the
Bailment goods are delivered by one person to another
for some purpose, on a contract, that the goods
shall, when the purpose is accomplished be
returned or otherwise disposed off according to
the directions of the persons delivering them.
 It is a voluntary delivery of goods for a
temporary purpose.
 Ownership of goods remains with the bailor.
 Goods should be movable goods.
 Parties
(1) Bailor- The person delivering the goods.
(2) Bailee- The person to whom the goods
are delivered.
2. Essential (i) There must be an expressed or implied
Elements of contract between the parties.
Contracts of (ii) It can be made of goods only.
Bailment (iii) There must be delivery of goods from one
person to another.
(iv) Goods must be delivered for some purpose
express or implied.
(v) The delivery of goods must be conditional.
(vi) The return of the goods may be in the
original form or i.e. in an improved form as
agreed between the bailor and bailee.
 Modes
(i) Actual Delivery
(ii) Symbolic Delivery
[Chapter  4] Bailment O 6.95
(iii) Constructive Delivery.

 Bailment may be gratuitous (without any
remuneration or reward) or for reward. (for
consideration)
3. Classification  Duties of Bailor
Sec. 150: Bailor must disclose all defects /
faults in the goods bailed. He is responsible for
defects in the goods hired to bailee whether
bailor was aware of such defects or not.
Sec. 158:
(a) Where the bailment is gratuitous, he must
reimburse the bailee for any expenditure
incurred in keeping the goods.
(b) He should reimburse any expense which
bailee may incur by the way of loss in the
process of returning the goods or
complying with other directions for
returning the goods.
(c) He must compensate the bailee for any
loss or damage suffered by bailee in
excess of benefit received.
(d) He is bound to accept the goods after the
purpose is accomplished.
4. Rights of Bailor  Right to enforce the duties of the bailee.
 Right to terminate the contract if bailee does
any thing which is inconsistent with the
conditions of bailment.
 In gratuitous bailment, he has a right to
demand back goods even before expiry of
bailment period.
 Right to claim the increase or profit from the
goods bailed which may have occurred from
value of goods.
5. Duties of Bailee Sec. 151: Duty to take reasonable care of goods.

Sec. 152: If he takes care of goods as a man of
ordinary prudence, he will not be liable for any loss
or damage of goods bailed.
Sec. 153: Duty not to make unauthorised use of
goods.
Sec. 154: If he makes any unauthorized use of
goods , he will be liable to make good the loss.
Sec. 155-157:
(a) Duty not to mix the goods bailed with his own
goods without the bailor’s consent. If he does
so, he has to make good the loss.
(b) Duty not to set up an adverse title
Sec. 160: Duty to return the goods on expiration of
the bailment period.
Sec. 161: If he fails to return, he will be responsible
to the bailor for any loss, destruction or
deterioration of goods there after.
Sec. 163:
(a) Duty to return any extra profit occurring from
goods bailed.
(b) Duty not to do any thing inconsistent with the
bailment conditions.
6. Rights of Bailee (a) Right to claim compensation for any loss
arising from non-disclosure of known/unknown
defects in goods.
(b) Right to claim indemnification for any loss or
damage as a result of defective title.
(c) Right to deliver back the goods to joint bailors
as per the agreement.
(d) Right to deliver goods back to bailor whether
has the right to the goods.
(e) Right to exercise his right of lien.
(f) Right to take action against third parties.
7. Termination of Sec. 153: Where bailee makes unauthorized use of

Bailment the goods bailment becomes voidable at bailors’
option.
Sec. 159: At bailor’s will -
(a) In non- gratuitous bailment, bailor has a right
to take back the goods, after the purpose is
over .
(b) In gratuitous bailment, he can take back the
goods any time, provided in case of loss in
excess of benefit, bailee must be
compensated.
Sec. 160:
(a) When the period or purpose of bailment is
over.
(b) Where the subject matter is destroyed or
becomes illegal.
Sec. 162: A gratuitous bailment is terminated by
the death of the bailor or bailee.
8. Lien It refers to right of one person to retain the
possession of some goods, belonging to other
person, until some debt or liability is discharged.
9. Types of Lien (a) Particular Lien:
 It is available only against those goods in
respect of which bailee has exercised skill
and labour.
 Bailees lien is a particular lien
 It is available to all.
 Conditions for exercising Particular Lien
(i) If bailee has exercised his labour and
skill on goods bailed.
(ii) When work has been completed on
time.
(iii) If the payment is due.
(b) General Lien

 It refers to the right of one person to retain
the possession of any goods, belonging to
another person , until some debt or liability
is discharged.
 It is available to bankers, factors,
warfingers, attorneys of High Court and
policy brokers.
10. Finder of Goods  Refers to a person who finds the goods
belonging to another person i.e. the goods lost
by the true owner - he enjoys all the rights and
carries all the responsibilities of a bailee.
 Though the finder has no right to sell the goods
found in the normal course , he may sell the
goods if the real owner cannot be found with
reasonable efforts or if the owner refuses to
pay the lawful changes subject to the following
conditions:
(1) article is in danger of perishing and losing
the greater part of the value,
(2) lawful charges of the finder amounts to
two-third of the value of the article found.
SHORT NOTES
(iii) Bailee's particular lien. (4 marks)
Answer :
Bailee’s particular lien means bailees right to retain the goods given to him
by the bailor till the time of payment of his service charges by the bailor. As
soon as the payment is made by the bailor, the lien comes to end. Where the
bailee has in accordance with the purpose of the bailment rendered any
service involving the exercise of labour or skill in respect of the goods bailed
he has in the absence of a contract to the contrary, a right to retain such
goods until he received due remuneration for the services he has rendered
in respect of them.
2010 - June [4] (c) Sale and Bailment are same. Do you agree?
(4 marks)
Answer :
No, they are not same. There are many points of difference between them
as given below :
Sale Bailment
A sale involves transfer of Bailment involves physical transfer of
ownership and physical transfer of property, ownership is not disturbed.
property.
Parties involved are called seller Parties involved are called bailor and
and buyer. bailee.
The property is never taken back Property is taken back as per terms
after transfer. of bailment.
Contract is over when buyer takes Contract is not over when bailee
the possession of property after takes the possession as the property
payment. is to be returned back to the bailor.
2011 - June [3] (b) State the different kinds or types of Bailment.
(4 marks)
Answer :
Bailment may be classified into Six kinds as follows:
(i) Deposit: Delivery of goods by one man (Bailor) to another (Bailee) to
hold them on his behalf.
(ii) Commodatum : Goods lent to a friend or relatives gratis (i.e. free of
charge) for use by friends or relatives.
(iii) Hire : i.e. goods lent to the bailee for hire i.e. in return for payment of
money.
(iv) Pawn or Pledge: Deposit of goods with another by way of security for
money borrowed.
(v) Delivery of goods for being transported or something to be done about
them by the bailee for reward.
(vi) Delivery of goods for being transported or something to be done about
them by the bailee without reward.
2012 - Dec [2] (a) Goods seized by Customs Authority is a case of bailment
under Indian Contract Act—offer your views. (2 marks)
Answer :
When the goods are transferred to any person, the person having the
possession is responsible for such goods as it is a case of bailment. In this
case the possession of goods is with the customs authority, therefore
bailment exists as per the Indian Contract Act, 1872.
2014 - June [6] (b) (i) Deposit of money in a bank does not constitute
bailment. Justify. (2 marks)
Answer :
Bailment is concerned with only moveable goods. Money is not included in
the category in moveable goods. As such deposit of money is not bailment.

(a) (i) What are the rights of a finder of goods under the Indian Contract
Act, 1872? (4 marks)
Answer:
A finder of goods has the following rights under the Indian Contract
Act, 1872:
(1) Right of lien The finder of goods has a right of lien over the
goods for his expenses. As such he can retain the
goods against the owner until he receives
compensation for trouble and expenses incurred in
preserving the goods and finding out the owner. But
he has no right to sue the owner for any such
compensation (Section 168).
(2) Right to sue The finder can sue for any specific reward which the
for reward owner has offered for the return of the goods. He
may also retain the goods until he receives the
reward. (Section 168).
(3) Right of resale The finder has a right to sell the goods in the
following cases:
(a) where the goods found is in danger of perishing;
(b) where the owner cannot, with reasonable
diligence, be found out;
(c) where the owner is found out, but he refuses to
pay the lawful charges of the finder; and
(d) where the lawful charges of the finder, in
respect of the goods found, amount to 2/3 rd of
its value.
PRACTICAL QUESTIONS
2012 - June [2] (b) Saxena lets to Mr. Menon for hire a horse for his own
riding but Mr. Menon drives the horse in his carriage. What action Saxena
can take? (2 marks)
Answer :
 Saxena is bailor because he has given his horse to Menon (bailee)
under the condition that Menon would use the horse for his own riding.
 This is a case of bailment where one person (bailor) gives his goods to
another person (bailee) under certain conditions.
 The bailment may be cancelled or terminated if the conditions of
bailment are not satisfied at the option of bailor.
 In this case it is at the option of bailor Saxena to cancel or continue the
bailment as Menon has not followed the conditions of bailment.
(c) On 01.11.2012 Mr. Barun kept his cow under the custody of Mr. Tarun
for one month and paid INR 1000 for maintenance. On 15.11.2012, the
cow gave birth of a calf. On 30.11.12 Tarun returned the cow retaining
the calf. (2 marks)
Answer :
 According to Indian Contract Act, The goods given as bailment still
belongs to giver (bailor) and any profit or income arising out of goods
belongs to the bailor Barun.
 Hence bailee (with whom the goods are kept) should not only give the
cow but also the calf. He (Tarun) should not keep the calf with him.
2013 - Dec [2] (a) (ii) Arvind hires a carriage of Govind and agrees to pay
INR 500 as hire charges. The carriage is unsafe though Govind is unaware
of it. Arvind is injured and claims compensation for injuries suffered by him.
Govind refuses to pay. Discuss the liability of Govind. (3 marks)
Answer :
 Problem asked in the question is based on the provisions of the Indian
Contract Act, 1872, as contained in the Section of 150. The section
provides that if the goods are bailed for hire, the bailer is responsible for
such damage, whether he was or was not aware of the existence of such
faults in the goods bailed.
 Accordingly, applying above provisions in the given case Govind is
responsible to compensate Arvind for the Injuries sustained even if he
was not aware of the defects in the carriage.

(c) (ii) Mr Jatin found a wrist watch in shopping mall. He made all efforts to
trace the true owner of the wrist watch but could not find him. He sold
the same to Nitin, who buys without any knowledge that Jatin is
merely a finder. Is sale by Jatin to Nitin valid? Decide. (3 marks)
Answer:
When thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to pay the
lawful charges of the finder, the finder may sell it:
The finder of goods can sell the goods only in the circumstances permitted
under section 169 of the Indian Contract Act, 1872 which are as under:
(a) If the goods are in danger of perishing or losing the greater part of their
value, the finder can sell the goods.
(b) If the lawful charges of the finder in respect of the goods amount to a
minimum of two-third of the value then the finder can sell the goods.
In the present case, the sale by the finder will not be valid as it does not
seem to fall in any of the above stated circumstances. Hence, the sale
by Jatin to Nitin is invalid.
5 PLEDGE
 Pledge  Pawnee
 Pawnor  Pledge Vs Bailment
Legend

6.104
[Chapter  5] Pledge O 6.105
CHAPTER AT A GLANCE

1. Meaning of  As per Sec. 172,
Pledge / Pawn It refers “to the bailment of goods as security
for payment of debt or performance of a
promise.”
 It refers to a contract where by an article is
deposited with a money lender as a security for
the loan repayment or for the performance of
promise.
 Parties
Pawnor - The person who pledges i.e. bailor
incase of pledge
Pawnee- The bailee incase of pledge.
2. Essential (a) There must be expressed implied contract
Elements of between the parties
Pledge (b) It can be of goods only
(c) There must be delivery of goods from one person
to another
(d) It must be for some purpose.
3. Duties of (a) Repay the loan or perform the promise
Pawner (b) Pay expenses in cases of default
(c) Pay the deficit on sale
(d) Pay extraordinary expenses incurred for
preserving the goods.
(e) Disclose faults in goods which are material for the
use of goods or may put pawnee to extra-ordinary
risks
(f) Indemnify pawnee if he suffers any loss due to
defective title of the pawner.
4. Rights of (a) Sec. 177: Redeem the goods pledged.

Pawner (b) Right to sue in the event of pawnee refusing
to return the goods even after payment of debt
etc.
(c) Receive any increase in goods.
(d) Receive notice of sale.
5. Duties of (a) Not to use the goods unless authorised by
Pawnee pawner
(b) Return the goods to pawnor on payment of debt
etc.
(c) Take reasonable care of the goods
(d) Not to mix the goods with his own goods
(e) Return any increase in goods pledged with him
(f) Return any surplus on sale.
6. Rights of Sec. 173: Retain the goods pledged only for
Pawnee (a) the performance of promise, (b) payment of debt,
or (c) interest on debt.
Sec. 174: Right of particular lien.
Sec. 175: Seek reimbursement of extra ordinary
expenses.
Sec. 176: Right to sue the pawner in the event of
pawner failing to redeem the debt or perform the
promise. He can sell the goods after giving a notice
of sale.
7. Pledge by non- A valid pledge can be created by following non-
owners owners:
(a) Pledge by Estoppel.
(b) Pledge by a mercantile agent. (Sec. 178)
Mercantile Agent means an agent of the seller
who has been appointed to sell the goods
belonging to the seller.
Conditions for pledging:

(i) Goods came into his possession with the
consent of seller / owner of goods.
(ii) Pledge is made by him in the ordinary
course of business
(iii) Pawnee acts in good faith.
(c) Pledge by a person in possession under a
voidable contract. (Sec. 178 A)
Conditions -
(1) Person acquires goods under voidable
contract
(2) Person who acquires the goods pledges
such goods
(3) At the time of creation of pledge, voidable
contract should not have rescinded
(4) Pledge is made in good faith.
(d) Sec. 179: Pledge by a person having limited
interest in the goods.
If a person has a limited interest, he can make a
valid pledge to the extent of that interest.
(e) Pledge by a co-owner in possession:
Consent of all joint owners is required, if the
goods owned jointly are to be sold or pledged.
Conditions for exception -
(i) Goods are in the sole possession of one
joint owners.
(ii) Goods came into his possession with
consent of other joint owners.
(iii) Pledge is made in good faith.
(f) Pledge by a seller in possession of goods after
their sale.
Conditions -
(1) Ownership of goods has been passed to the
buyer
(2) Seller continues to be in their possession,

even after their sale
(3) Seller pledges the goods to some other
person
(4) Pledge is made in good faith without any
notice of the prior sale
(g) Pledge by a buyer who has obtained possession
of goods under an agreement to sell.
(b) On expiry of stipulated period, the pledgee can sell the pledged goods
to any person. (2 marks)
Answer :
Pawnee/Pledgee cannot sell. Pawnee/Pledgee is to give notice to pawner
indicating his intention to sell. Notice of sale is essential even where the
agreement specially excludes it (Sec. 176). Hence, this is void and
unenforceable.
PRACTICAL QUESTIONS
(a) Mr. Saxena, a Pledgee incurred extra-ordinary expense for preservation
of goods pledged. Pledgee refused to return such goods till the payment is
settled, can he retain ? (2 marks)
Answer :
The pledgee is entitled to recover the expenses incurred by him from the
pledger, but he has no right to retain the goods for recovery of such
expense. If the expenses are not paid, he can go to Court to recover the
same.

(a) (i) Nishant lends a sum of ` 8,000 to Prashant on the security of ten
shares of XYZ Ltd. on 1st Jan, 2015. On 25th March, 2015, XYZ Ltd.
has issued one Bonus share. Prashant return the loan amount of
` 8,000 with interest to Nishant. But Nishant returns only ten shares
which were pledged and refuse to give one bonus share. Advise,
Prashant in the light of the provisions of the Indian Contract Act,
1872. (3 marks)
Answer:
 As per the provisions of Section 163(4) of the Indian Contract Act,
1872 “in the absence of any contract to the contrary, the bailee is bound
to deliver to the bailor, or according to his directions any increase or
profit which may have accrued from the goods bailed”.
 Applying the provisions to the instant case, the bonus share is an
increase on the shares pledged by Prashant to Nishant.
 So Nishant is liable to return the shares along with bonus share and
hence Prashant the bailor, is entitled to receive the bonus share also
from Nishant (Motilal VS Bai Mani).
2015 - Dec [2] Answer question:

(a) (i) Kavita falsely representing herself as the wife of a millionaire, takes
a necklace from a jeweller’s shop for the approval of her husband.
She pledges if with a pawn broker who in good faith and without
notice of the fraud pays her ` 1,00,000. Can the jeweller recover the
necklace from the pawn broker? (3 marks)
Answer:
 The necklace cannot be recovered from the pawn broker.
 The jeweller intended to contract with the person present before him.
 He was not mistaken about his identity but only about his attributes.
 His intention was to sell to the person present i.e., there was consent,
but it was vitiated by fraud.
 Hence the contract is voidable and not void.
 In case of a voidable contract, before it is repudiated, one can pass a
good title to the pledgee or purchaser in good faith.
Thus, in the instant case, the pledge is valid.
 It may be noted that in the given case if Kavita would have falsely
represented herself as the wife of a certain well known millionaire, it
would have been a case of mistake as to the identity of person
contracted with, rendering the agreement void ab-initio, thereby enabling
the jeweller to recover the necklace from the pawn broker.
6 LAWS OF AGENCY
 Agency  Creation and Termination of
 Rules of Agency Agency
 Sub-Agency
Legend

6.111
CHAPTER AT A GLANCE

1. Law of Agency  As per Sec. 182,
“ An agent is a person employed -
(i) to do any act for another, or
(ii) to represent in dealing with third persons.”
 Principal is a person for whom such act is done
, or who is so represented.
 Agent acts as a mere connecting link between
the principal and third party.
 It is based on two rules:
(i) A person can do through an agent,
whatever he can do himself.
(ii) The acts of the agent are the acts of the
principal.
2. Essential (i) Two parties are required
elements (ii) Agreement between parties is necessary
(iii) No consideration is required.
3. Modes of (a) Sec. 187: Express Agency

creation of It is created either by words spoken or in writing
Agency Eg- Power of Attorney (it may be general or
special)
(b) Implied Agency - Agency created by conduct
of parties. It can be in the following terms:
Sec. 237: Agency by Estoppel
It a person by his conduct, words spoken or
written leads another to believe that a certain
person is acting as his agent, he is estoppel
later on from denying such facts.
[Chapter  6] Laws of Agency O 6.113
Eg.: Wife as an agent, where a married women

lives with her husband, there is a presumption
that she has the authority to pledge his credit for
necessaries.
This Presumption is not held where husband
shows that -
(i) he had expressly warned the tradesman not
to supply goods to his wife on his credit,
(ii) he had expressly forbidden the wife to
pledge his goods,
(iii) his wife was already supplied with sufficient
articles
(iv) She was supplied with sufficient allowance
Wife as an agent
(c) Agency by Holding out
 Under this the principal plays a positive role.
 It occurs when any one holds himself out as
an agent of another
 It happens through a wilful conduct
 Eg. - In case of partnerships.
Sec. 189:
(d) Agency by necessity
In case of emergency, the agents can exceed
their powers and can take all the steps to
minimise his principal’s loss.
(e) Agency by ratification
(a) The principal is not bound by the act of
agent if the agent acts:
(i) On behalf of another without his
consent or knowledge
(ii) exceeding his authority.
(b) Principal can create it by subsequent
ratification.
(c) Also known as ex post facto agency i.e.

agency arising after the event.
(d) Principal becomes bound.
4. Agency by (i) The act must have been done on behalf of the
ratification is named or identifiable principal.
possible if (ii) The principal must be in existence at the time
following of contract.
conditions are (iii) The principal must be competent to contract
satisfied at the time of making the contract.
(iv) Principal must have full knowledge of the
facts.
(v) Contract can be ratified only as a whole.
(vi) It can be done of a lawful contract.
(vii) It must be done within a reasonable time.
(viii) It should not cause any damages to a third
party.
5. Extent of It is governed by two principles:
Agent’s  Sec. 188: Agents authority in normal
Authority circumstances.
Agent has the power and authority to do all the
acts lawful and necessary in the normal
circumstances in discharge of his functions.
 Agent’s authority in emergency.
Agent has the authority in an emergency to do
all such acts as a man of ordinary prudence for
protecting his principal from losses under similar
circumstances. It includes:
(a) Actual / Real Authority.
(b) Ostensible / Apparent Authority.
6. Special Agent  Appointed to do any specific act or function
 Does not have unlimited authority
 Act outside its authority
 Does not binds the principal.
7. General Agent  Appointed for doing all transactions given by

principal.
 Can be assumed to have Unlimited authority.
8. Other Types of (a) Sub Agent
Agents As per Sec. 190,
Sub - agent’s appointment is not lawful as the
agent is a delegate and a delegatee cannot
further delegate.
As per Sec. 191,
A sub - agent is a person-
(i) employed by, and
(ii) acting under the control of the original agent
in the business of agency.
(b) Substituted Agent
As per Sec. 194,
Where-
the principal appoints an agent, and if that
agent identifies another person to carry out the
acts ordered by the principal, then the second
person is not to be treated as a sub- agent but
only as an agent of the original principal.
(c) Mercantile Agent
As per Sec. 2 (9) of the Sales of Goods Act,
1930 “Mercantile Agent is an agent having in
the ordinary course of business as such an
authority either -
(i) to sell goods, or
(ii) consign goods for the purpose of sale, or
(iii) to buy goods ,or
(iv) to raise money on the security of goods.
9. Bankers  Relationship of debtor and creditor with their

customers.
 Agent of customer when he buys or sell
securities, collects bills etc. on customer’s
behalf.
 Has general lien on all goods and securities in
his possession.
10. Duties of Agent (a) Sec. 21: To conduct principal’s business
according to his directions.
(b) Sec. 212: He must always act as a person with
skill and diligence.
(c) Sec. 213: He has to maintain and render proper
accounts to the principal whenever demanded.
(d) Sec. 214: To communicate and obtain
instructions in case of difficulty.
(e) Sec. 215: He must not deal on his own account.
(f) Sec. 216: Must not make any secret profit.
(g) Sec. 217 & 218: To account for money received
for the principal.
Not to use the information obtained in the course of
agency against the principal.
Agent cannot delegate his authority to sub agent
generally. The general rule for this is delegates non
protest delegate a delegatee cannot further delegate
11. Rights of an (a) Sec. 217: Rights of Retention.
Agent (b) Sec. 219: Right to receive agreed remuneration.
(c) Sec. 221: Right of lien on principal’s property.
(d) Sec. 222: Right of indemnification for lawful acts.
(e) Sec. 223: Right of indemnification against acts
done in good faith.
(f) Sec. 225: Right to be compensated for any
injury caused due to principal’s negligence.
12. Principle’s There are 3 circumstances in which an agent may

liability for contract namely -
agent’s act to (i) The agent acts for named principal (disclosed
Third Parties principal)
(ii) The agent acts for an undisclosed principal
(iii) The agent acts for a concealed principal
(a) Sec. 226: Acts within the scope of actual
apparent authority., it bounds the principal.
(b) Sec. 227: Acts in excess of agent’s authority is
separable, it bounds the principal.
(c) Sec. 228: Acts in excess of agent’s authority is
not separable, principal is not bound by it.
(d) Sec. 229: Principal is bound by notice given to
the principal.
(e) Sec. 238: Principal is bound for any fraud or
misrepresentation committed by agent:
(i) During the business hours
(ii) Within his authority
(f) Admission made by agent, is deemed to be
admission made by the principal.
(g) Unnamed principal, principal becomes liable on
being discovered.
13. Personal (a) It is also known as Doctrine of implied
liability of the warranty of authority.
Agent (b) It happens under following circumstances:
(1) where the agent signs the negotiable
instrument without indicating that he is
signing for the Principal.
(2) where the contract expressly provides so.
(3) where the agent works for foreign principal.
(4) where the agent acts for a Principal who
cannot be sued.
(5) where a Government servant enters into a
contract on behalf of Union of India.
(6) where according to usage in trade in certain

kinds of business. agents are personally
liable.
(7) where the agency is coupled with interest
(8) If the agent is working for undisclosed
principal .
(9) If the amount is received or paid by agent
under mistake or coercion.
14. Termination of  Agreement between principal and agent
Agency Performance of contract
 Revocation of authority by principal  Expiration
of period
 Revocation of authority by agent
 Death/insanity of principal or agent
 Insolvency of principal
 Dissolution of company
 Destruction of the subject-matter
15. When (i) Sec. 208: As regards agent , when it
Termination of becomes known to him.
Agency Takes (ii) As regard third parties, when it comes to their
Effect knowledge.
Sec. 210: Termination of, the agent’s authority
terminates the sub- agents authority
Sec. 209: Agent has a duty to protect his principal’s
interest where the principal dies or becomes of
unsound mind.
16. Irrevocable Revocation of agency is not possible in following
Agency cases:
(a) Sec. 202: where agency is coupled with
interest.
(b) Sec. 204: where the authority has been partly
exercised.
(c) where the agency has incurred personal liability.
SHORT NOTES
2009 - Dec [3] (a) Write short note :

(v) Agency of necessity. (4 marks)
Answer :
Agency of necessity :
 When someone is forced by circumstances to act as an agent of
principal without his authority, it is agency of necessity.
 Suppose a horse is sent by a person to another person who does not
take delivery of the horse at the destination.
 The station master has to feed the horse and take care of it.
 It is held that the station master becomes agent of the principal out of
necessity and the principal must compensate him.
Following conditions must be satisfied for 'agency of necessity.
(i) It was not possible or reasonable to obtain permission or instruction of
the principal.
(ii) The action taken was with bona fide intention.
(iii) The agent has taken all reasonable and necessary steps to safeguard
the interest of principal.
2011 - Dec [4] (a) Write short note on.

(i) Agency by ratification; (4 marks)
Answer :
Ratification means the subsequent adoption and acceptance of an act
originally done without instruction or authority.
Ratification may be expressed or implied i.e. it may be expressed in words
or by conduct.
 Ratification is an approval of a previous act or conduct.
 It implies the adoption by the principal of an act done by an agent in his
behalf, but without his authority.
 Section 196 of the Contract Act provides that ''where acts are done by
one person on behalf of another, but without his knowledge or authority,
he may elect to ratify or to disown such acts.
 If he ratifies them, the same effects will follow as if they had been
performed by his authority.''
 Thus ratification relates back to the date when the act was done by the
agent. It is simply adoption of the old contract.
 It only endorses the unauthorised act of the agent as authorised. Worded
differently, it is equivalent to previous authority.
2008 - Dec [2] (e) An agent retained all the stock and other papers of a
principal until his pending dues are cleared by the principal. State legal
position. (2 marks)
Answer :
True : The agent has lien (lien means possession, practical control) over
stock and other papers of the principal if his fee/commission is not paid to
him. Unless some contrary measures exist in the agreement, the agent has
right to retain property, papers or stock of principal until the amount due to
him is paid to him or accounted for or adjusted in any manner in his
accounts.
2010 - June [2] (c) Discuss the position of Agent appointed by minor.
(2 marks)
Answer :
Minor is not supposed to take decisions. He can neither enter into a contract
nor can he appoint agent. Such agents will be deemed to be not appointed
at all and their appointment will be null and void in the eyes of law.
2018 - June [2] (b) State the circumstances when an agent is personally
liable for the contracts entered into by him on behalf of the principal ?
(10 marks)
Answer:
The general rule of the Indian Contracts Act, 1872 states that:
(i) Only the principal can enforce and can be held liable on a contract
entered into by an agent.
(ii) The agent is not personally liable on a contract entered into by him on
behalf of the principal.
The following are the exceptions to the above rule:
1. Foreign Principal: When agent acts for sale or purchase of
goods for a principal resident abroad i.e., foreign principal.
2. Personal liability by agreement: Where it is expressly provided
in the contract that the agent shall be personally liable.
3. Undisclosed principal: Where agent does not disclose the
name/identity of the principal.
4. Principal cannot be sued: Where the principal is disclosed but
cannot be sued, e.g., foreign sovereigns, ambassadors etc.
5. Non-existence of Principal: When the principal is not in
existence at the time when the act was done, i.e., the agent acted
for a non-existent principal.
6. Agent’s liability: When the agent exceeds his authority or
commits a breach of warranty of authority.
7. Pretended Agent: When he acts as a pretended agent.
8. Mistake or Fraud: When he receives or pays money by mistake
or fraud.
9. Agent sign an agreement without mentioning that he is an
agent: Where an agent signs a negotiable instrument without
mentioning that he is signing as an agent.
10. Trade or customs: Where the usage of trade or custom makes
an agent personally liable.
PRACTICAL QUESTIONS
2009 - June [2] (g) State the rights and liabilities of 'A' in the following cases:
(i) 'A' is owner of the factory building and also of product. 'A' authorises
'B' to take an insurance policy on factory building for ` 2 lacs. 'B'
procures a policy for ` 2 lacs on factory and another policy for ` 2,000
on products. 'A' refused to reimburse to 'B'. (2 marks)
(ii) 'A' authorises 'B' to buy 500 pieces of Sunlight soap for him but 'B'
buys 500 pieces Sunlight and 200 pieces Henko at a total price of
` 5,000. 'A' refused to pay to 'B'. (2 marks)
Answer :
(i) In this case “B” was not authorized to pay the premium for a policy for
the products.
Since both the policy and the value can be separated, A is bound
to pay the premium for the policy on factory buildings but not the
premium for the policy on the products.
(ii) In this case, the agent i.e. “B” does more than what he is authorized
to do and the amount of ` 5,000/- can not be separated between
Sunlight and Henko. “A” may repudiate and say no to the whole
transaction. As per Contract Act, the principal is not bound when
excess of Agent’s Authority is not separable and measurable. It is at
the option of A whether to approve it or reject it.
provisions:
(g) Mr. Tarafdar instructs Mr. Kinkar, a merchant, to buy a ship for him. Mr.
Kinkar employs a renowned ship surveyor to choose a seaworthy ship
for Mr. Tarafdar. The ship turns out to be un seaworthy and is lost. Mr.
Kinkar, who is agent is responsible. (2 marks)
Answer :
Mr. Kinkar is not responsible as Mr. Tarafdar is also supposed to see the
seaworthiness of the ship before buying. Mr. Kinkar is acting as agent and
he has all the rights to appoint another person as agent as this is a case of
technical expertise. Mr. Kinkar cannot be charged of negligence as he has
appointed a renowned firm for the survey.
2010 - Dec [2] (a) Mr. Roy consigns some fruits to his agent Mr. Paul at
Mumbai with direction to send those fruits to Mr. Kar at Chembur. Mr. Paul
sold fruits, which were spoiling at Mumbai below cost price without prior
consent of Mr. Roy. Whether Mr. Paul’s action was valid? (2 marks)
Answer :
 Mr. Paul's action is justified. He has taken this action in the interest of his
principal and to reduce loss to the principal.
 It is simple understanding that the fruits should be sold if they are likely
to become bad.
 An agent has authority to act on behalf of his principal in emergency with
normal reasoning and prudence.
(g) Mr. A being an agent of Mr. P (who is owner of land) agrees for money
to obtain for Mr. B a lease of P’s land but without the knowledge of ‘P’.
Discuss the validity of this agreement. (2 marks)
Answer :
When an act is done by one person on behalf of another but without his
knowledge or authority, the later may elect either to ratify or disown such Act
(sec 196 of The Indian Contract Act, 1872).
In the instant case if a lease is granted by “A” in favour of B on the fact
coming to the knowledge of the P, he may either decide to ratify the lease
agreement or to disown it.
If the P decides to ratify the lease, then it would be a valid contract.
2012 - June [3] (c) Jayanta, the owner of a car handovers the car with key
to Partha (the mercantile agent) to sell the car at a price not below INR
1,00,000. Partha (the agent) sold at INR 90,000 to Amitava who buys in
good faith and without notice of reserve price/or any fraud. Partha
misappropriated the money also. Jayanta filed a suit against Amitava to
recover the car. Advise with reasons whether Jayanta can succeed.
(3 marks)
Answer :
Amitava has purchased the goods in good faith and he was not aware that
the agent has not complied with the conditions of sale as set by the owner
Jayanta. In this case the agent Partha has not fulfilled the condition that the
sale should not be below INR 1,00,000 but this is not the fault of buyer
Amitava as he was not aware of the agreement between original owner
Jayanta and his agent Partha.
Jayanta cannot recover the car from Amative as sale by his agent is a valid
sale. Jayanta can sue against his agent Partha but cannot sue against
Amative.
2015 - Dec [2] Answer question:

(b) (i) Bimal at Durgapur under instruction from Amal of Kolkata contracts
with Kamal to deliver electric oven to him. Amal does not send the
oven to Bimal and Kamal sues Bimal for breach of contract. Bimal
informs Amal of the suit and as per Amal’s advise Bimal defend the
suit. Bimal compelled to pay damages, costs and incurs expenses
Amal refuse. Advise Bimal. (3 marks)
Answer:
 As per Section 222 of the Indian Contract Act, 1872, the principal is
bound to indemnify an Agent against the consequences of all Lawful
acts done by the agent in exercise of authority conferred upon him.
 Sec. 223 further provides where one person employs another to do an
act, and the agent does the act in good faith, the employer is liable to
indemnify the agent against the consequences of that act, though it
causes an injury to the rights of third persons.
 In view of above, Amal is liable to Bimal for such damage, cost &
expenses.
7 SALE OF GOODS ACT, 1930
 Definitions  Rights of an Unpaid Seller
 Transfer of Ownership  Auction Sale
 Conditions and Warranties
 Contract of Sale
Legend

6.125
CHAPTER AT A GLANCE

1. Introduction  It is one of the special types of contract.
 Initially, it was the part of Indian Contract Act.
 Later it was deleted and a separate act was
passed.
 Basic provisions and requirements of contract
equally apply to Sales of Goods Act.
 It contains and deals with law relating to sale of
goods and not with mortgage or pledge.
 It received its assent on 15th March, 1930.
 It came into force on 1st July, 1930.
 It extends to whole of India except the State of
Jammu & Kashmir.
2. Definition of  Buyer: Person who buys or agrees to buy the
Various Terms goods.
 Seller: Person who sells or agrees to sell the
goods.
 Goods: As per Sec. 2(7), it means every kind
of movable property other than actionable
claims and money; and includes stock and
shares, growing crops, grass and things
attached to contract of sale.
 Money means current money and it includes
rare and old coins.
 Actionable claim means what a person cannot
make a present use of or enjoy, but can
recover it by means of a suit or an action.
 Existing Goods: It means such goods which
are in existence at the time of the contract of
sale i.e. owned or possessed by the seller.
[Chapter  7] Sale of Goods Act, 1930 O 6.127
 Specific Goods: It means goods identified and

agreed upon at the time the contract of sale
has been made.
 Ascertained Goods: It means that the goods
are identified in accordance with the agreement
after the contract of sale has been made.
 Generic / Unascertained Goods: It means the
goods which are not specifically identified but
are indicated by description.
 Future Goods: As per Sec. 2(6), it means
goods to be manufactured or produced or
acquired by the seller after making the contract
of sale.
 Contingent Goods: It means the goods the
acquisition of which by the seller depends upon
a contingency which may or may not happen.
 Agreement to sell can only be there in respect
of future or contingent goods.
 Actual sale can take place only in respect of
specific goods.
 Goods are said to be in a deliverable state,
when they are in such a condition that the
buyer would, under contract, be bound to take
delivery of them.
 Delivery: It means voluntary transfer of
possession by one person to another.
 Document of Title of Goods: It includes bill of

lading, dock-warrant, warehouse keeper’s
certificate, wharfinger’s certificate or any other
document used in the ordinary course of
business as proof of the possession or control
of goods or authorising or purporting to
authorise either by endorsement or delivery,
the possessor of the document to transfer or
receive goods thereby represented.
 Property: It means the general property and
not merely a special property.
 Insolvent: Person is said to be insolvent when
he ceases to pay his debts in the ordinary
course of business.
3. Contract of Sale  In this ownership is transferred immediately to
buyer even though possession of goods is with
seller.
 As per Section 4(1) of the Sale of Goods Act,
1930,
“Contract of sale of Goods is a contract
whereby the seller transfers or agrees to
transfers the property in goods to the buyer for
a price”.
4. Essential  There must be atleast two parties. (Bilateral
Elements Contracts)
 The subject matter of the contract must be
goods.
 A price in money should be paid or promised.
 A transfer of property in goods from seller to
the buyer must take place.
 It must be absolute or conditional.
 All other essentials of a valid contract must be
present.
5. Sale As per Section 4(3) of the Act, “Where under a

contract of sale the property in the goods is
transferred from the seller to the buyer, the contract
is called a sale”.
6. Agreement to As per Section 4 (3) of the Act, “Where under a
Sell contract of sale the transfer of the property in the
goods is to take place at a future time or subject to
some condition thereafter to be fulfilled, the
contract is called an agreement to sell”.
7. Formalities of  There may be immediate delivery of goods
Contract of Sale  There may be immediate payment of price, but
it may be agreed that the delivery is to be
made at some future date.
 There may be immediate delivery of the goods
and an immediate payment of price.
 It may be agreed that the delivery or payment
or both are to be made in installments.
 it may be agreed that the delivery or payment
or both are to be made at some future date.
8. Subject Matter of As per Sec. 6 —
Sale  Subject matter must always be goods which
may be existing or future goods.
 Contract can also be made with regard to the
goods, the acquisition of which by seller
depends upon a contingency, which may or
may not happen. Such contracts are
contingent contracts.
 When the seller purports by his contract to
effect a sale of future goods, the contract will
operate only as an agreement to sell the goods
and not as sale.
9. Destruction of  Goods Perishing before Making a Contract

Subject Matter of (Sec. 7):
Sale  The contract is void ab initio.
 If seller enters into the contract even on
being aware of the destruction, he is
estopped from disputing the contract.
 It also includes the goods that have lost
their commercial value.
 Goods Perishing after Agreement to Sell
(Sec. 8):
 Agreement becomes void.
 Provided the risk has not passed to the
buyer.
 It applies only to sale of specific goods.
10. Price  Price means monetary consideration for the

sale of goods.
 It may be money actually paid or promised to
be paid.
 No sale can take place without a price.
11. Ascertainment of As per Sec. 9 —

Price  Price may be:
(i) Fixed by a contract.
(ii) Agreed to be fixed in a manner provided by
the contract, or
(iii) Determined by the course of dealings
between the parties.
 When it cannot be fixed in any of above ways,
the buyer is bound to pay a reasonable price to
the seller.
 Generally Market Price would be the
Reasonable Price:
As per Sec. 10 —
 Price is to be determined by third party.
 Where there is an agreement to sell goods on
the terms that the price is to be fixed by third
party, and he either does not or cannot make
such valuation, the agreement will be void.
 If the third party is prevented by the default of
either party from fixing the price, the party at
fault will be liable to the damages to the other
party who is not at fault.
12. Stipulation  Before concluding a contract of sale, certain

statements are made by the contracting
parties.
 Statement may be stipulation — one by seller
on the reliance of which the buyer makes the
contract.
 Statement may not be a stipulation — if it is a
mere recommendation by seller thus, does not
give rise to any action.
 “A stipulation or a representation in a
contract of sale with reference to goods which
are the subject thereof, may be a condition or
a warranty.”
13. Warranty  “A warranty is a stipulation collateral to the
main purpose of the contract, the breach of
which give rise to a claim for damages but not
a right to reject the goods and treat the contract
as repudiated.”
As per Sec. 11, —
 Stipulation as to time of payment are not the
condition unless such an intention appears
from the contract.
14. Circumstances  Where the buyer waives the performance of

when Condition the condition altogether, the party may for his
may be Deemed own benefit, waive a stipulation.
as Warranty  Where the buyer himself opts to treat the
breach of condition as a warranty.
 Where the contact is non-severable and the
buyer have accepted either the whole goods or
any part thereof.
 Where the fulfillment of any condition or
warranty is excused by law by reason of
impossibility or otherwise.
15. Types of Express Condition:
Conditions  Condition is expressed when the terms of
contract expressly states them.
 They are agreed upon between the parties at
the time of contract and are expressly provided
in the contract.
 It does not negativate an implied condition.
Implied Condition:
 Condition is implied, when the terms are not
expressly provided for.
 They are presumed by law to be present in the
contract.
 They may be neglected or waived by an
express agreement.
 It Includes:
(i) Condition as to title.
(ii) Condition as to sale by description.
(iii) Condition as to sale by sample as well as
description.
(iv) Condition as to quality and fitness.
(v) Condition as to merchantability.
(vi) Condition as to sale by sample.
(vii) Condition as to wholesomeness.
16. Condition as to  It presumes that the seller has a valid title to

title [Sec. 14(a)] the goods.
 Seller has a right to sell the goods in case of
sale.
 In case of agreement to sell, he will have the
right to sell the goods at the time when the
property is to pass, unless there is a contract to
the contrary.
 If seller’s title turns out to be defective, the
buyer may return the goods to the true owner
and recover the price from the seller.
17. Condition as to  Here, the implied condition is that the goods
Sale by must correspond with the description.
Description  The buyer is not bound to accept and pay for
(Sec. 15) the goods which are not in accordance with the
description of goods.
 The buyer relies for his information on the
description of the goods given by the seller.
18. Condition as to Here, the implied condition is that the bulk of goods
Sale by Sample supplied must correspond with both the sample and
as well as Descri- the description.
ption (Sec. 15)
19. Condition as to  Here the implied condition operates on the
Quality and fulfilment of following conditions:—
Fitness (i) The buyer requires the goods for a
[Sec. 16(1)] particular purpose which he has made
known to the seller.
(ii) The buyer relies on the skill and judgement
of the seller.
(iii) The seller sells such type of goods.
 If the goods are bought under a patent or trade
name, there is no such condition.
20. Condition as to  It means that when the goods are bought by

Merchantability description from a seller who deals in such
[Sec. 16 (2)] goods, it is implied that goods will be of
merchantable quality.
 It is immaterial, whether the seller is
manufacturer or producer or not.
 It does not operates where the buyer examines
the goods prior to the sale and examination
ought to have revealed the defects.
21. Condition as to In case of eatables and other provisions, there is

Wholesomeness an implied condition of wholesomeness i.e. fit for
consumption, other than merchantability.
22. Condition as to  There is an implied condition that:—

Sale by Sample (i) The bulk shall correspond with the sample
(Sec. 17) in quality,
(ii) The buyer shall have a reasonable
opportunity of comparing the bulk with the
sample.
(iii) The goods shall be free from any defect
rendering them unmerchantable, which
would not be apparent on reasonable
examination of the sample.
23. Doctrine of  It means ‘let the buyer beware’ i.e. buyer

Caveat Emptor purchases the goods at his own risks.
 When the seller display the goods in open
market, it is for the buyers to make a proper
selection of goods.
 If the goods turn out to be defective, he cannot
hold the seller liable.
 As per Sec. 16,

“Subject to the provisions of this Act, or any
other law for the time being in force, there is no
implied warranty or condition as to the quality
or fitness for any particular purpose of goods
supplied under a contract of sale.”
24. Transfer of Title  Sec. 27:

by Non - Owner The general rule is where goods are sold by a
person who is not the owner thereof and who
does not sell them under the authority or with
the consent of the owner, the buyer acquires
no better title to the goods than that the seller
had.”
 This rule is expressed in the Latin maxim
“Nemo dat quod non habet” which means
that no one can give what he has not got. i.e.
no one can pass a better title than he himself
has-
 Even a bonafide buyer gets no valid title.
 Exceptions to the above rule:
(i) Effect of estoppel.
(ii) Sale by a mercantile agent.
(iii) Sale by joint owner.
(iv) Sale by person in possession under a
voidable contract.
(v) Sale by seller in possession after sale.
(vi) Sale by buyer in possession after sale.
(vii) Sale by an unpaid seller.
(viii) Sale by person under other laws.
25. Mode of Delivery Actual/Physical:

Good are physically handed over to buyer or his
authorised agent
Constructive:
Possession of goods is changed without any actual
change in their custody
Symbolic:
Goods are not delivered physically but some
symbol carrying real possession or control is
handed over
26. Unpaid Seller  As per Sec. 45,
Seller is deemed to be an unpaid seller, when:
(i) Whole of the price has not been paid or
tendered and seller had an immediate right
of action for the price.
(ii) A bill of exchange or other negotiable
instrument was given as payment, but the
same has been dishonoured, unless this
payment was an absolute and not a
conditional payment.
Rights of Unpaid Seller Against Goods:
 Right of lien or retention.
 Right of stoppage in transit.
 Right of resale.
 Right to withhold delivery.
27. Auction Sales  It is a mode of selling property by inviting bids
(Sec. 64) publically and the property is sold to the
highest bidder.
 It is a public sale where goods are offered to be
taken by bidders.
 Auctioneer is only an agent of seller.
 Following rules apply —
(i) When goods are put up for sale in lots,
each lot is treated to be the subject of a
separate contract of sale.
(ii) Sale is complete when the auctioneer

announces its completion by fall of
hammer or in another customary manner.
(iii) Right to bid may be reserved expressly
by or on behalf of seller.
(iv) If such right is not reserved, it is not
lawful for the auctioneer knowingly to
take any bid from seller.
(v) Sale may be notified to be subject to a
reserve or upset price.
(vi) If seller makes use of pretended bidding
to raise the price, sale is voidable at the
buyer’s option.
SHORT NOTES
2008 - Dec [4] (a) Write explanatory notes on:

(iii) Rights of the unpaid seller; (4 marks)
(v) Sale and agreement to sale; (4 marks)
Answer :
(iii) Rights of the unpaid seller : The credit sales are indispensable to
any business and non payment of debts is an inseparable part of
credit sales. The seller who has not received full payment against the
goods sold by him must have certain rights and remedies to recover
or reduce the loss being suffered by him. The Sale of Goods Act has
elaborate provisions regarding the rights of unpaid seller.
By virtue of Section 45, the seller of goods is unpaid seller (i) when
the whole price has not been paid or tendered (ii) when the legal
instrument received by him as conditional payment has not been
honoured.
An unpaid seller has the following rights as per the Sale of Goods Act.
1. Right of lien (lien means control, right to possess, right to
retain) (Section 47) : The unpaid seller has a lien on the goods for
the price while he is in possession, until the payment or tender of
the price. A lien is a right to retain possession of goods until
payment of the price. He is entitled to lien in the following three
cases, namely:
(i) Where goods have been sold without any condition of credit;
or
(ii) Where goods have been sold on credit but the terms of credit
has expired, or
(iii) Where the buyer becomes insolvent.
The seller can exercise the lien although he holds the goods
as the agent or bailee for the buyer.
Where an unpaid seller has made part delivery of the goods,
he may exercise his right of lien on the remainder, unless such
part delivery has been made under such circumstances as to
show an argument to waive the lien.
2. Right of Stoppage in transit (Section 50) : The unpaid seller has
the right of stopping the goods in transit after he has parted with
their possession to a carrier, in case of insolvency of buyer,
The right is exercisable by the seller only if the following conditions
are fulfilled:
(i) The seller must be unpaid;
(ii) He must have parted with the possession of goods;
(iii) The goods must be in transit;
(iv) The buyer must have become insolvent;
(v) The right is subject of provisions of the Act.
3. Right of re-sale (Section 51) : When the goods are of a
perishable nature, the unpaid seller may re-sell the goods without
giving any notice to the buyer.
(v)
S.N. Sale Agreement to sale
1 Property in goods or title of goods Property in goods or title of goods
is transferred immediately to the is to be transferred to buyer at a
buyer. future date after fulfilling some
conditions.
2 By the very nature, It always It refers to existing as well as
refers to the existing and specific future goods.
goods.
3 If price is not paid, the seller can If price is not paid, the seller has
re-sale, stop the goods in transit. sole option of filing a suit for
damages, because the possession
of goods is already with the buyer.
4 Relates to present sale of present Relates to present or future sale of
goods. present or future goods.
5 Buyer becomes owner and the Ownership is with the seller, the
risk is associated with the owner. risk is associated with the seller
even if the goods are in
possession of buyer.
6 If the buyer has paid the price and In such cases, the buyer cannot
the seller becomes insolvent claim the goods but can only claim
thereafter, the buyer can claim the relief related to money paid by
goods from the official receiver. him.
7 If the ownership of goods is In such case, the seller can refuse
transferred to the buyer before to deliver the goods to the official
paying the price, and the buyer receiver.
becomes insolvent, the seller has
to deliver the goods to the official
receiver.
2009 - June [4] (a) Write explanatory note on:
(v) Seller's lien. (4 marks)
Answer :
Sellers lien : The unpaid seller of goods who is in possession of goods is
entitled to retain possession of such goods until payment or tender of the
price in the following cases viz.
(a) Where the goods have been sold without any stipulation as to credit.
(b) Where the goods have been sold on credit but the term of credit had
expired.
(c) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as an agent or bailee for the buyer.
2009 - Dec [3] (a) Write short note :

(i) Termination of lien; (4 marks)
Answer :
Termination of Lien : Lien has not been specified in the question. It is taken
as lien of unpaid seller. The unpaid seller loses his lien on the following
conditions : (i) when he himself agrees to terminate or waive his lien for
example when he extends the period of credit; (ii) When the buyer or his
agent lawfully obtains possession of goods (iii) when the seller
unconditionally delivers the goods as per directions of the buyer. It should be
noted that if the seller has obtained a decree for the price of goods, it does
not mean that his lien is lost.
2010 - June [3] (a) Write short note :

(ii) Right of resale (4 marks)
Answer :
Right of Resale :
 If the seller has not received the payment from the buyer, he is called
unpaid seller.
 The unpaid seller has the right to resell those goods provided he gives
proper notice to the buyer in this regard.
 The buyer should be given reasonable time to pay the balance amount
and if he fails to pay, unpaid seller may resell the goods and he also has
right to recover the damages occurred to him by breach of contract, from
the buyer.
 If such notice has not been given, the unpaid seller has no right to
recover the damages from the original buyer nor he (unpaid seller) has
any right over the profit arising out of such sale.
 The second buyer gets the good title after such resale. The seller can
retain any profit on account of such sale.

(ii) Exceptions to ‘implied condition as to quality or fitness’. (4 marks)
Answer :
Exceptions to 'implied conditions as to quality and fitness':
(i) If the buyer has examined goods, there shall be no implied conditions.
(ii) If the buyer has examined goods, he should be vigilant and all defects
should be noted by him during the examination. There shall be no
implied conditions for such defects which can be noticed with such
examination.
(iii) If the goods bear trade name of any company, there shall be no
implied conditions on the part of the seller as to quality and fitness.

(iv) Termination of lien (Sale of Goods Act) (4 marks)
Answer :
Termination of lien unpaid seller of goods loses his lien in following case:
(a) When he delivers the goods to carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the
goods.
(b) When the buyer or his agent lawfully obtains possession of the goods.
(c) By waiver thereof, which means the seller has himself terminated the lien
on his own.
(d) By estoppel when a person himself makes other believe that he is the
owner/ buyer by his conduct and surrounding circumstances.
The unpaid seller of goods, having a lien thereon, does not lose his lien by
reason only that he has obtained a decree for the price of the goods.
2011 - Dec [4] (a) Write short note on:

(ii) Transfer of Property of Unascertained Goods; (4 marks)
Answer :
Unascertained goods or future goods are manufactured as per the
description decided by the seller and the buyer. The buyer inspects the
manufactured goods and selects goods of his choice and keeps them
separately. This process of selection of goods is also called ascertainment.
As per Section 18 of sale of goods act, the property or right of goods passes
to the buyer only after he has ascertained the manufactured good.

(i) Future Goods; (4 marks)
Answer :
Future Goods:
 According to the Sale of Goods Act, It is implied condition of sale that
only owner can sell the goods.
 It is expressed in the Latin phrase as ' Nemo dat quod non habet.' which
means that ''none can give who does not himself possess.''
 There is one exception to this rule in case of future goods.
 Future goods mean goods to be manufactured or produced or acquired
by the seller after the making of contract of sale.
 As rule, any person may sell or offer for sale goods of which he is not
the owner at present, but which he expects to acquire in due course of
time.
 A contract to sell oil not yet extracted from the refineries owned by him
or not yet obtained from pressing of seeds in his possession is a
contract for sale of future goods.
 Any contract for present sale of future goods, constitutes as an
agreement to sell.
Specific Goods:
 These are the goods which are specifically identified and agreed upon
at the time when contract of sale is drawn and executed.
 It is essential that the goods must be identified and separated from the
other goods at the time when the contract of sale is made.
 Merely an identification of goods does not make it specific goods.
 For example, in a case of sale of one horse out of a lot of 25 horses,
goods shall be specific if the horse is selected before the contract of sale
is made.
 Here it is important to note that all horses are horses but they cannot be
exactly similar to each other.
Therefore, it is imperative to select the horse out of the lot as specific goods.

(v) Termination of lien of unpaid Seller. (4 marks)
Answer :
Please refer 2011 - June [4] (a) (iv) on page no. 141

(ii) Damping (Sale of Goods Act) (4 marks)
Answer :
Damping: Some bidders may do something to discourage the other bidders
for bidding. Damping is illegal practice because it is intended to reduce the
bidding price. The seller or the auctioneer can withdraw goods from auction
if he smells of damping in the auction sale.
DISTINGUISH BETWEEN
2010 - Dec [4] (b) (ii) Distinguish between ‘condition’ and ‘warranty’ (Sale of
Goods Act). (4 marks)
Answer :
Distinguish between Condition and Warranty
Condition Warranty
Contract becomes invalid and void if Contract remains valid even if
condition is not satisfied. warranty is not satisfied.
It is essential for the contract. It is not essential but desirable in
the contract. It is collateral
(additional security) to the main
contract.
Condition can be treated as Warranty can not be treated as
warranty by the buyer. condition by the buyer.
It can be waived (ignored) by law if It can also be waived by law if found
found impossible. impossible.
In dispute, what is condition, is In dispute, what is warranty, is
decided by interpretation of the decided by interpretation of the
term. term.
2008 - Dec [3] (a) What will be the consequences when goods are sold by
a person not the Owner and without Owner’s consent. (4 marks)
Answer :
The buyer gets no title of goods because the seller has no title of goods sold
by him. However, if the owner has by his conduct not denied the seller’s
authority to sell, the sale would be treated as valid.
provisions:
(a) An hirer, who obtains possession of a car from its owner under a hire
purchase agreement, sells the car to a buyer who buys in good faith and
without notice of the right of the owner. The buyer gets good title to the
car. (2 marks)
Answer :
According to the Sale of Goods Act, It is implied condition of sale that only
owner can sell the goods. It is expressed in the Latin phrase as ' Nemo dat
quod qui non habet.' which means that ''none can give who does not himself
possess.'' A hirer is not the owner of the goods and does not posses title of
the goods. Since sale involves transfer of ownership and a hirer, being a
non-owner, cannot transfer ownership in the given case, buyer shall not get
a good title.
2009 - June [3] (d) In an auction sale. a bid once made can be withdrawn by
the bidder. Comment citing rules. (2 marks)
(e) Stipulation as to time of payment is deemed to be essence of a contract
of Sale. Comment. (2 marks)
(g) When property passes to the buyer under 'goods on approval' or 'on sale
or return'? (2 marks)
Answer:
(d) In the case of sale by Auction, the sale is complete only when the
auctioneer announces its completions by the fall of a hammer or in other
customary manner and until such announcement is made any bidder
may retract/withdraw his bid.
(e) Unless the terms of the contract show a different view and intention,
stipulation as to time of payment is not deemed to be of essence of a
contract of sale. Whether any other stipulation as to time of the essence
of the contract or not, depends on the terms of the contract. If the time
and manner of payment have been outlined in the contract, time of
payment becomes essence of contract.
(g) When goods are delivered to the buyer on approval or on sale or return
or other similar terms the property therein passes to the buyer ;
(a) When he signifies his approval or acceptance to the seller.
(b) If he does not signify his approval or acceptance to the seller but
retains the goods, without giving notice of rejection then if a time has
been fixed for the return of goods on the expiration such time, and
if no time have been fixed on the expiration of reasonable time.
provisions:
(d) Sale and Agreement to sale are same. (2 marks)
Answer :
No. They are not same. In sale the consideration moves with the sale at the
present date while in agreement to sale the consideration will move at a
future date when the sale would take place.
2010 - June [2] (d) An exchange of goods for goods is a sale. Comment with
Rule position. (2 marks)
(e) When sale is complete in an Auction sale. (2 marks)
Answer :
(d) Exchange of goods with goods is not sale, but it is called barter
exchange. Sale is defined in Sale of Goods Act as transfer of property
in goods for a price.
(e) Auction sale is complete when the auctioneer announces the completion
in any formal manner e.g. by falling the hammer.
2011 - June [2] (g) "Only the owner of goods can transfer a good title-none
else" but there are some exception. Can you cite at least 2 such exceptions
with detailed provision. (4 marks)
Answer :
 According to the Sale of Goods Act, It is implied condition of sale that
only owner can sell the goods. It is expressed in the Latin phrase as
'Nemo dat quod qui non habet.' which means that ''none can give who
does not himself possess.''
 There is one exception to this rule in case of future goods. Future goods
means goods to be manufactured or produced or acquired by the seller
after the making of contract of sale.
 As rule, any person may sell or offer for sale goods of which he is not the
owner at present, but which he expects to acquire in due course of time.
 A contract to sell oil not yet extracted from the refineries owned by him
or not yet obtained from pressing of seeds in his possession is a contract
for sale of future goods. Any contract for present sale of future goods,
constitutes as an agreement to sell. There are many examples, some of
them are given below:
(i) Sale by mercantile agent : (mercantile means commercial or
trade). The commercial agent of owner can sell the goods on behalf
of owner though the commercial agent is not the owner of goods.
The buyer gets valid title on goods purchased from agent.
(ii) Sale by one of the joint owners : The goods can be sold by any of
joint owners provided that the joint owners give permission in this
regard.
(iii) Sale by seller who is in possession of goods after sale.
(iv) Sale by unpaid seller, sale by finder of goods, sale by official
receiver or liquidator.
(v) Sale by pawnee,
2011 - June [3] (c) What are the essentials of a contract of Sale?
(4 marks)
Answer:
Essentials of contract of sale:
1. There must be at least two parties - buyer and seller. Since a person can
not buy from and sell to himself.
2. Transfer or Agreement to transfer, the ownership of goods.
3. Subject matter of goods must necessarily be goods.
4. The consideration is price i.e. money. Goods received against goods is
not a sale but it is called barter.
5. A contract of sale may be unconditional or conditional.
6. All other essentials of a valid contract must be present i.e. parties of
contract must be competent to enter into contract, consent of parties
shall be free, object shall be lawful and so on.
2012 - June [3] (b) A seller may deliver goods to a carrier with a right of
disposal. Comment. (2 marks)
Answer :
Yes, the seller may do so. In such case, he does not lose the right of lien u/s
46(1)(a) of The Sale of Goods Act, 1930, even though the seller has parted
with the possession of goods.
2012 - Dec [2] (f) In an auction sale a bid once given cannot be withdrawn.
Do you agree? (2 marks)
Answer :
Any bid once made can be withdrawn at any time before the completion of
the auction. When auction is completed and finished, the final bid which is
accepted cannot be withdrawn.
2012 - Dec [3] (a) A non owner cannot make a valid Transfer of Goods.
Answer with Rule position. (4 marks)
Answer :
Please refer 2011 - June [2] (g) on page no. 147
(c) Parties to a contract of sale can get the price of goods fixed by third
parties. (2 marks)
Answer:
Agreement to sell at valuation:
 Sometimes the goods to be sold is such that either the seller or the
buyer is not able to determine and decide its price.
 In such cases both the parties make a contract that value of goods will
be determined or valued by a third party who is expert in such field.
 Thus there is an agreement to sell goods on the terms that the price is
to be fixed by valuation of third party.
 The third party should have no interest in the contract except for fixation
of price.
 If that third party does not fix the price because of any reason of its own,
the contract becomes void for non fixation of price consideration.
 If the buyer has taken or used any part of goods or the whole goods, the
buyer should pay a reasonable price, what is reasonable price will
depend on facts and figures of each case.
2013 - June [4] (d) (i) Transfer of Title to goods takes place when it is
intended. Whether it is correct? (2 marks)
Answer :
 It should be noted that transfer of property in goods is distinct and
different from delivery or possession of goods. The property may pass
from the seller to buyer even without delivery of goods.
 It is elementary (basic) law of contract that parties may fix the time when
the property (ownership) in goods shall be deemed to have passed.
 It may be at the time of delivery of goods, or it may be at the time making
final payment or even at the time of making of goods.
 The seller can sue for price only when the property in goods has passed
to the buyer.
2013 - Dec [4] (b) In case of auction sales, auctioneers has some implied
obligations. State such obligations. (4 marks)
Answer :
Yes, obligations are:
(i) He has authority to sale goods.
(ii) He warrants that he does not know any defects in the title of the
principal.
(iii) He undertakes to give possession of the goods against price paid.
(iv) He guarantees quiet possession of goods by the purchases.
2013 - Dec [6] (b) A non owner can convey a better title to the bonafide
purchaser of goods for value in certain cases. List out those cases.
(6 marks)
Answer :
Sale by person not the owner:
 Where goods are sold by a person who is not the owner thereof and who
does not sell them under the authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller had, unless
the owner of the goods is by conduct precluded the seller's authority
from denying the seller's authority to sell.
 Generally the owner alone can transfer property in goods "nemo dat
quod non habet" means that no one can give what he himself does not
have.
 It means a non owner cannot make valid transfer of property in goods.
 If the title of the seller is defective, the buyer's title will also be subject to
same defect. If the seller has no title, the buyer does not acquire any title
although he might have acted honestly and might have acquired the
goods after due payment. This rule is to protect the real owner of the
goods.
 Though this doctrine seeks to protect the interest of real owners, but in
the interest of the trade and commerce there must be some safeguard
available to a person who acquired such goods in good faith for value;
accordingly the Act provides the following exceptions to this doctrine
which seeks to protect the interest of bonafide buyers.
(i) Sale by mer- Where a mercantile agent is, with the consent of
c a nti l e a ge nt the owner, in possession of the goods or of a
(Section 27) document of title to the goods, any sale made by
him, when acting in the ordinary course of business
of a mercantile agent, shall be as valid as if he
were expressly authorized by the owner of the
goods to make the sale, provided that the buyer
acts in good faith and he has not noticed at the
time of the contract of sale that the seller has no
authority to sell.
(ii) Sale by one of lf one of several joint owners of goods has the sole
j o i n t o w n e r s possession of the goods by permission of the
(Section 28) co-owners, the property (means ownership) in the
goods is transferred to any person who buys them
of such joint owner in good faith and has not at the
time of the contract of sale noticed that the seller
has no authority to sell. Where there is a contract
for the sale of unascertained goods, no property in
the goods is transferred to the buyer unless and
until the goods are sanctioned.
(iii) Sale by person in When the seller of goods has obtained possession
p o s s e s s i o n thereof under a contract voidable under Section 19
under voidable or 19A of the Indian Contract Act, 1872, but the
contract (Section contract has not rescinded at the time of the sale
29) the buyer acquires a good title to the goods,
provided he buys them in good faith and without
notice of the seller's defect of title.
(iv) Seller or buyer in Where a person, having sold goods, continues or
possession after is in possession of the goods or of the documents
sale (Section 30) of title to the goods, the delivery or transfer by that
person or by a mercantile agent acting for him of
the goods or documents of title under any sale,
pledge or other disposition thereof to any person
receiving the same in good faith and without notice

of the previous sale shall have the same effect as
if the person making the delivery to transfer were
expressly authorized by the owner of the goods to
make the same.
(v) Sale by estoppel Where the owner by his conduct or omission, leads
(Section 27) the buyer to believe that the seller has authority to
sell, he is estopped from denying the fact
afterwards. The buyer thus gets a better title than
the seller.
(vi) S a l e b y a n In addition to the exceptions discussed above
unpaid seller which are provided in various sections of the Sale
after exercising of Goods Act, the following exceptions are
his right of lien or provided in other Acts like Contract Act, Civil
stoppage in Procedure Code etc.
transit
(a) Sale by a Under Section 169 of the Contract Act, if a finder
finder of lost of lost goods could not reasonably find the true
goods owner or the true owner refuses to pay the lawful
charges of the finder of lost goods, the finder of lost
goods can sell the goods when the goods are
perishable in nature or when the lawful charges of
the finder of lost goods amounts to 2/3rd of its
value.
(b) S a l e b y Under Section 176 of the Indian Contract Act, a
pawnee pawnee can sell the goods under certain
circumstances with due notice to the owner.
(c) S a l e b y In case of insolvency of any individual his official
o f f i c i a l receiver or liquidator of a company can sell the
receiver or goods and buyer thereof gets good title to it.
assignee
(d) Execution of Under order 21 of the Civil Procedure Code, officer

Sale of Court may sell goods and convey good title to
the buyer inspite of the fact that the officer of Court
is not the true owner of the goods.
2014 - June [3] (c) Under what circumstances breach of condition is treated
as breach of warranty under the provisions of The Sale of Goods Act, 1930?
(4 marks)
Answer :
According to Section 13 of the Sale of the Goods Act,1930 a breach of
condition may be treated as breach of warranty in the following circumstances:
(i) Where a contract of sale is subject to any condition to be fulfilled by
the seller, the buyer may waive the condition.
(ii) Where the buyer elects to treat the breach of condition as breach of a
warranty.
(iii) Where the contract of sale is non-severable and the buyer has
accepted the whole goods or any part thereof.
(iv) Where the fulfillment of any condition or warranty is excused by law,
by reason of impossibility or otherwise.
2014 - Dec [2] (e) (ii) Abhishek contracts to sell Bhusan, by showing sample,
certain quantity of tea described as ‘Best quality Darjeeling tea. The tea
when delivered matches with the sample, but it is not Darjeeling tea.
Referring to the provisions of Sale of Goods Act, 1930 advise the remedy,
if any, available to Bhusan. (3 marks)
Answer :
Sale by sample is described in Sec. 17 of the Sale of Goods Act, 1930.
A contract of sale is a contract for sale by sample where there is a term in
the contract, express or implied, to that effect. In the case of a contract for
sale by sample there is an implied condition-
• That the bulk shall correspond with the sample in quality.
• That they shall have a reasonable opportunity of comparing the bulk with
the sample.
• That the goods shall be free from any defect, rendering them
un-merchantable, which would not be apparent on reasonable
examination of the goods.
In a contract for sale of brand by sample, Bhusan is entitled to return the tea
and claim refund of money as there is breach of condition.
2016 - June [2] (b) (iii) State your views on the following:
(a) Consideration for sale of goods must be in terms of money.
(b) In an auction sale, a bid once made can not be withdrawn by the bidder.
(2 marks each)
Answer :
(a) Correct: It is one of the essentials of the contract of sale, that price must
be paid in terms of money.
(b) Incorrect: The bidder can withdraw his bid any time before the fall of the
hammer i.e., completion of sale.

(a) (iii) What are the consequences of ‘destruction of goods’ under the Sale
of Goods Act, 1930, where the goods have been destroyed after the
agreement to sell but before the sale is affected. (4 marks)
Answer:
Destruction of Goods-Consequences:
(i) As per Section 7, a contract for the sale of specific goods is void if at
the time when the contract was made; the goods without the
knowledge of the seller, perished or become so damaged as no longer
to answer to their description in the contract. The rule is based on
ground of mutual mistake or impossibility of performance, which is one
of the essentials of a valid contract.
(ii) Section 8 provides that an agreement to sell specific goods becomes
void if subsequently the goods, without any fault on the part of the
seller or buyer, perish or become so damaged as no longer to answer
to their description in agreement before the risk passes to the buyer.

This rule is also based on the ground of impossibility of performance
as stated above.
It may, however, be noted that Section 7 and 8 apply only to specific
goods and not to unascertained goods. If the agreement is to sell a
certain quantity of unascertained goods, the perishing of even the
whole quantity of such “goods” in the possession of the seller will not
relieve him of his obligation to deliver the goods.
2017 - Dec [3] (a) What do you understand by “Caveat-Emptor” under the
sale of Goods Act, 1930? What are the exceptions to this rule? (8 marks)
Answer:
As per Sec. 16 of the Sale of Goods Act, the buyer is supposed to satisfy
himself about the quality of goods he purchased and is also charged with the
responsibility of seeing that the goods suit the purpose for which they were
purchased by him. Later on if the goods does not turn out to be as per his
purpose, the seller cannot be asked to compensate him. This is based on the
famous doctrine of CAVEAT EMPTOR which means ‘let the buyer beware’.
However, there are some exceptions to this which are as under:
(a) Where the buyer, expressly or by implication, makes it known to the
seller the particular purpose for which the goods are required, so as to
show that the buyer relies on the seller’s skill or judgment, and the goods
are of a description which is in the course of the seller’s business to
supply (whether he is the manufacturer or producer or not), there is an
implied condition that the goods shall be reasonably be fit for such
purpose. However, in the case of a contract for the sale of a specified
article under its patent or other trade name, there are no implied
conditions as to its fitness for any particular purpose.
(b) Where goods are bought by description from a seller who deals in goods
of that description (whether he is the manufacturer or producer or not),
there is an implied condition that the goods shall be of merchantable
quality. However, if the buyer has examined the goods, there shall be no
implied conditions as regards defects which such examination ought to
have revealed.
In order to apply the implied condition as to merchantability the following
requirements must be satisfied.
(i) the seller should be dealer in goods of that description;
(ii) the buyer must have not opportunity to examine the goods or there
must be some latent defect in the goods which would not be
apparent on reasonable examination of the same.
It may be noted the term merchantability has not been defined in the Act.
As per English Sale of Goods Act, goods of any kind are merchantable
quality if they are as fit for the purpose or purposes for which goods of
that kind are commonly brought as it is reasonable to expect having
regard to any description applied to them, the price and all other relevant
circumstances.
(c) An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade. In some cases the
purpose for which the goods are required may be ascertained from the
acts and conducts of the parties to the sale or from the nature of the
description of the article purchased. For example if a hot water bottle is
purchased, the purpose for which it is purchased is implied in the thing
itself. In such a case the buyer need not tell the seller the purpose for
which the bottle is purchased. Similarly if a thermometer is purchased in
common usage, the purpose of thermometer is well known, the buyer
need not tell the seller.
(d) An express warranty or conditions does not negative a warranty or
condition implied by this Act unless inconsistent therewith.
PRACTICAL QUESTIONS
2009 - June [2] (b) Mr. A agreed to purchase 100 bales of cotton from 'B'
from his large stock. 'A' sent his men to take delivery of cotton. On
completion of packing of only 70 bales, there was accidental fire and entire
stock including packed 70 bales were destroyed. There was no Insurance
cover. Who will bear the loss? (2 marks)
(g) State the rights and liabilities of 'A' in the following cases :
(iii) An Auctioneer advertised in a newspaper that a sale of office
furniture will be held at Kolkata on 29.11.2009. 'A' came from New
Delhi to buy the furniture but the auction was cancelled. Whether 'A'
can a file a suit against the auctioneer for his loss of time and cost.
(2 marks)
Answer :
(b) Since 70 bales were ascertained and appropriated, property in those 70
bales were transferred to A. Hence A is liable for 70 bales only and B is
liable for remaining stock.
(g) (iii) A can not file a suit against the Auctioneer for his loss of time and
cost because the Advertisement was merely a declaration of
intention to hold Auction. Advertisement is not an offer but it is an
invitation to offer. Moreover there was no agreement between A and
the party.
provisions :
(f) Mr. Sham agrees to sell Mr. Ram 10 bags of wheat out of 100 bags lying
in his godown for ` 10,000. Wheat is completely destroyed by fire. Mr. Ram
cannot compel Mr. Sham to supply wheat as per contract. (2 marks)
Answer :
True: Mr. Sham cannot supply the wheat as it is destroyed and the subject
matter of agreement is no longer in existence. Moreover Mr. Ram cannot
compel Mr. Sham to supply the agreemented specific goods as the goods
are destroyed without any fault on the part of seller.
2009 - Dec [2] (b) Mr. Sham orders on Mr. Ram to deliver certain goods at
Mumbai. While the goods are lying at Mumbai Rly. Station, Station Master
informs Mr. Sham that the goods are held at station at Mr. Sham’s risk, but
Mr. Sham became insolvent. Has Mr. Ram has any right as an unpaid
seller ? (2 marks)
Answer :
 The goods have reached its destination and are in the possession of
station master who is supposed to deliver goods to Mr. Sham.
 The station master is bailee of Mr. Sham the buyer and not of Mr. Ram
the seller.
 An unpaid seller can stop the goods in transit in the event of buyer's
insolvency.
 This right has been lost by the seller as the goods are no longer in transit.
2009 - Dec [4] (e) Mr. Ram gives some diamonds to Mr. Sham on “sale or
return” basis. On the same day, Mr. Sham gives those diamonds to Mr. Jadu
on “sale or return” basis. Those diamonds were lost from Mr. Jadu on the
same day, who will bear the loss? (2 marks)
Answer :
While giving diamonds to Mr. Jadu, Mr. Sham behaved like owner of
diamonds. As he becomes the owner, he should bear the loss and make
payments to Ram. Loosing of diamonds by Jadu does not establish his
ownership, hence he will not bear the loss.
2010 - June [4] (a) Mr. Roy give Mr. Ghosh on hire, a horse for his own
riding but Mr. Ghosh drives the horse in his carriage. What action Mr. Roy
can take? (2 marks)
Answer :
This is contract of bailment. Mr. Ghosh has not followed the conditions of
bailment and his action to use the horse in his carriage in not as per the
terms of bailment. It is now up to Mr. Roy to continue with or terminate the
bailment.
2010 - Dec [1] {C} Comment on the following based on legal provision:
(b) Mr. X accepted certain Goods of Mr. Y for delivery at Durgapur. When
the driver of the truck which was carrying the Goods went for lunch, the
Goods were stolen. There was no insurance. Mr. Y has no remedy.
(2 marks)
Answer :
Mr. X is bound to deliver goods at Durgapur or return it back to Y. He does
neither hence Y can claim damages from X. Y can file a suit against X.
Goods were stolen because of fault of X as he did not make arrangements
for its safety when driver went for food. To get the goods insured was also
part of duty of X when he accepted the contract with Y. Y has all rights to
claim damages.
2010 - Dec [2] (e) Mr. Bose settled the price after selecting two chairs. He
arranges to take delivery of chairs next day and agrees to pay next month.
Said chairs were destroyed by fire before delivery. Seller demanded the
price. Mr. Bose refused. State legal position. (2 marks)
Answer :
Mr. Bose should pay the price. When the goods were specified by Bose and
price was also settled, the contract was complete and the title of chairs was
passed to Bose from the seller. Those chairs were kept as reserved for Bose
and the seller was simply keeping the custody of the chairs on behalf of
Bose. The seller is entitled to demand and receive the price of chairs.
2010 - Dec [4] (b) (i) Ramen sold 50 Kg. of rice to Khagen who paid by
cheque and Ramen gave the delivery order to Khagen. Khagen resold such
rice to Bhaben who purchased on good faith and for consideration. Khagen’s
cheque was dishonoured. Ramen refused to deliver rice to Bhaben on the
plea of non-payment. Advise Bhaben. (2 marks)
Answer :
According to the Sale of Goods Act, It is implied condition of sale that only
owner can sell the goods. It is expressed in the Latin phrase as ' Nemo dat
quod qui non habet.' which means that ''none can give who does not himself
possess.'' Bhaben cannot claim delivery of goods because Khagen cannot
sell what he does not have. Khagen right on rice is invalid because his
cheque was dishonoured and he was not owner of rice when he sold the
rice to Bhaben.
2011 - Dec [1] {C} Comment on the following based on legal Provision:
(d) A stock of bark was sold at an agreed price per tonne. The bark was to
be weighed by the agent of seller as also by the buyer for ascertainment
of price. A part of the bark was weighed and carried away by the buyer's
agent on 12.11.11. On 13.11.11, the remaining stock was swept away
by flood. Who will bear the loss and why ? (2 marks)
Answer :
Goods must be ascertained for property in goods to be transferred to buyer.
(Sec. 18 of Sale of Goods Act, 1930). The loss of the remaining stock be
borne by the seller as the property in the remaining stock was not passed
because the required weighing was not completed.
2011 - Dec [2] (c) Mrs. Kamini purchased a tin of standard quality kerosene
oil from a dealer of repute. When part of the kerosene was put to use in a
stove for cooking, an explosion occurred causing damage. Mrs. Kamini
claims damages from the dealer who refuses to pay damages. Offer your
views based on provisions of sale of Goods Act. (4 marks)
Answer :
Section 16 of the sale of goods act states that goods sold should be capable
of being used for the purpose for which it has been sold. Kerosene oil should
be capable of being used as fuel which was not so in the present case.
Kamini shall be entitled to receive back the price as well as compensation for
the loss.
2011 - Dec [3] (c) Mr. Ambika an agent of a buyer obtained goods from
Railways and loaded such goods on his truck on 02.11.11. In the meantime,
the Railways received a Notice from the seller (i.e. consignor) for stopping
goods in transit as the Buyer became insolvent. Referring to the provisions
of the Sale of Goods Act, 1930 decide whether the Railways can stop goods
in transit as instructed by the seller ? (2 marks)
(d) Mr. Paul sold to Mr. Ray certain quantity of foreign refined palm oil
warranted equal to sample. The samples consisted of palm oil mixed
with vegetable oil. The oil tendered corresponds with the sample but it
was not such as is known in market as foreign refined palm oil. Mr. Ray
wants to reject the oil on the ground that the oil supplied was not in
accordance with the foreign refined palm oil. Advise Mr. Ray. (2 marks)
Answer :
(c) As the goods are not in possession and control of the railways, they can
not stop goods in transit because they (railways) have already given
goods to Ambika. It is Ambika who can stop the goods in transit because
the goods are loaded in truck as per instruction of Ambika.
(d) Mr. Ray can reject the goods. In case of sale by sample as well as by
description, goods must not only correspond to sample but also to
description i.e. foreign refined palm oil. (Section 15 of the Sale of
Goods Act, 1930)
No amount of exemption clauses can compel a person to buy a thing
different from contracted to buy.
2012 - June [2] (e) As per order, Mr. Malhotra sent some goods to Mr. Paul
at Kolkata through Rail. The Station Superintendent of Howrah Station
informed Mr. Paul that goods are held at the Station at Paul’s risk and cost.
In the mean time, Mr. Paul became insolvent. Mr. Malhotra wants to enforce
right as an unpaid seller. Advise. (2 marks)
(f) Ashim Sells 1600 kgs. of wheat out of large quantity lying in his godown
forwarded to Bablu. Out of these, Bablu sells 600 kgs. to Chandan
(wheat yet to be ascertained). Then Chandan the delivery order signed
by Bablu to Ashim who confirmed that wheat would be despatched in
due course. Bablu then becomes insolvent. Ashim refused to deliver to
Chandan. Advice Chandan based on rules. (3 marks)
(h) Mr. Batliboi bought 50 kgs. of potato against cash payment from Mr.
Joshi under a Contract of Sale but half of consignment was rotten and
Mr. Joshi refused to change the rotten potato nor refunded the value.
Advise Mr. Batliboi. (3 marks)
Answer :
(e) The goods has reached its destination and the seller Malhotra has no
right of stoppage in transit as the transit is over at Kolkata. Paul has
become insolvent hence he cannot make any payments. Malhotra
cannot act as an unpaid seller because the buyer is not capable of
making any payment.
(f) Ashim can not refuse to deliver 600 kgs. of wheat to Chandan. Sec. 53
of The Sale of Goods Act, 1930 provides that seller (i.e. Ashim) loses his
right of lien, if he has assented to the sale to a subsequent buyer. By
giving assent to Chandan, Ashim has lost his right of lien.
(h) The seller should deliver the potatoes in good condition which he has not
done. The buyer has right to ask for good quality and correct quantity of
potatoes. As per Sale of Goods Act 1930, the seller should pay for the
rotten potatoes.
The quantity indicates that food stuff was not for personal consumption
and for commercial purposes. Hence Mr. Joshi cannot take the plea of
''implied condition of fitness''. The doctrine of 'Caveat Emptor' would
apply and Mr. Joshi does not have a case.
2012 - Dec [1] {C} Comment on the following based on legal provision:
(g) ‘A’, the buyer ordered a patent smoke consuming furnace by its Patent
name for his brewery on ‘B’. Furnace received was however found to be
unsuitable for the purpose. Hence seller is responsible. (2 marks)
Answer :
The seller is not responsible because he has supplied the goods as per the
orders and specifications of buyer. If the buyer could not use the goods for
his purpose, it is not the failure of seller. Buyer should have been careful
while giving the order for the goods, whether such goods would serve his
purpose or not.
2012 - Dec [4] (b) Mr. Barun tells Mr. Tarun in presence of Mr. Arun that he
is the Agent of Arun who maintains silence instead of denying Barun’s
statement. Later on Barun sells Arun’s Goods to Mr. Tarun. Arun now
disputed Barun’s title to the goods, as Barun was not Agent of Arun. Explain
whether Arun is right. (2 marks)
Answer :
In this case Arun cannot dispute Tarun’s ownership title to the goods.
Sec. 27 of Sale of Goods Act provides that where the owner by his conduct
or omission, leads the buyer to believe that the seller has right and/or
authority to sell, he is stopped from denying the fact afterwards. The buyer
thus gets better title than the seller. This is case of sale by estoppels.
2013 - June [1] {C} Comment on the following based on legal provision:
(g) Mr. 'A' purchased a Refrigerator from Mr. 'B' on "hire purchase
agreement" expiring on 31.12.15. Mr. 'A' sold on 01.05.13 that
Refrigerator to 'C' who purchased against adequate consideration. 'A'
has right to give good title to Mr. C. (2 marks)
Answer :
Under Hire Purchase Agreement, the ownership passes to buyer only on
payment of last installment. The hirer under hire purchase system, has no
title to the refrigerator therefore Mr. A cannot give a good title to Mr. C. This
is because Mr. C. does not get a better title than Mr. A had.
2013 - June [2] (c) M/s. wholesaler agreed to supply 1000 Pcs. of Cotton
Shirt to M/s. Retailer at INR 300 per shirt by 31.05.2013. On 01.02.2013 M/s.
Wholesaler informs the Retailer that he is not willing to supply the shirt as the
price of shirt increased to INR 350 each. Examine the right of M/s. Retailer.
(2 marks)
(g) Mr. Malhotra sold 1000 kgs. of rice to Mr. Basu who delayed in taking
the rice from Mr. Malhotra. In the meantime Mr. Malhotra sold those rice
to Mr. Roy who took the delivery for value & without notice of prior sale.
Hence Mr. Roy has no good title of ownership to goods — Comment.
(2 marks)
Answer :
(c) On 01.02.2013 M/s Wholeseller indicated his unwillingness to supply
cotton shirt @ 300/- per shirt although there is time up to 31.05.2013 for
performance of the contract.
It is therefore called anticipating breach of contract. In such case M/s.
Retailer can claim damages. M/s Wholeseller may treat the contract as
subsisting and wait till the date of delivery or he may treat the contract
as rescinded and claim damages for breach.
(g) Where Mr. Malhotra having sold goods continues in possession thereof
or documents of title to the goods, the delivery by such seller i.e., Mr.
Malhotra will pass a good title to Mr. Roy, since Mr. Roy acted on good
faith and without notice of the previous sale by paying the value
(Sec. 30)  Where however Mr. Malhotra keeps the goods as Mr. Basu's
bailee, this section shall not apply (Sec. 30)
 In these circumstances Mr. Roy can sue Mr. Malhotra
2013 - Dec [2] (b) Raman instructed Soman, a transporter, to send a

consignment of apples to Mumbai. After covering half a distance, Soman
found that the apples will perish before reaching Mumbai. Hence, he sold the
same at a half the market price. Raman sued against Soman. Will he
succeed? (3 marks)
Answer :
Agent’s Authority in an emergency: As per Section 189 of the Indian
Contract Act, 1872.
 An agent has the authority in an emergency to do all such acts as man
of ordinary prudence (means carefulness, wisdom)would do for
protecting his principal from losses which the principal would have done
under similar circumstances.
 A typical case is where the agent handling perishable goods like 'apples'
can decide the time, date and place of sale, not necessary as per
instructions of the principal, with the intention of protecting the principal
from losses.
 Here the agent acts in an emergency and act as a man of ordinary
prudence.
 In the given case, Soman had acted in an emergency situation and
Raman will not succeed against him.
2014 - June [4] (b) Mr. Z bought a refrigerator from a dealer’s shop. But he
did not mention the required purpose i.e., whether it is fit to make ice. After
using the same, Mr. Z came to know that the refrigerator was unfit for the
purpose. State giving reasons as per the provisions of The Sale of Goods
Act, 1930, is the dealer liable to refund the price? (4 marks)
Answer:
As per the Rule of Implied Condition, [Sec. 16 (1)]: There is no implied
condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale. In other words, the buyer must satisfy
himself about the quality as well as the suitability of the goods. This is
expressed by the maxim caveat emptor (let the buyer beware). But there is
exception to this rule of Condition as to Quality or Fitness: There is an
implied Condition that the good shall be reasonably fit for a particular
purpose described if the three conditions are satisfied:
(i) The particular purpose for which goods are required must have been
disclosed (expressly or impliedly) by the buyer to the seller.
(ii) The buyer must have relied upon the seller’s skill or judgment.
(iii) The seller’s business must be to sell such goods.
Note: This condition cannot be invoked against a casual seller. In the
given case, Mr. ‘Z’ bought a refrigerator from a dealer’s shop. But he did
not mention the required purpose i.e. whether it is fit to make ice. After
using the same Mr. ‘Z’ came to know that the refrigerator was unfit for the
purpose. The dealer is liable to refund the price because refrigerator was
unfit for the purpose for which it was meant for and the buyer was not
required to disclose this particular purpose. (Evens v. Stelle Benjamin).
2014 - Dec [2] (a) (i) Makhan, seeing a mobile phone in a showcase of a
shop which was marked for sale for ` 2,000, enters the shop, places ` 2,000
on cash counter and told to give him displayed mobile. Shop owner refused.
Can the shop owner refuse to sale the displayed mobile? (3 marks)
Answer :
 Price quotations and price tags do not amount to an offer but are only an
invitation to an offer.
 Therefore, Makhan’s picking up the mobile with price tag of ` 2,000/-
amounts to an offer by Makhan to purchase the same at that price.
 It remains to be accepted by the seller- the salesman at the cash counter
of the mobile store, to result in a concluded contract. The salesman has
every right to accept or refuse the offer.
Thus, Makhan shall have no remedies.
2014 - Dec [2] (b) (iii) Lalit delivered sarees valuing ` 50,000 to Rohit on
‘Sale or Return Basis’. Rohit further delivered these sarees to Sumit and
Sumit to Mohit on the same terms and conditions. Subsequently, these
sarees were burnt by fire while in the custody of Mohit. Lalit filed a suit
against Mohit for the recovery of the price, with reference to provisions of the
Sale of Goods Act, 1930, examine whether Lalit’s suit for the price shall be
maintainable. (4 marks)
Answer :
In case of sale of goods on 'sale or return' basis the property in goods
passes from the seller to the buyer in any of the following circumstances as
per provisions given under Section 24 of the Sale of Goods Act, 1930:
(a) When he (buyer) signifies his approval or acceptances to the seller;
(b) Where he does any act adopting the transaction, i.e., sells or pledges
the goods to a third party and,
(c) Where he retains the goods, without giving notice of rejection, beyond
the time fixed for the return of goods or beyond a reasonable time
(where no time is fixed).
Thus, in the given problem, Rohit is deemed to have accepted the sarees by
further transaction to Sumit and Sumit is deemed to have accepted the
sarees by further transaction to Mohit. The ownership is thus vests on Sumit
till Mohit approves or does any act adopting the transaction. In the meantime
the sarees are burnt from the custody of Mohit, and it is assumed that Mohit
has handled the sarees with due care.
Hence the loss should fall on Sumit, because at present he is the owner and
risk being associated with ownership unless otherwise agreed between the
parties.
2014 - Dec [2] (d) (i) RK sells 200 bales of clothes to SK and sends 100
bales by lorry and 100 bales by Railway. SK receives delivery of 100 bales
sent by lorry, but before he receives the delivery of the bales sent by railway,
he becomes bankrupt. RK being still unpaid, stops the goods in transit. The
official receiver, on SK’s insolvency claims the goods. Decide the case with
reference to the provisions of the Sale of Goods Act, 1930. (4 marks)
Answer :
Section 50, of Sale of Goods Act, states that, subject to the provisions of
this Act, when the buyer of goods becomes insolvent, the unpaid seller who
has parted with the possession of the goods has the right of stopping them
in transit, that is to say, he may resume possession of the goods as long as
they are in course of transit and retain them until payment of tender of the
price.
Hence the major rules applicable would be:
(a) The seller must be unpaid
(b) He must have parted with the possession of goods
(c) The goods must be in transit
(d) The buyer must have become insolvent
Applying the above provisions in the given case, we may conclude that RK
being unpaid, can stop the 100 bales of cloth sent by railway as these goods
are still in transit and SK has become insolvent.

(a) (ii) With a view to boost the sales, M/s ABC Ltd. sells a new machine to
Mr. B on trial basis for a period of three days with a condition that if
Mr. B is not satisfied with the performance of the new machine, he
can return back the new machine. However, the machine was
destroyed in a fire accident at the place of Mr. B before the expiry of
three days. Decide whether Mr. B is liable for the loss suffered under
Sale of Goods Act, 1930. (3 marks)
Answer:
 The problem as asked in the question is based on the provisions of the
Sale of Goods Act, 1930 as contained in Section 8.
 Where there is an agreement to sell specific goods and subsequently the
goods without any fault on the part of the seller or buyer perish or
become so damaged as no longer to answer to their description in the
agreement before the risk passes to the buyer, the agreement is thereby
avoided.
 In the given case that the subject matter of the contract i.e., new
machine was destroyed before the transfer of property from the seller to
the buyer. Thus the risk passes only when the ownership is transferred
to the buyer.
 Therefore, in the present case Mr. B is not liable for the loss suffered
due to the fire accident over which B has no control.
 Thus M/s. ABC Ltd. will have to bear whatever loss that has taken place
due to the fire accident.
2015 - Dec [2] Answer the questions:

(a) (ii) For the purpose of making uniform for the employees, Amit bought
dark blue coloured cloth from Bhagat, but did not disclose to the
seller the purpose of said purchase. When uniforms were prepared
and used by the employees, the cloth was found unfit. However,
there was evidence that the cloth was fit for caps, boots and carriage
lining. Advise Amit whether he is entitled to have any remedy under
the Sale of Goods Act, 1930? (3 marks)
(b) (ii) Mahendra made a hire-purchase agreement with Narendra for a car
of which Narendra was described as the owner. Mahendra paid four
of the twelve monthly instalments and then learnt that Jitendra
claimed to be the owner of the car. He nevertheless paid the
balance of instalment and exercised his option to purchase. Jitendra
then demanded the car and Mahendra gave it up to him. Mahendra
then sued Narendra to recover the full price and Narendra counter
claimed for a reasonable sum as hiring charges for the car during
the period it was with Mahendra. Decide. (3 marks)
Answer:
(a) (ii)  As per the provision of Section 16(1) of the Sale of Goods Act,
1930, an implied condition in a contract of sale is that an article
is fit for a particular purpose only arises when the purpose for
which the goods are supplied is known to the seller, the buyer
relied on the seller’s skills or judgement and seller deals in the
goods in his usual course of business.
 In this case, the cloth supplied is capable of being applied to a
variety of purposes, the buyer should have told the seller the
specific purpose for which he required the goods. But he did not
do so.
 Therefore, the implied condition as to the fitness for the purpose
does not apply.
Hence, the buyer will not succeed in getting any remedy from the
seller under the Sale of Goods Act [Jones v. Padgett. 14 Q.B.D.
650].
(b) (ii)  The “Nemo dat quod non habet” rule protects the true owner
(Jitendra) and the buyer (Mahendra) who was aware of
Narendra’s defective rights after paying the fourth installments,
would not get any right or title out of his ineffective hire purchase
agreement with Narendra.
 Because Narendra was neither owner nor an authorized person
to put the car on hire purchase and for the same reason, he is not
entitled to receive any money under the agreement.
 However, Mahendra may be asked by Jitendra to pay a
reasonable rent for the use of the car and Mahendra can recover
the amount paid by him to Narendra.

(e) (iii) Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry
and 100 bales by Railway. Shyam receives delivery of 100 bales
sent by lorry, but before he receives the delivery of the bales sent by
railway, he becomes bankrupt. Ram being still unpaid, stops the
goods in transit. The official receiver, on Shyam’s insolvency claims
the goods. Decide the case with reference to the provisions of the
Sale of Goods Act, 1930. (5 marks)
Answer :
Section 50 of the Sale of Goods Act, states that, subject to the provisions
of this Act, when the buyer of goods becomes insolvent, the unpaid seller
who has parted with the possession of the goods has the right of stopping
them in transit, that is to say, he may resume possession of the goods as
long as they are in course of transit and retain them until payment of tender
of the price.
Hence the major rules applicable would be:
(a) The seller must be unpaid
(b) He must have parted with the possession of goods
(c) The goods must be in transit
(d) The buyer must have become insolvent
Applying the above provisions in the given case, we may conclude that Ram
being unpaid, can stop the 100 bales of cloth sent by railway as these goods
are still in transit.

(c) (ii) A delivered some diamonds to B on sale or return basis. B delivered
the diamonds to C and C to D on similar terms. The diamonds were
stolen while in the custody of D. Who shall suffer the loss?
(5 marks)
(d) (iii) X buys synthetic pearls for a high price thinking that they are natural
pearls. The seller though understood X’s intention, kept silent.
Examine the remedies X has against the seller as per the Sale of
Goods Act, 1930. (3 marks)
Answer:
(c) (ii) In this case, B has adopted the transaction by delivering the
diamonds to C and thus is liable to pay the price to A. Similarly C
has adopted the transaction by further delivery to D and thus is liable
to pay the price to B. As between C and D, the transaction was still
of sale or return which was not adopted by D, either expressly or
impliedly, and thus the ownership had not passed to D at the time of
loss. Therefore, C shall suffer the loss of diamonds.
(d) (iii) X has no remedy against the seller as the doctrine of Caveat
Emptor will apply:
“Caveat emptor” means “let the buyer beware”, i.e. in sale of goods
the seller is under no duty to reveal unflattering truths about the
goods sold. Therefore, when a person buys some goods, he must
examine them thoroughly. If the goods turn out to be defective or do
not suit his purpose, or if he depends upon his skill and judgment
and makes a bad selection, he cannot blame anybody excepting
himself.
The rule is enunciated in the opening words of Section 16 of
the Sale of Goods Act, 1930 which runs thus, “Subject to the
provisions of this Act and of any other law for the time being in force,
there is no implied warranty or condition as to the quality or fitness
for any particular purpose of goods supplied under a contract of
sale”.
2018 - June [3] (a) M/s. Tea Enterprises agreed to supply 2,200 Kgs. of Tea
to M/s. Gopal Enterprises at `1200/- per Kg. by 30th April, 2018 . On 1st
March, 2018 M/s. Tea Enterprises informs Gopal Enterprises that they are
not willing to supply the Tea as the price of Tea increased to `1400/- per Kg.
Examine the right of M/s. Gopal Enterprises. (8 marks)
Answer:
In terms of the provisions of Sections 32 and 33 of the Sale of Goods Act,
1930; unless otherwise agreed, delivery of the goods and payment of the
price are concurrent conditions, that is to say, the seller shall be ready and
willing to give possession of the goods to the buyer in exchange for the price,
and the buyer shall be ready and willing to pay the price in exchange for
possession of the goods.
Rights of the Buyer according to the Sale of Goods Act, 1930 include:
(1) To have delivery of the goods as per contract. (Sections 31 and 32);
(2) To sue the seller for recovery of the price, if already paid, when the seller
fails to deliver the goods;
(3) To sue the seller for damages if the seller wrongfully neglects or refuses
to deliver the goods to the buyer (Sec. 57);
(4) To sue the seller for specific performance;
(5) To sue the seller for damages for breach of a warranty or for breach of
a condition treated as breach of a warranty (Sec. 59);
(6) To sue the seller the damages for anticipatory breach of contract
(Sec. 60)
In the instant case M/s. Gopal Enterprises can exercise any of his rights
discussed above.

1 Write short notes on Termination of lien (Sale of
Goods Act)
09 - Dec [3] (a) (i), 11 - June [4] (a) (iv),
12 - Dec [4] (a) (v) 3 Times
8 NEGOTIABLE INSTRUMENTS
ACT, 1881
 Concepts and Definitions  Dishonour of a Negotiable
 Acceptance, Assignment and Instrument
Negotiation  Crossing, Endorsement and
 Rights & Liabilities of Parties Material Alteration
Legend

6.174
[Chapter  8] Negotiable Instruments Act, 1881 O 6.175
CHAPTER AT A GLANCE

1. Negotiable  It is an “instrument which is transferable, by
Instruments delivery, like cash, and is also capable of being
sued upon by the person holding for time being.
 As per the Section 13(1) of the Act,
“A negotiable instrument means a promissory
note, bills of exchange, or cheque payable
either to order or to bearer.”
2. Conditions of (i) It should be freely transferable.
Negotiability (ii) Defective title of transferor does affects the
title of person taking it for value and in good
faith.
(iii) Transferee can sue upon the instrument in his
own name.
3. Negotiability (i) Transferability free from equities.
Involves two (ii) Transferability by delivery or endorsement.
Elements
4. Effects of  General principal of law says:
Negotiability “Nemo Dat Quad Non-Habet” i.e. no one can
pass a better title than he himself has.
 Negotiable instrument is an exception to above
rule.
 Thus, a bonafide transferee of negotiable
instrument without notice of any defect of title
acquires a better title than that of transferor.
5. Characteristics  Holder is presumed to be the owner of the

property contained therein.
 It is a written document.
 It should be signed.
 Payable to bearer or order.
 It is unconditional.
 It may be transferred by endorsement and
delivery.
 Transferee obtains a good title.
These are freely transferable but can be transferred
only till maturity and in case of cheque till it becomes
stale (i.e. Three months from the date of issue)
6. Classification  Bearer
 Order
 Inland
 Foreign
 Demand
 Time
 Ambiguous
 Inchoate/Incomplete.
7. Promissory  As per Sec. 4 of the Act,
Note Promissory note is,
“an instrument in writing containing an
unconditional undertaking signed by the maker
to pay a certain sum of money only to or to the
order of a certain person, or to the bearer of the
instrument”.
 Parties:
1. Maker — person making or executing it.
2. Payee — person to whom note is payable.
3. Holder — person to whom it is endorsed.
4. Endorser.
5. Endorsee.
8. Essentials of 1. It must be in writing.

Promissory 2. The promise to pay must be unconditional.
Note 3. The amount promised must be certain and a
definite sum of money.
4. The instrument must be signed by the maker.
5. The person to whom promise is made must be
a definite person.
6. It must contain an express promise or a clear
undertaking to pay.
7. Payment must be in the legal money of the
country.
8. It must be properly stamped as per the
provisions of Indian Stamp Act.
9. Name of place, member and date on which it is
made must be contained in it.
10. Should contain the sum payable which is certain
and must not be capable of contingent additions
or deletions.
9. Bill of Exchange  As per Sec. 5 of the Act,
Bill of exchange is,
“an instrument in writing containing an
unconditional order signed by a maker, directing
a certain person to pay a certain sum of money
only to or to the order of certain person or to the
bearer of an instrument.”
 Parties:
1. Drawer: The party who draws a bill.
2. Drawee: The party on whom such bill is
drawn.
3. Acceptor: The drawee of the bill who has
signified his assent to the drawer’s order.
4. Payee: The party to whom or to whose
order, the amount of bill is payable.
5. Endorser: The party who endorsers the bill.

6. Endorsee: The party to whom it is
endorsed.
7. Holder: Person entitled in his own name to
the possession of bill and to receive or
recover the amount due thereon from the
parties.
8. Drawee in Case of a need: When in the bill,
the person whose name is entered, in
addition to the drawee, to be resorted to in
case of need.
9. Acceptor for Honour: Person who offers
better security for safeguarding the honour
of drawer or any endorser, accepts the bill.
10. Essentials of 1. It must be in writing.
Bill of Exchange 2. There must be an order to pay.
3. The order must be unconditional.
4. The drawee must sign the instrument.
5. The drawer, drawee and payee must be
specified in the instrument.
6. The sum must be certain.
7. The medium of payment must be money and
money only.
11. Types of Bills (a) Inland bills: Bills drawn in India for any person in
India.
(b) Foreign bills: Bills which are not inland bills.
Foreign Bill is drawn in sets of three copies.
(c) Trade bills: Bills issued for trade settlements.
(d) Accommodation bills: Also known as kite bills,
these are used for mutual help. An
accommodation bill is a bill which is drawn,
accepted or endorsed without any
consideration.
12. Cheque  As per Sec. 6 of Act,

“Cheque is a special type of bills of exchange
which is always -
(i) Drawn upon a specified bank and
(ii) Payable on demand.
It also includes electronic image of truncated
cheque or cheque in an electronic form.”
 “A Cheque in the Electronic form” means a
cheque which contains the exact mirror image
of a paper cheque and is generated, written and
signed in a secure system ensuring the
minimum safety, standards with the use of
digital signatures and asymmetric crypto
system.
 “A Truncated Cheque” means a cheque which
is truncated during the course of clearing cycle,
either by clearing house or by bank, preventing
the further physical movement of cheque.
 “Clearing House” refers to the clearing house
managed or recognised by RBI.
 It is a kind of bill of exchange, thus must satisfy
all requirements of a bill.
Note: No bill of exchange or hundi except cheque
can be made payable to bearer on demand.
Parties:
All are same as that of B/E, except drawee who is a
banker.
13. Essentials of 1. It is always paid on demand.
Cheque 2. It is drawn on a specified banker.
3. It does not requires acceptance.
4. It may be payable to drawer himself or to bearer
on demand.
5. It is usually valid for 3 months.
6. It can be drawn on a bank where drawer has an

account.
7. No stamp is required.
8. Banker is only liable to drawer.
14. Banker  Person doing the banking work.
 As per Sec. 5(b) of the Banking Regulation Act,
1949.
Banking refers to,
“Accepting for the purpose of lending or investment,
of deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque,
draft or otherwise.”
15. Customer Person who has an account with the bank or who
utilises the bank services.
16. Rights and  Honour customer’s cheques.
Obligations of  Collect cheques and drafts on customer’s
Banker behalf.
 Keep proper record of transactions with
customers.
 Not to disclose customer’s account status with
anyone, etc.
 Give reasonable notice to the customer before
closing his account.
 Right to claim incidental charges as per the
rules of bank.
17. Liabilities of  Liable to the customer to the extent of amount
Banker of the account opened.
 Liable to honour customer’s cheques to the
extent of amount in his account.
 Liable to compensate the drawer for any loss or
damage suffered if he fails to honour cheques
without justification.
 Liable to maintain proper and accurate accounts

of credits and debits.
 Liable to honour cheque presented in due
course.
18. Cases when  Banker receives notice of customer’s insolvency
Banker must or lunacy.
refuse Payment  When customer countermands payment.
 If legal order from the Court attaching or
otherwise dealing with money in banker’s hand
is served on banker.
 Banker receives notice of customer’s death.
 Customer gives notice to the banker to close the
account.
 Customer gives notice of assignment of his
credit balance.
19. Cases when the  Cheque is undated.
Banker may  It is stale i.e. not presented for payment within a
refuse Payment reasonable period. (3 months)
 It is inchoate or not free from reasonable doubt.
 It is post dated and presented before its
ostensible period.
 If customer’s fund in banker’s hand are not
properly applicable to the payment of cheque
drawn by former.
 Where the cheque is presented at a branch
other than the one where the customer has the
account.
 It is not duly presented.
 It is mutilated.
 It is irregular or materially altered.
 Customer’s signature does not agree with his
specimen signatures.
20. Crossing of  Cheque is either open or crossed.

Cheque Open Cheque:
Can be presented by payee to the paying banker
and is paid over the counter.
Crossed Cheque:
It is not paid over the counter but has to be collected
through a banker.
 When two parallel lines are drawn on the upper
left corner of cheque, it is known as crossing of
cheque.
 It is a direction to the paying banker that the
cheque should be paid only to a banker or a
specified banker.
 It is done as a measure of safety.
21. Modes of (i) General Crossing:
Crossing  When two parallel lines are drawn and
nothing is specified in between them.
 Amount will be directly credited to account
of payee.
 Payee cannot get money over the counter.
 It prevents the money from going in wrong
hands.
(ii) Restrictive Crossing:

 When the words ‘A/c Payee’ are specified
within the crossing.
 Cheque cannot be further negotiated.
 Collecting banker will be guilty of
negligence if he credits the proceeds to
account other that of A/c payee.
 It does not affects the paying banker.
(iii) Special Crossing:

 When the name of a particular bank is
specified between the crossed lines.
 Amount can be collected only by the bank
whose name is specified.
(iv) Not - Negotiable Crossing:

 When the words ‘not - negotiable’ is
specified between the crossed lines.
 It enhances the safety as it ensures
protection from any misappropriation.
 As per Sec. 130,
“A person taking a cheque crossed
generally or specially bearing in either case,
with the words ‘not - negotiable’ shall not
have and shall not be capable of giving, a
better title to the cheque than that which the
person from whom he took it had.”
 It does not mean non - transferable.
 It provides protection to the drawer or
holder of a cheque who wants to transfer it
against dishonesty or actual miscarriage in
the course of transmit.
22. Holder (Sec. 8)  Person must be named in the instrument.

 It implies ‘de jure’ i.e. holder in law and not ‘de
facto’ i.e. holder in fact.
23. Holder in Due  It means any person who obtains the

Course (HDC) instrument-
(Sec. 9) (i) Before maturity.
(ii) For some consideration.
(iii) In good faith.
24. Privileges of  An inchoate instrument, if properly stamped, is
HDC valid, if it subsequently comes in hands of HDC.
 In case of inchoate instrument, HDC has a right
to recover that much amount which is
sufficiently covered by stamp.
 The acceptor of a bill of exchange cannot plead
against a HDC that the bill is drawn in fictitious
name.
 The person liable on an instrument cannot plead
against HDC that the instrument has been lost
or was obtained by means of fraud or unlawful
means.
 No one can deny the original validity of the
instrument.
 No one can deny against a HDC, the capacity of
the payee to endorse.
 HDC can recover from all prior parties.
 No effect of conditional delivery.
25. Bank Draft  It is an order drawn by an office of a bank upon
another office of same bank.
 It is different from cheque in following 3 ways:
(i) It cannot be easily counter manned.
(ii) It cannot be made payable to bearer.
(iii) It can be drawn only by one branch of bank
upon another branch.
26. Material  Any alteration made in the instrument which

Alteration causes it to speak a different language from
(Sec. 87) what it originally intended or which changes the
legal identity of the instrument in its terms or in
relation or parties there to is a material
alteration.
 It alters the parties liabilities.
 It renders the instrument void.
 Persons taking the altered instrument after its
alteration have no right to complain.
 However, as per Sec. 88, an acceptor or
endorser remains bound by his acceptance or
endorsement.
 E.g.: Sum payable, interest rate, date of
payment etc.
 Following cases do not result in material
alteration:
(i) Alteration made with consent of parties
before issue.
(ii) Crossing of cheque.
(iii) Adding words “on demand”.
(iv) Correction of any mistake.
(v) Carrying out common intention of parties.
27. Liability of  By accepting and delivering it before maturity,
Endorser he undertakes the responsibility that on the
(Sec. 35) presentment it shall be accepted and paid.
 If it is dishonour by drawee, acceptor or maker,
he will identify the holder or subsequent
endorser who is compelled to pay, provided due
notice of dishonour is received by him.
 However, he may make his liability conditional.
28. Negotiation  When a negotiable instrument is transferred to

(Sec. 14) a person, so as to make the person the holder
of the instrument, the instrument is said to be
negotiated. It may be by -
(i) Mere Delivery.
(ii) Endorsement and Delivery.
29. Assignment  It is a mode of transferring the instrument which
requires a written document. Under this, the
instrument is transferred like goods, by deed
that is under a contract.
30. Endorsement  It refers to “signing ones name on the

(Sec. 15) negotiable instrument for the purpose of
transferring it to another person.”
 If there is no space on the instrument, it may be
made on a slip of paper attached to it known as
“Allonge.”
 Endorsee is the person to whom the instrument
is endorsed.
 Endorsement therefore means writing
something on the back of an instrument for the
purpose of transferring the rights, title and
interest to some other person.
31. Kinds of  Blank/General
Endorsement  Special/Full
 Restrictive
 Partial
 Conditional/Qualified.
32. Hundis  It is an instrument drawn in an oriental language
i.e. local language.
 Known as native bill of exchange.
They were also called ‘Teep’
33. Types of Hundis  Shah Jog Hundi

 Jokhmi Hundi
 Jawabee Hundi
 Nam Jog Hundi
 Darshani Hundi
 Miadi Hundi
 Dhani Jog Hundi
 Firman Jog Hundi
SHORT NOTES

(ii) Inchoate instrument (NI Act) (4 marks)
Answer :
Inchoate Instrument (NI Act):
 An inchoate (means incomplete, unclear, tentative) instrument is one
which is an incomplete instrument, for example, one not mentioning the
amount payable, or leaving blank the name of the payee, or one without
date.
 When a person gives to another person a blank signed instrument and
stamped paper, the latter may convert it into a negotiable instrument by
filling the blanks. When the instrument is so filled up, the signer becomes
liable in the capacity in which he signs.
 The liability of the signer is restricted to the amount specified therein but
not exceeding the amount covered by the stamp.
 But no person other than a holder in due course shall recover from the
person delivering the instrument anything in excess of the amount
intended by him to be paid thereunder. (Section 120).
2008 - Dec [3] (b) Maker of a cheque is not liable under N.I. Act for
dishonour of cheque under certain conditions. State such conditions.
(3 marks)
Answer :
Maker of the cheque is not liable under the following conditions under the NI
Act.
 If the cheque is not presented to the bank within the validity of the
cheque.
 Where the cheque is issued not for the purpose of discharge of any debt
or any other liability. A cheque given as gift or for any other purpose or
reason but not for satisfaction of any debt and/or liability.
2010 - June [4] (g) What is negotiation? (2 marks)

Answer :
Negotiable means transferable on delivery. When an instrument i.e.
promissory note, bill of exchange or cheque is transferred to any person to
make him holder, the instrument is said to be negotiated.
2011 - Dec [2] (f) Bill of Exchange dated 1st February, 2011 payable two
months after date-was presented to the maker for payment 10 days after
maturity. What is the date of maturity ? (2 marks)
Answer :
Section 23 of the N.I. Act provides that the maturity of a bill of exchange or
a promissory note is the date at which it falls due. Section 22 states that
normally 3 days of grace period is allowed also.
In this case, the date of maturity of the bill is 4th April 2011 provided it is not
Sunday or Public Holidays (1st April + 3 days).
(c) There are in total two parties to a Promissory Note. (2 marks)
Answer :
The statement is False. There are Five Parties to a promissory note viz.
(1) The maker : The person who makes the “Note” promising to pay the
amount stated therein.
(2) The Payee: The person to whom the amount of the “Note’ is payable.
(3) The Holder: i.e. either the original payee or any other persons in whose
favour the “Note” has been endorsed.
(4) The endorser: The person who endorses the “Note” in favour of another
person.
(5) The endorsee: The person in whose favour the “Note” is negotiated by
endorsement.
2012 - Dec [3] (d) What is ‘Noting’ (N.I. Act) (4 marks)

Answer :
“Noting” means recording the fact of dishonour by Notary Public upon the
Instrument. “Noting” must contain the following :
(i) The fact of dishonor.
(ii) Date of dishonor.
(iii) Reasons if any, assigned for dishonor.
(iv) If the Instrument is not expressly dishonoured, reasons why the holder
thinks so.
(v) Notary Charges.
2013 - Dec [4] (a) (i) What will be the fate of a “Holder” of negotiable
instrument if he fails to give notice of dishonour to prior parties? (2 marks)
Answer :
If the Holder does not give notice of dishonour of the bill, instrument or
cheque (except when the notice of dishonour is excused,) all the parties
liable thereon are discharged of their liability.)
2014 - Dec [2] (d) (ii) State the circumstances under which the drawer of a
cheque will be liable for an offence relating to dishonour of the cheque under
the Negotiable Instrument Act, 1881. Examine, whether there is an offence
under the Negotiable Instrument Act, 1881, if a Drawer of a cheque after
having issued the cheque, informs the Drawee not to present the cheque as
well as informs the Bank to stop the payment. (5 marks)
Answer :
On dishonour of a cheque the drawer is punishable with imprisonment for a
term not exceeding two years or with a fine not exceeding twice the amount
of a cheque or with both of the following conditions are fulfilled:
(a) if the cheque is returned by the bank unpaid due to insufficiency of funds
in the account of drawer.
(b) If the cheque was drawn to discharge a legally enforceable debt or other
liability in whole or part of it.
(c) If the cheque has been presented to the bank within a period of three
months from the date on which it is drawn on or within the period of its
validity, whichever is earlier.
(d) If the payee or the holder in due course of the cheque has given a
written notice demanding payment within 30 days from the drawer on
receipt of information of dishonour of cheque from the bank.
(e) If the drawer has failed to make payment within 15 days of the receipt of
the said notice. (Section 135)
(f) If the payee or a holder in due course has made a complaint within one
month of cause of action arising under Section 138 (Section 142)
Case Laws: The Supreme Court held in Modi Cements Ltd. Vs. Kuchil
Kumar Nandi held that once a cheque is issued by the drawer, a
presumption under Section 139 follows (i.e. the cheque has been issued for
the discharge of any debt or other liability) and merely because the drawer
issued a notice thereafter to the drawee as to the bank for stoppage of
payment, it will not preclude an action under Section 138. Hence, the drawer
of the cheque will be liable for the offence under Section 138 for dishonour
of cheque.
2014 - Dec [2] (e) (iv) A Bill of exchange dated 1st February, 2014 payable
two months after date was presented to the maker for payment 10 days after
maturity. What is the date of maturity? Explain with reference to the relevant
provisions of the Negotiable Instruments Act, 1881 whether the endorser and
the maker will be discharged by reasons of such delay. (3 marks)
Answer :
The due date of maturity is 4th April (i.e., 3rd day after two months)
Promissory notes, bills of exchange and cheques must be presented for
payment at the due date of maturity to the maker, acceptor or drawee thereof
respectively, by or on behalf of the holder. In default of such presentment,
the other parties to the instrument (i.e., parties other than the parties
primarily liable) are not liable thereon to such holder. If authorized by
agreement or usage, a presentation through the post office by means of a
registered letter is sufficient (Section 64). So, the Endorser is discharged
due to delayed presentment for payment, and the primary party (i.e., Maker
of the instrument) continues to be liable.

(a) (iv) ‘A partial endorsement does not operate as a negotiation of the
instrument’. Explain. (3 marks)
(b) (iii) Amrut draws a cheque payable to ‘self or order’. Before he could
encash the cheque, one of his creditors, Bihari approaches him for
payment. Amrut endorses the same cheque in Bihari’s favour. The
banker refuses payment to Bihari on account of insufficiency of
funds in the account. Can Amrut be made liable to penalties for
dishonour of cheque due to insufficiency of funds in the account
under section 138? (3 marks)
Answer:
(a) (iv)  Section 56 provides that a negotiable instrument cannot be
endorsed for a part of the amount appearing to be due on the
instrument.
 In other words, a partial endorsement which transfers the right to
receive only a part payment of the amount due on the instrument
is invalid.
 Such an endorsement has been declared invalid because it
would subject the prior parties to plurality of actions (one action
by holder for part value and another action by endorsee for part
value) and will thus cause inconvenience to them.
 Moreover, it would also interfere with the free circulation of
negotiable instruments.
 It may be noted that an endorsement which purports to transfer
the instrument to two or more endorsees separately and not
jointly as also treated as partial endorsement and hence would be
invalid.
 Thus, where A holds a bill for ` 2,000 and endorses it in favour of
B for ` 1,000 and in favour of C for the remaining ` 1,000, the
endorsement is partial and invalid.
Section 56, however further provides that where an instrument has
been paid in part, a note to that effect may be endorsed on the
instrument and it may then be negotiated for the balance. Thus, if in
the above illustration the acceptor has already paid ` 1,000 to A, the
holder of the bill, A can then make an endorsement saying “pay B or
order ` 1,000 being the unpaid residue of the bill”. Such an
endorsement would be valid.
(b) (iii)  Section 138 of Negotiable Instrument Act, 1881, creates
statutory offence in the matter of dishonour of cheques on the
ground of insufficiency of funds in the account maintained by a
person with the banker.
 Section 138 of the Act can be said to be falling either in the acts
which are not criminal offense in real sense, but are acts which
in public interest are prohibited under the penalty or those where
although the proceeding may be in criminal form, they are really
only a summary mode of enforcing a civil right.
 Normally in criminal law existence of guilty intent is an essential
ingredient of a crime.
 However the Legislature can always create an offence of
absolute liability or strict liability where ‘mens rea’ is not at all
necessary.
 No, Amrut cannot be made liable to penalties for dishonour of

cheque due to insufficiency of funds in the account since the
cheque was not originally drawn payable to another person.
 A cheque drawn payable to self and later endorsed in favor of
another person dies not seem to fall within the purview of the
provisions of Section 138 which lay down that the cheque should
have been drawn for payment to another person.
2015 - Dec [2] (a) Answer the question:

(iv) “A cheque is a specie of a bill of exchange with two additional
qualifications.” Explain. (3 marks)
Answer:
According to Sec. 6 of Negotiable Instrument Act, “A cheque is a bill of
exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.”
A cheque is a bill of exchange with the following two distinctive features
which are additional qualifications viz. :
(i) A cheque is always on a specified banker.
(ii) A cheque is always payable on demand.
Thus, a cheque is a bill of exchange drawn on a bank payable on demand.
All cheques are bills of exchange, but all bills of exchange are not cheques.
A cheque must have all the essential requisites of a bills of exchange.

(d) (i) State the circumstances under which a banker is bound to refuse the
payment of a cheque. (8 marks)
Answer :
Circumstances when the banker must refuse the payment:
Following are the circumstances in which the banker is bound to refuse the
payment of a cheque:
1. When the customer The term ‘countermand’ means the issue of

has countermanded instruction to the banker not to pay a particular
payment cheque. Thus, where a customer issues
instructions to the banker not to make the
payment of a particular cheque, the banker
must not make the payment. A cheque, the
payment of which is stopped by the customer is
known as a ‘stopped cheque’. And a stopped
cheque is a piece of waste paper in the hands
of payee.
2. When the customer Sometimes, the banker receives notice of
has died customer’s death. In such cases, he must
refuse the payment of the cheque presented
after the notice of death. However, if the
payment is made before the banker receives
the notice of death, the payment is valid and
banker is justified in making such payment.
3. When the customer Sometimes, the banker receive; the notice of
has b e c o m e customer’s insolvency. In such cases also he
insolvent must refuse the payment of the cheques
presented after the notice.
4. When the customer Sometimes, the banker receives the notice that
has become a his customer has become insane. In such cases
person of unsound also, he must refuse payment of the cheque
mind presented after the notice.
5. When a garnishee The term Garnishee order may be defined as a
order has been Court order attaching the balance in customer’s
received by the account. When the banker receives such order
banker then he is bound to refuse the payment of the
customer’s cheque.
6. When the cheque is Sometimes, the drawer informs the banker that
lost a particular cheque is lost. In such cases,
banker must refuse the payment of that cheque.
7. When the account is Sometimes, the customer closes his account
closed and gives notice to the banker. In such cases
that banker must not pay any cheque of the
customer after the closure of the account.
8. When holder’s title is Sometimes, the banker comes to know of any
defective defect in the title of the person presenting the
cheque. In such cases, he must refuse the
payment of the cheque.
9. When a customer In his account, the banker must refuse the
gives notice of payment of cheque.
assignment of credit
balance

(a) (ii) Which are the essential elements of a valid acceptance of a Bill of
Exchange? An acceptor accepts a ‘Bill of Exchange’ but write on it
‘Accepted but payment will be made when goods delivered to me is
sold’. Decide the validity. (7 marks)
Answer:
Essentials of a Valid Acceptance of a Bill of Exchange:
The essentials of a valid acceptance are as follows:
1. Acceptance must The drawee may use any appropriate word to
be written convey his assent. It may be sufficient acceptance
even if just signatures are put without additional
words. An oral acceptance is not valid in law.
2. Acceptance must A mere signature would be sufficient for the

be signed purpose. Alternatively, the words 'accepted' may
be written across the face of the bill with a
signature underneath; if it is not so signed, it would
not be an acceptance.
3. Acceptance must The acceptance should be on the face of the bill
be on the bill normally but it is not necessary. An acceptance
written on the back of a bill has been held to be
sufficient in-law. What is essential is that must be
written on the bill; else it creates no liability as
acceptor on the part of the person who signs it.
4. Acceptance must Acceptance would not be complete and the
be completed by drawee would not be bound until the drawee has
delivery either actually delivered the accepted bill to the
holder or tendered notice of such acceptance to
the holder of the bill or some person on his behalf.
5. Where a bill is Where the drawee signs his acceptance on two or
drawn in sets, more parts, he may become liable on each of them
the acceptance separately.
should be put on
one part only
6. Acceptance may An acceptance is said to be general when the
be either general drawee assents without qualification order of the
or qualified drawer. The qualification may relate to an event,
amount, place, time etc. (Explanation to Section
86 of the Negotiable Instruments Act 1881).
In the above case, the acceptance is a qualified acceptance since a
condition has been attached declaring the payment to be dependent on the
happening of an event therein stated. As a rule, acceptance must be
general acceptance and therefore, the holder is at liberty to refuse to take
a qualified acceptance. Where, he refuse to take it, the bill shall be
dishonoured by non-acceptance. But, if he accepts the qualified

acceptance, even then it binds only him and the acceptor and not the other
parties who do not consent thereto. (Section 86).
2018 - June [3] (b) Anil draws a bill of exchange payable to himself on
Sushil, who accepts the bill without consideration just to accommodate Anil.
Anil transfers the bill to Ajay for good consideration.
State the rights of Anil and Ajay. Would your answer be different if Anil
transferred the bill to Ajay after maturity ? (7 Marks)
Answer:
Section 43 of the Negotiable Instrument Act, 1881 states the following:
(i) Liability of parties if there is no consideration - A negotiable instrument
made, drawn, accepted, endorsed or transferred without consideration,
or for a consideration which fails, creates no obligation of payment
between the parties to the transaction.
(ii) Rights of holder for consideration - but if any such party has
transferred the instrument 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.
(iii) No right of accommodating party to recover from accommodating party
- No party for whose accommodation a negotiable instrument has
been made, drawn, accepted, endorsed can, if he has paid the amount
thereof, recover thereon such amount from any person who became
a party to such instrument for his accommodation.
In the given case, Anil is not entitled to sue Sushil, since there is no
consideration between Anil and Sushil and hence there is no
obligation to pay.
Again Ajay is entitled to sue Anil and Sushil, since Ajay is a holder for
consideration. Ajay is entitled to sue the transferor for consideration
and every other party prior to him.
According to Section 59, in the case of accommodation bills, a defect
in the title of the transferor does not affect the title of the holder
acquiring after maturity. Hence, even if Ajay has acquired the bill for
consideration after maturity, he is entitled to sue.
2018 - Dec [3] (b) Rahul draws a cheque payable to ‘sell or order’. Before he
could encash the cheque, one of his creditors, Samrat approaches him for
payment. Rahul endorses the same cheque in Samrat’s favour. The banker
refuses payment to Samrat on account of insufficiency of funds in the
account. Can Rahul be made liable to penalties for dishonor of cheque due
to insufficiency of funds in the account under section 138 of Negotiable
Instruments Act, 1881? (7 marks)
PRACTICAL QUESTIONS
2009 - June [2] (a) Mr. Paul gave a cheque dated 7.2.2009 for ` 10,000 to
Mr. Roy for payment of Mr. Roy's tuition fees. Cheque was dishonoured for
insufficiency of funds. Mr. Paul is liable for prosecution. (2 marks)
Answer :
Maker of the cheque is not liable under the following conditions under the NI
Act.
 If the cheque is not presented to the bank within the validity of the
cheque.
 Where the cheque is issued not for the purpose of discharge of any debt
or any other liability. A cheque given as gift or for any other purpose or
reason but not for satisfaction of any debt and/or liability. Hence,
Mr. Paul is not liable for prosecution.
2009 - Dec [2] (a) Mr. E draws a cheque in favour of Mr. F (a minor). Mr. F
endorses it in favour of Mr. G. who in turn endorses it in favour of Mr. H. The
cheque is dishonoured by the Bank. Discuss the rights of Mr. G and Mr. H
and state against whom their rights can be exercised. (2 marks)
(e) A cheque for ` 10,000 was dishonoured. Drawer of the cheque
submitted valid reasons and justification. Due to relevant reasons for
dishonour, the drawer is not responsible. Answer with legal provisions.
(2 marks)
Answer :
(a) The Negotiable Instruments Act 1881, declares that a minor may draw,
endorse, deliver and negotiate an instrument so as to bind all parties
except himself. Thus in the instant case, Mr. H, can claim the amount
from Mr. G who in turn can claim the same from Mr. E (not from Mr. F,
the minor).
(e) It has been decided by the Bombay High Court in Kumar Porwal vs
Narayan Dhondu that ''The law only takes cognizance of the fact that the
payments are not forthcoming and it matters little that what reasons are
behind such non payment''. Whatever justification the drawer has offered
for non payment of cheque, the drawer remains responsible. All such
justifications are to be totally ignored.
provisions:
(e) Cheque for ` 2,00,000 issued by Mr. Nair was returned unpaid with
remarks “account closed”. Hence drawee has no remedy. (2 marks)
Answer :
The drawee has a remedy under the Negotiable Instruments Act and can
serve a notice to the drawer within 15 days of dishonour of cheque and
demand the payment.
2010 - Dec [3] (b) Mr. Saxena received cheque dated 02.05.2010 for
` 10,000/- from Mr. Malhotra towards cost of furniture. On 13.11.10
Mr. Malhotra closed the Bank Account. What action Mr. Saxena can take to
receive the amount against the cheque which is still with him. (2 marks)
Answer :
Unless specified otherwise, the validity of cheque is three months in the
present case, the cheque was issued on 02.05.2010, hence it was valid to
be presented to the bank up to 02.08.2010.
The account was closed on 13.11.2010 i.e. beyond the lifetime of the
cheque.
It means that the cheque was not presented in the bank during its validity
period.
This is not fault of person drawing the cheque hence Mr. Malhotra is not
responsible.
Legally Mr. Saxena cannot take any action against Mr. Malhotra because he
(saxena) failed to present the cheque to the bank for payment.
However, he can request Malhotra to give fresh cheque in place of dead
cheque.
2013 - Dec [3] (a) (ii) ‘Anil’ draws a bill on ‘Susheel’ for INR 10,000 payable
to his order. ‘Susheel’ accepts the bill but subsequently dishonours it by non-
payment. ‘Anil’ sues ‘Susheel’ on the bill. ‘Susheel’ proves that it was
accepted for value as of INR 8,000 and as accommodation to ‘Anil’ for INR
2,000. How much can ‘Anil’ recover from ‘Susheel’? Decide in the light of the
provisions of the Negotiable Instruments Act, 1881? (3 marks)
Answer :
According to the provisions of Section 44 of Negotiable Instruments
Act,1881, when there is a partial absence or failure of money consideration
for which a person signed a bill of exchange, the same rules applicable for
total absence or failure of consideration will apply. Thus, the parties standing
in immediate relation to each other cannot recover more than the actual
consideration. Accordingly Anil can recover only INR 8000.
2014 - June [3] (b) ‘A’ issue an open ‘bearer’ cheque for ` 10,000 in favour
of ‘B’ who strikes out the word ‘bearer’ and puts crossing across the cheque.
The cheque is thereafter negotiated to ‘C’ and ‘D’. When it is finally
presented by D’s banker, it is returned with remarks ‘payment
countermanded’ by drawer. In response to this legal notice from ‘D’, A pleads
that cheque was altered after it had been issued and therefore he is not
bound to pay the cheque. Referring to the provisions of the Negotiable
Instruments Act, 1881, discuss whether A’s argument is valid or not.
(3 marks)
Answer :
 Effects of striking off the word bearer. It amounts to a material alteration.
However, such material alteration is authorized by the Act.
 Therefore, the cheque is not discharged; it remains valid.
 Effects of crossing the cheque. It amounts to a material alteration.
 However, such material alteration is authorized by the Act.
 Therefore, the cheque is not discharged; it remains valid. A's argument
is not valid.
 Since the reason for dishonor of cheque is not ‘material alteration ‘but
‘payment countermanded by drawer’.
 Therefore, A is liable for the payment of the cheque and he shall also be
liable for dishonor of cheque in accordance with the provisions of Section
138.
2014 - June [5] (b) On a Bill of Exchange for Rupees one lakh, X’s
acceptance to the Bill is forged. ‘A’ takes the Bill from customer for value and
in good faith before the bill becomes payable. State with reasons whether ‘A’
can be considered as a “Holder in due course” and whether he can receive
the amount of the Bill from ‘X’? (4 marks)
Answer :
 According to the Section 9 of the Negotiable Instruments Act, 1881
“holder in due course” means any person who for consideration
becomes the possessor of a promissory note, bill of exchange or cheque
if payable to bearer or the payee or endorsee thereof, if payable to order,
before the amount in it became payable and without having sufficient
cause to believe that any defect existed in the title of the person from
whom he derived his title.
 As ‘A’ in this case prima facie became a possessor of the bill for value
and in good faith before the bill became payable, he can be considered
as a holder in due course.
 But where a signature on the Negotiable Instruments is forged the
instrument is not at all an instrument in itself.
 The holder of a forged instrument cannot enforce payment thereon. In
the event of the holder being able to obtain payment inspite of forgery,
he cannot retain the money.
 The true owner may sue on tort (tort means wrongful act, misdeed,
offence)the person who had received.
 The principle is universal in character; by reason where of even a holder
in due course is not exempt from it.
 A holder in due course is protected when there is defect in the title.
 But he derives no title when there is entire absence of title as in the case
of forgery. Hence, “A” cannot receive the amount on the bill.
2014 - Dec [2] (a) (iii) Mr. Punit obtains fraudulently from Rohan a crossed
cheque “Not Negotiable”. He transfers the cheque to Sunit, who gets the
cheque encashed from ABC bank limited which is not the drawee bank.
Rohan on coming to know about the fraudulent act of Mr. Punit sues ABC
Bank for the recovery of the money. Examine with reference to the relevant
provisions of the Negotiable Instruments Act, 1881, whether Rohan will
succeed in his claim. Would your answer be still the same in case Mr. Punit
does not transfer the cheque and gets the cheque encashed from ABC Bank
himself? (4 marks)
Answer :
 According to Section 130 of the Negotiable Instruments Act 1881, a
person taking a cheque crossed generally or specially bearing in either
case the words, not negotiable shall not have or shall not be able to give
a better title to the cheque than the title the person from whom he had.
 In consequence, if the title of the transferor is defective, the title of the
transferee would be vitiated by the defect.
 Thus, based on the above provisions, it can be concluded that if the
holder has a good title, he can still transfer it with a good title but if the
transferor has a defective title, the transferee is affected by such defects
and he cannot claim the right of a holder in due course by proving that
he purchased the instrument in good faith and for value.
 As Mr. Punit in the given case had obtained the cheque fraudulently, he
had no title to it and could not give to the bank any title to the cheque or
money and the bank would be liable for the amount of the cheque for
encashment. (Great Western Railway Co. Ltd. Vs. Londan and
County Banking Co.)
 The answer in the second case would not change and shall remain the
same for the reasons given above. Thus, Rohan in both the cases shall
succeed in his claim from ABC Bank.

(c) (iv) Amit signs, as maker, a blank stamped paper and gives it to Sumit
and authorizes him to fill it as a note for ` 500, to secure an advance
which Namit is to make to Sumit. Sumit fraudulently fills it up as a
note for ` 2,000, payable to Namit who has in good faith advanced
` 2,000. Decide, with reasons, whether Namit is entitled to recover
the amount, and if so, upto what extent? (4 marks)
Answer:
 A duly signed blank stamped instrument is called an inchoate
instrument. According to Section 20 of the Negotiable Instruments Act,
an Inchoate instrument is an incomplete Instrument in some respect.
 When a person signs and delivers blank or incomplete stamped paper
to another, such other is authorized to complete it for any amount not
exceeding the amount covered by the stamp.
 The person so signing is liable upon such instrument, to any holder in
due course for any amount.
 But any other person can’t claim more than the amount intended by the
drawer of the instrument.
Thus, for Namit’s claim to be valid and enforceable, two things are important:
(a) That Namit is a holder in due course, i.e., there should be valid
consideration and he would have obtained it in good faith and before
maturity.
(b) The amount filled in i.e., ` 2,000 is covered by stamp amount.
In Negotiable Instruments Act every holder is deemed to be a holder in due
course. Thus, the other party has to establish that Namit is not a holder in
due course.
2015 - Dec [2] (c) (i) Parag issues an open ‘bearer’ cheque for ` 10,000 in
favour of Qadir who strikes out the word ‘bearer’ and crosses the cheque.
The cheque is thereafter negotiated to Raman and Suman. When it is finally
presented by Suman’s banker, it is returned with remarks ‘payment
countermanded’ by drawer. In response to a legal notice from Suman, Parag
pleads that the cheque was altered after it had been issued and therefore he
is not bound to pay the cheque. Referring to the provisions of the Negotiable
Instruments Act, 1881, decide, whether Parag’s argument is valid or not?
(3 marks)
Answer:
The cheque bears two alterations when it is presented to the paying banker.
One, the word ‘bearer’ has been struck off and two, the cheque has been
crossed. Although both the alterations amount to material alterations but
such alterations are authorized by the Act. So, it can be said that, both of
these alterations do not amount to material alteration under the provisions
of the Act and hence the liability of any including the drawer is not at all
affected. Parag is liable to pay the amount of the cheque to the holder.
2015 - Dec [2] (e) (ii) A cheque payable to bearer is crossed generally and
is marked ‘not negotiable’. The cheque is lost and comes into the possession
of Baldev, who takes it in good faith and for value. Baldev deposits the
cheque into his own account and his banker collects the same. Discuss the
liability of collecting banker and paying banker. Can Baldev be compelled to
refund the money to the true owner of the cheque? (3 marks)
Answer:
Neither the collecting banker nor the paying banker incurs any liability to
anyone because of special protection granted to the bankers under the Act.
Yes, the true owner can compel Baldev to refund the money because the
cheque bears ‘not negotiable’ crossing as a result of which the transferee
cannot get a better title than that of the transferor.
2017 - June [3] (b) 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,
(ii) Whether the prior parties other than D have any right of action intense?
Give your answer in reference to the Provisions of Negotiable Instruments
Answer:
Section 43 of the Negotiable Instruments Act, 1881 provides that an
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 interse because first part of
Section 43 has clearly 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.
2017 - Dec [3] (b) X, by inducing Y, obtains a Bill of Exchange from him
fraudulently in his (X) favour. Later, he enters into a commercial deal and
endorses the bill to Z towards consideration to him (Z) for the deal. Z takes
the Bill as a holder in due course. Z subsequently endorses the bill to X for
value, as consideration to X for some other deal. On maturity, the bill is
dishonoured. X sues Y for recovery of money. With reference to the
provisions of Negotiable Instruments Act, decide whether X will succeed in
the case. (7 marks)
Answer:
Section 58 of Negotiable Instruments Act provides that when an instrument
is obtained by fraud, offence or for unlawful consideration, possessor or
endorsee cannot receive the amount of instrument. Hence, normally X would
not be entitled to sue Y as X has obtained instrument through fraud.
However, as per section 53, a holder who derives title from holder in due
course has all rights of a holder in due course. Since X derives his title from
Z (who is a holder in due course), X has all rights of Z.
Second part of section 58 also makes it clear that even if a negotiable
instrument is obtained by means of an offence or fraud or for unlawful
consideration, the possessor or endorsee is entitled to receive the amount
from the maker, if he is a holder in due course or claims through a person
who was a holder in due course. Hence, X can sue Y as he is deriving his
right from Z, who is holder in due course. Hence, X will succeed.
9 INDIAN PARTNERSHIP ACT,1932
 Basic Concepts  Rights of Partners
 Definitions  Admission
 Nature of Partnership  Retirement
 Types of Partners  Death
 Duties of Partners  Registration of Firms
 Liabilities of Partners  Dissolution of Firms
Legend

6.207
CHAPTER AT A GLANCE

1. Introduction  Law relating to partnership in India was first
contained in Chapter XI of the Indian Contract Act,
1872.
 Later, on 1st October, 1932 Indian Partnership Act,
1932 came into force.
 This Act deals partly with the rights and duties of
partners between themselves and partly with the
legal relations between partners and third persons.
 It can be regarded as an branch of law relating to
principal and agent.
2. Partnership  As per Sec. 4,
“Partnership is the relation between persons who
have agreed to share the profits of a business
carried on by all or any of them acting for all.”
3. Essentials of  It must be a result of an agreement between two or
Partnership more persons.
 It is voluntary in nature.
 Agreement must be to share the profits of
business.
 Business must be carried on by all or any of them
acting for all.
 All the above essentials must co-exists before any
partnership comes into existence.
 Relation of partnership arises from contract and
not from status.
 Agreement may be express or implied.
 As per Sec. 2 (b),
“Business includes every trade, occupation and
profession.”
[Chapter  9] Indian Partnership Act, 1932 O 6.209
 Profit means the excess of return over advances.

 Sharing of profits includes sharing of losses.
4. True Test of  Mutual agency is the basic and most essential
Partnership thing for partnership. Sharing of profit also involves
sharing of loss.
 Sharing of profits is not a conclusive test of
existence of partnership.
 Every partner is a principal and agent for himself
and others.
 Agency relationship is the most important test of
partnership.
5. Partnership  It constitutes the mutual rights and obligations of
deed partners in a written form.
 It is also known as partnership agreement,
constitution of partnership or articles of partnership
etc.
 It must be drafted and stamped as per the
provisions of the Indian Stamp Act.
6. Types of (a) Active/Actual/Ostensible/Working/Managing
Partners Partner:
 He is not only contributing capital but also
takes active part in the conduct of firm’s
business.
 He shares its profits and losses.
 As per Sec. 12 (a),
“Subject to the contract to the contrary, every
partner is entitled to take part in the conduct of
business of firm.”
 He has to give public notice of his retirement
if he has to free himself from all liabilities.
(b) Sleeping/Dormant Partner:
 He only contributes capital and share
profit/loss without taking active part in the
firm’s business.
 He has unlimited liability.

 He can retire from the firm without giving any
public notice.
 He is entitled to access books and accounts of
the firm, even though he performs no duty.
(c) Sub Partner:
 He is third person with whom a partner shares
his profit.
 He has no rights and duties towards the firm.
(d) Nominal/Quasi Partner:
 He only lends his name and reputation for the
firm’s benefit without sharing any profit/loss.
 He is known to outsiders as partners but
actually he is not.
 He is liable to third party for all his acts.
 He is required to give public notice on
retirement.
From duration point of view partnership may
be:
(i) Particular Partnership - i.e. for a particular
purpose or for particular undertaking or
single venture.
(ii) Partnership at will - No fixed duration or
time period of partnership. It is dissolved
by partner by giving notice in writing.
(e) Partner in profits only:
 He gets a share in profits but does not share
any losses of the firm.
 He has to bear all the liabilities to third party.
(f) Partner by estoppel:
 He is not a partner of the firm but conducts
himself in such a way which leads third party
to believe that he is a partner.
 He is liable for all the debts to such third party.
(g) Partner by holding out:

 He is declared by others as a partner of the
firm but does not contradict it immediately and
remains silent.
 He is liable to third party who is entering into
contracts with firm on belief of he being the
partner.
 Holding out means ‘to represent’
 It is based on the doctrine of Estoppel of
Indian Evidence Act.
7. Minor’s  Minor is a person who has not completed 18 years
Position in of age, thus cannot become a partner as he is not
Partnership competent to contract.
 As per Sec. 30,
He can however, be admitted to the benefits of
partnership with the mutual consent of all partners.
 No partnership firm can be formed only with
minors.
 A minor’s agreement is altogether void.
 If a minor has to be admitted into the benefits of
partnership, there must be atleast 2 major
partners.
8. Rights of  Sec. 30(2): Share profits of the firm.
Minor  Sec. 30(2): Inspect and copy the book of accounts
of the firm.
 Sec. 30(4): Can file a suit for accounts and his
share in the firm but only when severing his
connection with the firm.
 Sec. 30(5): On attaining majority, he may within 6
months either.
9. Rights of  To take part in management.
Partners  To Express Opinion.
 To Inspect and to take out copies of Books of
Accounts.
 To Share Profits.
 To have Interest on capital.
 To have Interest on Advances.
 Right to be indemnified.
 To have a joint share in the partnership property.
 To enforce the proper use of property.
 Right of Retirement.
 To prevent the introduction of new partner.
 Implied Authority.
 Right to Dissolve.
 Profits after retirement or death.
10. Duties and  To carry on the business of the firm to the Greatest
Liabilities of Common Advantage.
Partner  Being diligent and honest.
 Being just and faithful.
 To render accounts and information.
 To indemnify the firm.
 Not to make any secret profits.
 Not to hold and use property of the firm.
 Not to start business in competition with the firm.
 Not to receive any remuneration.
 Not to transfer his interest.
 To act within the scope of his authority.
 To share losses.
11. Goodwill  Goodwill is defined as the value of the reputation of
a business house in respect of profits expected in
future over and above the normal profits.
 It is a partnership property.
 In case of dissolution of firm, every partner has a
right according to the deed in the absence of any
agreement, to have a share in the goodwill on it
being sold.
 It can be sold separately, or along with other
properties of the firm.
12. Effects of  Indian Partnership Act does not makes registration

non- of partnership compulsory nor does it impose any
registration penalty.
(a) However, non-registration give rise to certain
disabilities U/S 69:
(i) Firm or any person on its behalf cannot bring
action against third party for breach of
contract, unless firm is registered and persons
suing are shown in register of firms.
(ii) Neither firm nor any partner can claim set off
if any suit is brought by the third party against
the firm.
(iii) Partner of unregistered firm cannot bring any
action against the firm or any partner of such
firm.
(iv) Unregistered firm however can bring a suit for
enforcing the right arising otherwise than out
of contract.
(b) Suits allowed by Act:
 Dissolution of a firm.
 Rendering accounts of a dissolved firm.
 Realisation of property of a dissolved firm.
 Set off of values not exceeding ` 100.
 Proceeding arising incidentally of value not
exceeding ` 100.
 Firm not having business place in territories to
which Indian Partnership extends.
 Realisation of property of insolvent partner.
 Firm having business place in areas exempted
from Partnership Act.
Relevant Case Laws:
 Prithvi Singh Vs. Hasan Ali
 Kashav Lal Vs. Chunni Lal
13. Dissolution of  It takes place when the relationship between all the
Partnership partners of the firm is so broken so as to close the
Firm (Sec. 39) business of the firm.
 As a result, firm’s assets are sold and its liabilities
are paid off.
14. Modes of  Sec. 42 (a): By expiry of fixed term for which the
Dissolution of partnership was formed.
Partnership  Sec. 42 (b): By completion of venture.
 Sec. 42 (c): By death of a partner.
 Sec. 42 (d): By insolvency of a partner.
 Sec. 42 (e): By retirement of a partner.
15. Modes of  Sec. 40: Result of an agreement between all
Dissolution of partners.
Firm  Sec. 41 (a): By adjudication of all partners, or
declaration of all partners as insolvent except one.
 Sec. 41 (b): By firm’s business becoming unlawful.
Subject to agreement between parties, on
happening of certain contingent events.
 Sec. 43: In case of partnership at will, by a partner
giving notice of his intention to dissolve the firm.
Firm dissolves from the date mentioned in the
notice. If no date is mentioned, then from date of
communication of notice.
 Sec. 44: By Court intervention in case of:
(i) A partner becoming unsound mind.
(ii) Permanent incapacity of partners to perform
his duties.
(iii) Misconduct of partners effecting the business.
(iv) Willful or persistent breaches of agreement by
a partner.
(v) Transfer or sale of whole interest of a partner.
(vi) Improbability of business being carried on
except at a loss.
(vii) Court being satisfied on other just and
equitable grounds.
16. Consequences  Continuing liability until public notice:

of Dissolution Partners continue to be liable for any act done by
them, done on behalf of firm until public notice of
dissolution is given.
 Sec. 46: Rights to enforce winding up:
Partner or his representative have a right against
others, on dissolution.
(i) Apply firm’s property in payment of firm’s
debt.
(ii) Distribute surplus amongst all partners.
 Sec. 47: Continuing authority of partners:
Authority of partners continue—
(i) So for as necessary to wind up the firm,
(ii) To complete the pending transactions till the
dissolution date.
DISTINGUISH BETWEEN
2014 - June [2] (c) Briefly explain the difference between Partnership and
Co-ownership. (4 marks)
Answer :
Difference between Partnership and Co-ownership.
Basis of Partnership Co-ownership
Distinction
1. Agreement I t a ri s e s f r o m a n It may or may not arise
agreement. from an agreement.
2. Business It is formed to carry on a It may or may not
business. involve carrying on a
business.
3. Profit or Loss It involves profit or loss. I t m a y o r m a y n o t
involve profit or loss.
4. Mutual agency Partners have a mutual Co-owners do not

agency relationship. have a mutual agency
relationship.
5. Name of persons The persons who form The persons who own
involved partnership are called some property jointly
partners. are called owners.
6. Maximum limit The Maximum limit of There is no maximum
partners is 10 for a limit of owners.
banking business and
20 for any other
business.
7. T r a n s f e r o f A partner cannot transfer A co-owner ca n
interest his share to a stranger transfer his share to a
without the consent of stranger without the
other partners. consent of other
co-owners.
8. Right to claim A partner has no right to A co-owner has the
partition cla im p a rt it ion of right to claim partition
property but he can sue of property.
the other partners for
the dissolution of the
firm and accounts.
9. Lien on property A partner has a lien on A co-owner has no
the partnership property such lien.
for expenses incurred by
him on behalf of the firm.
2013 - Dec [3] (a) (i) Who is a Partner by “Holding Out” or “Estoppels”?
(2 marks)
Answer :
If any person behaves and/or poses or presents in such a way that others
consider him to be a partner, he will be held liable to those persons who
have been misled, suffered or lent finance to the firm on assumption that he
is a partner. Such a person is known as "Partner by Holding out or
Estoppels." He is not a true partner and he is not entitled to any share in the
profit in the firm.

(b) (iv) What tests would apply for determining the existence of
partnership? Discuss. (3 marks)
Answer:
 As must be clear from the discussion of various elements of partnership,
there is no single test of partnership.
 For example, in one case there may be sharing of profits but may not be
any business, in the other case there may be business but there may not
be sharing of profits, in yet another case there may be both business
and sharing of profits but the relationship between persons sharing the
profits may not be that of principal and agent. And in either case,
therefore, there is no partnership.
 Thus, all the essential elements of partnership must coexist in order to
constitute a partnership.
 To emphasize this fact, Section 6 expressly provides that “in
determining whether a group of persons is or is not a firm or whether a
person is or is not a partner in a firm, regard shall be given to the real
relation between the parties, as shown by all relevant facts taken
together.”
 Thus, the existence of partnership has to be determined with reference
to the real intention of the parties, which must be gathered from all the
facts of the case and the surrounding circumstances.
2016 - June [2] (b) (iii) State your views on the following:
(c) A partner is not an agent of other partners in a partnership firm.
(2 marks)
Answer :
Incorrect: The basis of the partnership is mutual agency, hence a partner
is an agent of all other partners.
2017 - June [3] (a) What are the rights of outgoing partners? (9 marks)
Answer:
Rights of outgoing partners
Section 36 provides that an outgoing partner may carry on a business
competing with that of the firm. He may advertise such business, but, subject
to contract to the contrary, he may not:
• use the firm name;
• represent himself as carrying on the business of the firm; or
• solicit the custom of persons who were dealing with the firm before he
ceased to be a partner.
Section 37 provides that in case where a partner has died or ceased to be
a partner, the surviving and continuing partners may carry on the business
of the firm with the property of the firm without any final settlement of
accounts as between them and the outgoing partner or the estate of
deceased partner. In the absence of a contract to the contrary, the outgoing
partner of the representative of the deceased partner is entitled at the option:
• to such share of the profits made since he ceased to be a partner as
may be attributable to the use of his share of the property of the firm; or
• to interest at 6% per annum on the amount his share in the property of
the firm.
Where an option is given to surviving or continuing partners to purchase the

interest of a deceased or outgoing partner and the same is duly exercised,
the estate of the deceased partner or the outgoing partner is not entitled to
any further or other share of profits. But if any partner, assuming to act in
exercise of the option, does not, in all material respects comply with the
terms, he is liable to account under the provisions of this section.
PRACTICAL QUESTIONS
2014 - June [5] (c) A, B and C were partner in a firm of drapers. The
partnership deed authorized the expulsion of a partner when he was found
guilty of flagrant breach of duty. A was convicted of travelling without ticket.
On this ground, he was expelled by the other partners B and C. Is the
expulsion justified? (3 marks)
Answer :
Yes, the expulsion is justified. In this case, the partnership deed authorized
expulsion on the ground of flagrant breach of duty. Doing an act which brings
a partner within the penalties of criminal law is flagrant breach of duty. Also,
the expulsion decision was taken by majority of partners (Carmichel Vs.
Evans (1904) 90 LT573).
2014 - Dec [2] (a) (ii) A, B, C are partners in a firm. As per terms of the
partnership deed, A is entitled to 20% of the partnership property and profits.
A retires from firm and dies after 15 days. B, C continue business of the firm
without settling accounts. What are the rights of A’s legal representatives
against the firm under the Indian Partnership Act, 1932? (3 marks)
Answer :
Section 37 of the Indian Partnership Act, 1932 provides that where a
partner dies or otherwise ceases to be a partner and there is no final
settlement of account between the legal representatives of the deceased
partner or the firms with the property of the firm, then in the absence of a
contract to the contrary, the legal representatives of the deceased partner or
the retired partner entitled to claim either.
(a) such shares of the profits earned after the death or retirement of the
partner which is attribute to the use of his share in the property of the
firm; or
(b) interest at the rate of 6 per cent per annum on the amount of his share
in the property.
Based on the aforesaid provisions of the Section 37 of the Indian
Partnership Act, 1932 in the given problem, A’s representative, at his
option, can claim:
(i) the 20% shares of profits (as per the partnership deed); or
(ii) Interest at the rate of 6 per cent per annum on the amount of A’s
share in the property.

(a) (iii) Rohit and Anurag are partners in a firm. They borrowed a sum of
` 10,000 from Parul. Later on, Rohit becomes insolvent but his
assets are sufficient to payback the loan. Parul compels Anurag for
the payment of entire loan. Referring to the provisions of the Indian
Partnership Act, 1932, examine the validity of Parul’s claim and
decide as to who may be held liable for the above loan.
(3 marks)
(c) (iii) Arun, Varun and Tarun started a Kirana business in Chennai on 1st
January, 2012 for a period of five years. The business resulted in a
loss of ` 20,000 in the first year, ` 25,000 in the second year and
` 35,000 in the third year, Varun and Tarun wish to dissolve the firm
while Arun wants to continue the business. Advise Varun and Tarun.
(2 marks)
Answer:
(a) (iii)  The present problem is concerned with the contractual liability
of the Partners. As stated in the Section 25 of the Indian
Partnership Act, 1932, in partnership the liability of the
partners is unlimited.
 The share of each partner in the partnership property along with
his private property is liable for the discharge of partnership
liabilities.
 The liability of the partners is not only unlimited but is also
stated that a partner is both jointly and severally liable to third
parties.
 However, every partner is liable jointly with other partner and
also severally for the acts of the firm done while he is a partner.
 On the basis of above provisions, Parul can compel Anurag for
the payment of entire loan. Anurag must pay the said loan and
then he can recover the share of Rohit’s loan from his property.
(c) (iii) As per provisions of Sec. 44(f) of Indian Partnership Act, 1932,
Varun and Tarun are advised to make a petition to the Court for the
dissolution of the firm on the ground that the firm cannot be carried
on except at a loss. Since the firm was constituted for fixed term of
five years it cannot be dissolved without the consent of all the
partners and as such Varun and Tarun cannot compel Arun to
dissolve the firm.
2015 - Dec [2] (a) Answer the question:

(iii) Akash, Ashish and Anil were partners in a firm. By his willful neglect
and misconduct Anil caused serious loss to the business of the firm.
After several warnings to Anil, Akash and Ashish passed a resolution
expelling Anil from the firm. By another resolution they admitted
Abhishek as a partner in place of Anil. Anil objects to his expulsion as
also to the admission of Abhishek. Is he justified in his objections?
(3 marks)
Answer:
 A partner may be expelled from a firm by majority of the partners only if,
(a) The power to expel has been conferred by contract between the
partners, and
(b) Such a power has been exercised in good faith for the benefit of the
firm.
 The partner who is being expelled must be given reasonable notice and
opportunity to explain his position and to remove the cause of his
expulsion.
Yes, Anil is justified in his objections.
 In the absence of an express agreement authorizing expulsion, the
expulsion of a partner is not proper and is without any legal effect.
 [Section 33(1)] Anil’s objection to the admission of Abhishek is also
justified as a new partner can be admitted only with the consent of all the
partners.[Section 31(i)]
2015 - Dec [2] (c) (ii) Mayur and Nupur purchased a taxi to ply it in
partnership. They had done business for about a year when Mayur, without
the consent of Nupur, disposed of the taxi. Nupur brought an action to
recover his share in the sale proceeds. Mayur’s only defence was that the
firm was not registered. Will Nupur succeed in her suit? (3 marks)
Answer:
As per Section 69(3) of Indian Partnership Act, the term set off may be
defined as the adjustment of debts by one party due to him from the other
party who files a suit against him. It is another disability of the partners and
of an unregistered firm that it cannot claim a set-off when a suit is filed
against it.
Yes, Nupur will succeed in her suit. As the business had been closed on the
sale of the taxi, the suit in the question is for claiming share of the assets of
a dissolved firm.
Section 69(3) specially protects the right of a partner of an unregistered firm
to sue for the realization of the property of a dissolved firm.

(e) (ii) ABC & Co., a firm consists of three partners A, B and C having one-
third share each in the firm. According to A and B, the activities of
C are not in the interest of the partnership and thus want to expel C
from the firm. Advise A and B whether they can do so quoting the
relevant provisions of the Indian Partnership Act. (5 marks)
Answer :
Expulsion of a partner (Sec. 33):
Expulsion of a partner is another event necessitating reconstitution of a firm.
A partner may be expelled from a firm if the following conditions are satisfied:
(a) expulsion should be as per the express provisions in the agreement;
(b) power of expulsion should be exercised by majority of partners;
(c) expulsion should be in good faith.
Only when all the above three conditions are satisfied a partner can be
expelled from a firm.
As stated above expulsion should be in good faith. The test of good faith
may be:
(i) expulsion is in the interest of the firm
(ii) expelled partner has been given notice
(iii) an opportunity of being heard has been afforded to the partner.
Thus, in the given case A and B the majority partners can expel the partner
only if the above conditions are satisfied and procedure as stated above has
been followed. Further the invalid expulsion of a partner does not put an end
to the partnership and it will be deemed to continue as before.

(c) (iii) X and Y were partners carrying on a banking business. X had
committed adultery on several women in the city and his wife had
left on this ground. Y applied to the court for dissolution of the firm
on this ground. Will he succeed? (5 marks)
Answer:
As per Section 44(c) of Indian Partnership Act, 1932 sometimes, a partner
is guilty of misconduct. When the Court is satisfied that the misconduct
adversely affect the partnership business the Court may allow the dissolution
of the firm. Y will not succeed. In this case, though X is guilty of misconduct
but his misconduct does not have any adverse affect on their business as
bankers [Snow v. Milform (1868) 18 LT 142].
In the above case, the Court observed that how can it be said that a man's
money is less safe because one of the partner commits adultery. It was
further observed that in those cases where the moral conduct of a partner
would affect the firm business, it can be a ground for dissolution of the firm.
e.g. where a medical man had entered into partnership with another and it
was found that his conduct was very immoral towards some of his patients,
the firm can be dissolved on the ground of misconduct by the partner.
10 LIMITED LIABILITY
PARTNERSHIP ACT, 2008
 Concept of LLP  Functioning
 Formation  Dissolution
 Membership
Legend

6.225
CHAPTER AT A GLANCE

1 Meaning of Any two or more persons associated for carrying on a
LLP lawful business with a view to earn profit may form a
limited liability partnership by subscribing their names
to an incorporation document and registration with the
registrar of companies.
2 Mutual Rights Mutual rights and duties of partners of an Limited
and duties of Liability Partnership inter-se and those of the Limited
partners Liability Partnership and its partners shall be governed
by an agreement between the partners.
3 No. of Partner Every Limited Liability Partnership shall have at least
two designated partners who are individuals and
atleast one of them shall be a resident of India.
4 LLP The mutual rights and duties of the partners of limited
Agreement liability partnership and the mutual rights and duties of
a limited liability partnership and its partners, shall be
governed by the limited liability partnership agreement
between the partners or between the limited liability
partnership and its partners.
5 Solvency Every limited liability partnership shall file the
Statement of Account and Solvency in Form 8 with the
Registrar, within a period of thirty days from the end of
six months of the financial year to which the Statement
of Account and Solvency relates. A limited liability
partnership’s Statement of Account and Solvency shall
be signed on behalf of the limited liability partnership
by its designated partners.
[Chapter  10] Limited Liability Partnership Act, 2008 O 6.227
6 Accounts A limited liability partnership whose turnover exceed

Audited forty lakh rupees, in any financial year or whose
contribution exceed twenty-five lakh rupees shall be
required to get its accounts audited.
7 Annual Every limited liability partnership shall file an annual
Return return with the Registrar in Form 11.
8 Foreign LLP As per rule 34(1) of the LLP Rules, a foreign limited
liability partnership shall, within thirty days of
establishing a place of business in India, file with the
Registrar in Form 27 —
(a) a copy of the certificate of incorporation;
(b) the full address of the registered or principal office
of the limited liability partnership in the country of
its incorporation;
(c) the full address of the office of the limited liability
partnership in India which is to be deemed as its
principal place of business in India;
(d) list of partners and designated partners, if any and
the names and addresses of two or more persons
resident in India, authorized to accept on behalf of
the limited liability partnership, service of process
and any notices.
SHORT NOTES

(iv) Limited Liability Partnership; (4 marks)
Answer :
Limited Liability Partnership is formed under Limited Liability Partnership Act,
2008. Its essential features are :
(1) A limited liability partnership is a body corporate formed and
incorporated under this Act and is a legal entity separate from that of its
partners and liability of partners is limited.
(2) A limited liability partnership shall have perpetual succession.
(3) Any change in the partners of a limited liability partnership shall not
affect the existence, rights or liabilities of the limited liability partnership.
(4) The provisions of the Indian Partnership Act, 1932 shall not apply to a
limited liability partnership.
(5) Any individual or body corporate may be partner of LLP.
(6) Every limited liability partnership shall have at least two partners.
(7) Every limited liability partnership shall have at least two designated
partners who are individuals and at least one of them shall be a resident
in India.
(8) Every limited liability partnership shall have a registered office to which
all communications and notices may be addressed and where they shall
be received.
(9) Every limited liability partnership shall have either the words “limited
liability partnership” or the acronym “LLP” as the last words of its name.

(iv) Annual Return (limited liability partnership) (4 marks)
Answer :
 Annual return: (Section 35): As per Section 35 of the LLP Act, every
LLP shall file an annual return within sixty days of its financial year in
such form and manner as may be prescribed.
 Such return should be accompanied by prescribed fees.
 If the LLP fails to comply with the provisions of Section 35 regarding
filing of annual return, the LLP will be punishable with fine which shall
not be less than twenty five thousand rupees but which may extend to
five lakh rupees and every designated partner of such LLP shall be
punishable with fine which shall not be less than ten thousand rupees
but which may extend to one lakh rupees.
provisions.
(b) A limited liability Partnership is a body corporate. (2 marks)
Answer :
A limited liability partnership is a body corporate with legal personality
separate from that of its members. It is formed as per the Limited Liability
Partnership Act 2009.
2009 - Dec [4] (h) How the profit of a limited liability partnership are treated
for the purpose of Tax Acts? (2 marks)
Answer :
Profit will be treated as profits of the partners or members of LLP and not by
the LLP as such.
2010 - June [3] (b) Give correct answer if the following statements are
wrong:
A limited liability partnership must ensure that
(i) Where a person becomes or ceases to be a member or designated
member, notice is delivered to the Registrar within 30 days.
(ii) Where there is any change in the name or address of a member,
notice is delivered to the Registrar within 30 days.
(1 + 1 = 2 marks)
Answer :
In first case, the notice to the Registrar be delivered within 14 days and in (ii)
within 28 days.
(g) All the members of a limited partnership firm are "designated members".
(2 marks)
Answer :
Designated Partners
According to Section 7 of Limited Liability Partnership Act,2008,
1. Every limited liability partnership shall have at least two designated
partners who are individuals and at least one of them shall be a resident
in India:
Provided that in case of a limited liability partnership in which all the
partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are
partners of such limited liability partnership or nominees of such bodies
corporate shall act as designated partners.
2. Subject to the provisions of sub-Section (1), --
(i) if the incorporation document-
(a) specifies who are to be designated partners, such persons shall
be designated partners on incorporation; or
(b) states that each of the partners from time to time of limited
liability partnership is to be designated partner, every partner
shall be a designated partner;
(ii) any partner may become a designated partner by and in accordance
with the limited liability partnership agreement and a partner may
cease to be a designated partner in accordance with limited liability
partnership agreement.
3. An individual shall not become a designated partner in any limited
liability partnership unless he has given his prior consent to act as such
to the limited liability partnership in such form and manner as may be
prescribed.
(b) Provisions of Indian Partnership Act 1932 are applicable to LLPs and
the body Corporate may be partner of LLP. (2 marks)
Answer :
The rules and regulations relating to Limited Liability Partnership have been
described in the Limited Liability Partnership Act 2008, hence provisions of
Indian Partnership Act 1932 are not at all applicable to LLP's. As regard the
second portion of the question, the body corporate may be a partner in the
LLP as per LLP Act 2008.
2013 - Dec [3] (c) If the following statements are not correct, give the correct
answer.
(i) Authorized capital for formation of limited liability partnership (LLP) is
one crore.
(ii) Maximum number of partners in a LLP shall not exceed 50.
(iii) Foreign nationals can also be partners in a LLP.
(iv) Audit is not required in LLP in any circumstances. (1 x 4 = 4 marks)
Answer :
(i) NIL-Since the authorised capital is not specified in the Act.
(ii) No maximum limit-as no specific number specified in the Act.
(iii) Yes, foreign Nationals can also be partners.
(iv) Audit is required if the contribution is above INR 25 Lakhs or if annual
turnover is above INR 40 Lakhs.
2013 - Dec [6] (c) What are the circumstances in which Limited Liability
Partnership may be wound up by Tribunal? (3 marks)
Answer :
The circumstances in which a limited liability of partnership may be dissolved
by Tribunal are provided in Section 64 of the Limited Liability Partnership
Act, 2008 A limited liability partnership may be wound up by the Tribunal in
following ways:
(i) The limited liability partnership decides that limited liability partnership
be wound up by the Tribunal;
(ii) if, for a period of more than six month, the number of partners of the
limited liability partnership is reduced below two;
(iii) if the limited liability partnership has acted against the interests of the
sovereignty and integrity of India, the security of the state or public
order;
(iv) if the limited liability partnership has made a default in filling with the
Registrar the statement of account and solvency or annual return for
any five consecutive financial years; or
(v) if the Tribunal is of the opinion that it is just and equitable that the
limited liability partnership be wound up.
(vi) If the limited liability partnership is unable to pay its debts.
2014 - June [3] (a) (i) Explain the concept of ‘whistle blowing’ with respect
to the Limited Liability Partnership Act, 2008. (3 marks)
Answer :
Whistle blowing policy means a policy in which a mechanism is established
to listen and take action against any wrong practice anywhere in the
company. The concept has been discussed in Section 31 of the Limited
Liability Partnership Act, 2008. As per the Section:
(1) The Court or Tribunal may reduce or waive any penalty leviable against
any partner or employee of a limited liability partnership, if it is satisfied
that:
(a) such partner or employee of a limited liability partnership has
provided useful information during investigation of such limited
liability partnership; or
(b) when any information given by any partner or employee (whether or
not during investigation) leads to limited liability partnership or any
partner or employee of such limited liability partnership being
convicted under this Act or any other Act.
(2) No partner or employee of any limited liability partnership may be
discharged, demoted, suspended, threatened, harassed or in any other
manner discriminated against the terms and conditions of his limited
liability partnership or employment merely because of his providing
information or causing information to be provided pursuant to
sub-Section(1).
2014 - June [6] (c) (i) A Limited Liability Partnership is not bound by any act
of its member. Justify. (2 marks)
Answer :
If the member has no authority to act on behalf of LLP, the LLP is not bound
by his act. A limited liability partnership is not bound by any act of a member
in dealing with persons if:
(a) The member in fact has no authority to act for the limited liability
partnership by doing that thing.
(b) The person knows that the members has no authority or does not know
or believe him to be a member of limited partnership.
2014 - Dec [2] (b) (ii) A limited liability partnership wants to shift its registered
office from Udaipur in the State of Rajasthan to Gurgaon in the State of
Haryana. What procedure the corporate has to follow? (4 marks)
Answer :
 Sec. 13 of the LLP Act states that a limited liability partnership may
change the place of its registered office and file the notice of such
change with the Registrar in form 15 within 30 days.
 Registered office can be changed from one place to another place in the
manner provided in the Partnership Agreement, if the agreement is silent
then consent of all partners shall be required for changing the place of
registered office of limited liability partnership to another place, where the
change in place of registered office is from one State to another State,
the limited liability partnership having secured creditors shall also obtain
consent of such secured creditors.
 Where the change in place of registered office is from one state to
another state, a general notice, not less than 21 days before filing any
notice with Registrar, is required to be published in a daily newspaper
published in English and in the principal language of the district in which
the registered office of the limited liability partnership is situated and
circulating in that district giving notice of change of registered office.
 However, there is just change in the jurisdiction of one Registrar to the
jurisdiction of another Registrar; the limited liability Partnership shall file
the notice in Form 15 with the Registrar from where the Limited liability
partnership proposes to shift its registered office with a copy thereof for
the information to the Registrar under whose Jurisdiction the registered
office is proposed to be shifted.
 Failure to comply with the provision of this section the limited liability
partnership and its every partner is liable to be punishable with fine which
shall not be less than two thousand rupees but which may extend to
twenty five thousand rupees.

(e) (ii) Explain the extent of liability of limited liability partnership under
Section 26 of LLP Act. (3 marks)
Answer:
Extent of liability of limited liability partnership is contained in Section
27 which are as under:
1. A limited liability partnership is not bound by anything done by a partner
in a dealing with a person if:
(a) the partner in fact has no authority to act for the limited liability
partnership in doing a particular act; and
(b) the person knows that he has no authority or does not know or
believe him to be a partner of the limited liability partnership.
2. The limited liability partnership is liable if a partner of a limited liability
partnership is liable to any person as a result of a wrongful act or
omission on his part in the course of the business of the limited liability
partnership or with its authority.
3. An obligation of the limited liability partnership whether arising in contract
or otherwise, shall be solely the obligation of the limited liability
partnership.
4. The liabilities of the limited liability partnership shall be met out of the
property of the limited liability partnership.
2015 - Dec [2] (e) (iii) For any contravention of provisions of the LLP Act or
LLP agreement, all the partners of LLP are liable for all penalties. Offer your
views based on Limited Liability Partnership Act, 2008. (3 marks)
Answer:
False, it is the designated partner who is responsible for doing all acts
matters and things as are required to be done by LLP as per the Act or as
specified in the LLP agreement, Unless expressly provided otherwise in this
Act, a designated partner shall be responsible for doing of all acts, matters
and things as are required to be done by the limited liability partnership in
respect of compliance of the provisions of this Act including filing of any
document, return, statement and the like report pursuant to the provisions of
this Act and as may be specified in the limited liability partnership agreement;
and liable to all penalties imposed on the limited liability partnership for any
contravention of those provisions.

(b) (i) Limited Liability Partnerships are body corporate. Do you agree?
Justify. (5 marks)
Answer :
Limited liability partnership to be body corporate:
1. A limited liability partnership is a body corporate formed and
incorporated under this Act and is legal entity separate from that of its
partners.
2. A limited liability partnership shall have perpetual succession.
3. Any change in the partners of a limited liability partnership shall not
affect the existence, rights or liabilities of the limited liability partnership.

(d) (ii) List the circumstances under which a LLP formed under the Limited
Liability Partnership Act, 2008 may be wound up by tribunal.
(6 marks)
Answer:
A limited liability partnership may be wound up by the Tribunal, if:
(i) The limited liability partnership decides that limited liability partnership
be wound up by the Tribunal;
(ii) If, for a period of more than six months, the number of partners of the
limited liability partnership is reduced below two;
(iii) If the limited liability partnership is unable to pay its debts;
(iv) If the limited liability partnership has acted against the interests of the
sovereignty and integrity of India, the security of the State or public
order;
(v) If the limited liability partnership has mode a default in filing with the
Registrar the Statement of Account and Solvency or annual return for
any five consecutive financial years; or
(vi) If the Tribunal is of the opinion that it is just and equitable that the
limited liability partnership be wound up.
2018 - Dec [3] (a) A limited liability partnership wants to shift its registered
office from Mumbai in the State of Maharashtra to Kolkata in the State of
West Bengal. What procedure the corporate has to follow under Limited
Liability Partnership Act, 2008? (8 marks)
Section - B
Industrial Laws
11 FACTORIES ACT, 1948
 Object  Basic Concepts
 Scope  Definitions and Various
 Applicability Provisions of Factories Act,
1948
Marks of Objective, Short Notes, Distinguish Between, Descriptive, & Practical Questions
Legend

6.239
6.240 O Scanner CMA Inter Gr. I Paper 6B (2016 Syllabus)
CHAPTER AT A GLANCE

1. Objective and • An Act to consolidate and amend the laws
Scope of regulating labour and factories.
Factories Act, • Applies to whole of India including Jammu &
1948 Kashmir.
• Objective of the Act is to ensure safety
measures and promote health and welfare of
factory workers.
2. What is Factory • Factory includes any premises including the
as per the Act precincts thereof, whereon 10 or more workers
are working for any of the day in the preceding
12 months to carry any manufacturing process
with the aid of power OR 20 or more in case
the manufacturing process is carried without
power.
• Excludes mines, unit of armed forces, railway
running shed, hotel, restaurants or eating
places.
• Premises including precincts enlarges the
scope.
• Factory includes all the length of railway line,
company engaged in construction of railway
line.
• Open land engaged in the conversion of sea
water into crystals of salt will be regarded as
Factory.
• Seasonal factories like sugarcane etc. will
continue to remain as factory during the
off-season.
[Chapter  11] Factories Act, 1948 O 6.241
3. What is  The term manufacturing process means any

manufacturing process for
process as per  Making, altering, repairing, oiling,
the Act ornamenting, fishing, packing, washing,
clearing, breaking, demolishing or otherwise
treating any article with a view to use, for
sale, disposal or delivery;
 Generating, transforming, transmitting
power
 Pumping oil, water or sewage
 Printing, composing types for printing or
book binding
 Repairing, constructing, fishing etc of
vessels or ships
 Preserving or storing in cold storage.
 Includes the following:
 Laundry
 Carpet beating
 Process involved for pumping water
 Stitching bags
 Conversion of latex into rubber
 Conversion of sea water into salt
 Tracing and adapting on raw film
 Packing and packaging into smaller units
 Processes like moistening, stripping,
breaking up, adaption and packing of
tobacco for use in manufacture of
cigarettes
 Excludes the following :
 Transforming and transmitting electricity
 Training Institute
 Exhibition of film
4. What is worker As per Sec. 2(1) of Factories Act, 1948, the

as per Factories definition of worker has following ingredients:
Act, 1948 • Person should be employed:
 There should exist an employer employee
relationship
 Employer not just to control what work to be
done but also the manner in which the
same shall be done.
 Relationship of master and servant not
necessary.
 Piece rated workers who work on regular
basis shall be treated as ‘workers’.
 Partner or independent contractor cannot
be regarded as worker.
• Employment to be direct or through some
agency:
 Employment should be directly by the
management or through employment
agency.
 There should exist a privity of contract.
• Employment should be in some manufacturing
process:
 Includes in its purview people directly
involved in manufacturing process but also
incidental to manufacturing process.
 Includes:
 People working in canteen
 Munim in a factory.
 Employment may be for remuneration or not
 Includes
 Apprentice
 Honorary worker
 Person employed on price work basis
 Person employed for no wages.
5. Enforcement of  State Government is responsible for

Factories Act, enforcement of the Act.
1948  State Government carries administration of the
Act through:
 Inspecting Staff
 Certifying Surgeons
 Welfare Officers
 Safety Officers
 Welfare officer to be appointed wherein 500 or
more workers are employed
 Safety officer to be appointed wherein 1000 or
more workers are employed
6. Occupier & his  Occupier as per Section 2(n) means a person
Role under the who has the ultimate control over the affairs of
Factories Act, the factory.
1948  Occupier of the factory needs to give a notice to
Chief Inspector:
 30 days before date of resumption of
seasonal factories
 15 days before date of use of premises by
occupier
 Where new manager is appointed, occupier to
intimate within:
 7 days of appointment
 Contents of Notice:
 Name and address of factory
 Name and address of occupier
 Name amd address of owner
 Name of manager
 Address of communication
 Number of Workers
 Nature of manufacturing work
 Total power installed
 Occupier should ensure worker’s:

 Health
 Safety and
 Welfare
 He should make a written statement of the
policy adopted by him with respect to the
aforesaid points (health, etc.) and even
make the workers aware about the same.
 He shall provide:
 Proper maintenance of the plants so as to
ensure that they are safe.
 Safety arrangement with regards to use,
handling and transportation of substances.
 Training and supervision.
 Safe access to all places of work in the
factory.
 Adequate facilities and arrangements for
welfare of the workers in the factory.
7. Working hours  Adult worker to work for 48 hours a week.
as per Factories  Cannot be made to work for more than 9 hours
Act, 1948 a day.
 In case of work exceeding 9 hours, overtime at
twice the normal rate needs to be given.
 Needs to be given atleast half an hour break
after continuous 5 hours of work.
 There shall be one holiday every week.
 No adult worker shall work for consecutively 10
days.
 Child who has not completed 14 years of age
shall not be employed in factory.
 Where a worker has worked for 240 days, adult
worker shall be entitled to leave for 20 days.
SHORT NOTES
2010 - June [3] (a) Write short note :
(iv) Working hours for children (4 marks)
Answer :
Working Hours for Children : No child shall be employed or permitted :
(i) to work in any factory for more than four and half hours in any day;
(ii) during the night; (iii) not more than two shifts and shifts should be 5 hours
apart; (iv) no child shall be allowed to work in any factory on any day on
which he has already been working in any other factory; (v) no female child
shall be allowed to work in any factory except between 8 am to 7 pm.

(iii) ‘Overcrowding’ (Factories Act). (4 marks)
Answer :
Overcrowding as per Factories Act :
(i) No room in any factory shall be overcrowded to become injurious to
health.
(ii) Space for worker: (i) 9.9 cubic meter for every worker for factories
existing before application of Act and (ii) 14.2 Cubic meter for every
worker for factories built after the commencement of the Factories Act.
(iii) If the chief inspector requires, a notice specifying the maximum
number of workers who may be employed in the room shall be posted
in each workroom.
(iv) The Chief inspector may grant exemptions to above conditions if he is
satisfied that such conditions are unnecessary.
2011 - June [4] (a) Write short note on.

(iii) Duties of occupier (4 marks)
Answer :
Duties of Occupier :
(i) He should ensure safety, health and welfare of all workers who are
working in his factory.
(ii) He should maintain plant and machinery of the factory so that they are
safe and without risk.
(iii) Handling, storage, transport of all materials should be safe and without
risk.
(iv) He should provide, maintain and monitor the working environment in
the factory without risk and hazard to workers and adequate in
facilities.
(v) The occupier should prepare, revise appropriately and display his
general policy regarding the safety, security and health of the workers
working in his factory.
2011 - Dec [4] (a) Write short note.

(iii) Safety Officers (Factories Act); (4 marks)
Answer :
If State Govt. requires every factory will have a safety officer if it has one
thousand or more workers ordinarily. The duties, qualifications and
conditions of appointment and service will be decided by the State Govt.
The occupier is required to appoint the specified number of safety officers
(as given the order of State Govt.) if (i) one thousand or more workers are
ordinarily employed; Or (ii) State Govt. is of the opinion that the
manufacturing process in the factory may cause risk of body injury,
poisoning, disease, or any hazard to health.

(d) Cleanliness of factory (5 marks)
Answer:
Section 11 of the Act provides every factory shall be kept clean and free
from effluvia arising from any drain, privy or other nuisance, and in particular-
• removal of accumulated dirt and refuse on floors, benches of workroom,

stair cases and passages and effective disposal of the same;
• cleaning of the floor of every workroom – once in every week by washing
with disinfectant or by some other effective method;
• providing effective drainage for removing water to the extent possible;
• to ensure that interior walls and roofs etc., are kept clean the following
is to be complied with-
 white wash or colour wash should be carried out at least once in every
period of 14 months;
 where surface has been painted or varnished, repair or re-varnish
should be carried out once in every five years, if washable then once
in every period of six months;
 where they are painted or varnished or where they have smooth
impervious surface, it should be cleaned once in every period of 14
months by such method as may be prescribed.
• all doors, windows and other framework which are of wooden or metallic
shall be kept painted or varnished at least once in every period of five
years;
The dates on which such processes are carried out shall be entered in the
prescribed register.
(d) Manufacturing process under the Factories Act, 1948. (5 Marks)
Answer:
Manufacturing process under the Factories Act, 1948 :“Manufacturing
Process” means Process for :
(i) Making, altering, repairing, oiling, washing, cleaning, ornamenting,
finishing, packing, breaking up, or otherwise treating or adapting any
article or substance with a view to its use, sale transport, delivery or
disposal, or
(ii) Pumping oil, water, sewage or any other substance or,
(iii) Generating, transforming or transmitting, power, or
(iv) Composing types for printing the letter press, lithography,
photographing, or other similar process or book binding, or
(v) Constructing, re-constructing, repairing, refitting, or breaking up of

ships or vessels ; or
(vi) Preserving or Storing any articles in cold storage;
In this regard it becomes necessary to discuss some special
circumstances that came up in some court cases:
(1) Preparation of food with aid of various electrical appliances in kitchen of
a hotel is a manufacturing process: As decided in the case of “Poona
Industrial Hotel vs. I.C. Sarin, 1980, Lab I.C. 100.
(2) Selling of petrol or diesel by a petrol dealer or repairing of motor vehicle
will not come within the term “manufacturing process”, as noted in the
case of: “National Service Centre and Petrol Pump Vs. E.S.I
Corporation, 1983 lab I.C. 412 (P. & H.) .
(3) The work of mere packing cannot be called as a manufacturing process;
{ref. A.I.R. 1955 NUC 2710}.
(4) The business of sale of diesel oil, motor spirit, lubricant, servicing of cars
and lorries, repairing vehicles and charging batteries with the aid of
power, by employing more than 20 workers / labourers amount to
manufacturing process, as noted in the case of “Baranagar Service
Station Vs. E.S.I Corporation (1987) 1 L.L.N 912 (Cal.) (Divisional
Bench). & Lab I.C. 302.
(5) Decorticating groundnuts in electric mill is a manufacturing process
(A.I.R. 1959 Madras 30).
(6) Breaking up of boulders is a manufacturing process – as decided in case
of “Larsen & Toubro Vs. State of Orissa, 1992 Lab I.C. 1513 (Orissa
Divisional Bench).
(7) Transportation of goods on contract basis from one place to another by
road with the assistance of transport carriers is not a manufacturing
process-as decided in the case of Regional Director, E.S.I.C Vs. Jaihind
Roadways, Bangalore (2001),1 L.L.J 1187 (Karnataka).
(8) Reading the definition of ‘Manufacturing Process’ in the light of Supreme
Court in “Workmen”, Delhi Electricity Supply Undertaking Vs.
management”, (1974) 3 S.C.C. 108, the word ‘or’ in Section 2(k) (iii)
must be read as ‘and’.
2008 - Dec [2] (d) Personnel Manager told to Director that at least one
canteen shall be provided in every factory. Do you agree? (2 marks)
Answer :
False : According to Factories Act, 1948, a canteen is required to be
provided in any specified factory if the number of workers working in it is
more than 250. Hence, it is not mandatory for every factory to provide
canteen.
2009 - June [2] (e) Occupier of a factory in relation to the company means
factory Manager of the factory, Answer based on legal provision.
(2 marks)
Answer :
False : Occupier has been defined in the Factories Act in Section 2(n) as
the person who has ultimate control over the affairs of the factory. It is also
stated further that in case of firm or other association of individuals, any one
of the partners or members thereof shall be deemed to be the 'occupier'.
The Section 2 further states that in case of a company, any of the directors
shall be deemed to be the 'occupier'.
2009 - June [3] (a) As per provision of Factories Act, every factory is to
appoint at least one welfare Officer-Do you agree? Answer citing rules.
(2 marks)
Answer :
False : In every factory wherein 500 or more workers are ordinarily
employed, the occupier shall employ such number of welfare officer as may
be prescribed.
provisions :
(c) A factory owner can close a place of employment of his own.
(2 marks)
(g) Creches are compulsory in a factory where women employees are
employed. (2 marks)
Answer :
(c) Prior permission of government is required for closure of a place of
employment if the industrial establishment employs 100 or more
workmen.
(g) Creches are required to be provided when in a factory, more than 30
women are employed.
2010 - June [2] (f) Factories Act provides certain precaution measures in
case of fire, give details. (4 marks)
Answer :
The precautions required in case of fire as per Factories Act, are as follows:
(i) All precautions and measures should be taken to prevent the
occurrence of fire inside and outside the factory.
(ii) Fire escape should be provided. This should be adequate for all the
employees.
(iii) All necessary equipments and facilities should be provided to fight and
put out the fire.
(iv) All workers must be trained regarding what they should do in case of
fire. All must know where the escape is.
(v) The state govt. has powers to give directions in this regard.
(vi) The Chief Inspector has all the powers, if in his opinion, the measures
and precautions taken by factory to deal with fire, are inadequate, he
may direct the factory to provide more facilities, equipments and
arrangements in the factory. He may also frame a time schedule for
this.
2010 - June [4] (d) Manager of the factory fixed the working hours of women
from 6 p.m. to 1 a.m. during the period from Monday to Friday of first week
of May 2010. Whether it is permissible, cite with Rule position. (2 marks)
(e) As per Factories Act ‘First Aid Boxes’ shall be provided and maintained
not less than one for every 200 workers ordinarily engaged. (2 marks)
Answer :
(d) As per the provisions of Factories Act, the working hours for women are
between 6.00 am to 7.00 pm. No woman shall be allowed to work from
7.00 pm to 6.00 am.
The state government has powers to alter the above limits but in no case
the women will be allowed to work in any factory between 10.00 pm to
6.00 am. Hence, the manager's decision is incorrect in the eyes of law.
(e) As per the Factories Act, '' first aid boxes'' shall be provided and
maintained not less than one for every 150 (not 200 as given) workers
ordinarily engaged.
(c) As per Factories Act, Canteen is mandatory in all the factories.
(2 marks)
Answer :
False. According to Factories Act, 1948, a canteen is required to be provided
in any specialized factory if the number of workers working in it is 250 or
more. Hence, it is not mandatory for every factory to provide canteen.
2010 - Dec [4] (c) (i) What is the normal time for payment of Wages
(Factories Act). (4 marks)
Answer :
(i) For Railway, factory or industrial or other establishment where less
than 1,000 persons are working : Wages shall be paid before expiry of
7th day from date of wage becoming payable.
(ii) For Railway, factory or industrial or other establishment where 1,000
or more persons are working : Wages should be paid before expiry of
10th day from date of wage becoming payable.
(iii) For persons employed in Dock, Wharf (landing place), or Jetty : Wages
shall be paid before expiry of 7th day from date of wage becoming
payable.
(iv) When the person is removed from service, his due wages shall be paid
to him before the expiry of 2nd working day from the date of removal of
service.
(d) Occupier of a Factory means the person who occupies and resides in the
factory. Offer your views. (2 marks)
Answer :
The statement is wrong. The Occupier of a factory means any person having
ultimate control over the affairs of the factory.
(b) An young employee disagreed to work on dangerous machines in a
factory. (2 marks)
Answer :
A young employee cannot be allowed to work at any machine unless:
(i) he has been fully instructed to the dangers arising in connection with
the machine and the precautions to be taken; and
(ii) he has received sufficient training in work at the machine, or
(iii) he has under adequate supervision by a person who has thorough
knowledge and experience in the machine. (Section 23 of Factories
Act, 1948).
(iv) State Government may prescribe / specify such machines which in its
opinion are of such dangerous character that young persons ought not
work on them unless foregoing requirements are complied with.
(d) Any child can be employed in a factory. (2 marks)
Answer :
As per The Factories Act, 1948, Children below 14 years are not allowed to
work in the factory. Child means a child who has not completed the age of
15 years. After attaining the age of 14, he or she can work in the factory
provided he or she has a certificate of fitness given by a competent authority.
2012 - June [3] (f) “Young person” means a person who has completed 18
years of age (Factories Act, 1948). Do you agree? (2 marks)
Answer :
The statement is not correct. Young person means a person who is either a
child or an adolescent. [Sec 2(d), The Factories Act, 1948]
A child means a person who has not completed his 15th year of age. [Sec
2(c), The Factories Act, 1948] An adolescent means a person who has
completed his 15th year of age but not completed his 18th year. [Sec 2(b),
The Factories Act, 1948]
2012 - Dec [3] (c) Are there any provisions in the Factories Act for protection
of eyes of Workmen? (2 marks)
(e) (i) Who is ‘Occupier’ (Factories Act)
(ii) State the Duty of the Occupier when a new manager is appointed
in the factory. (2 + 2 = 4 marks)
Answer :
(c) Yes, State Govt. by rules require that effective screens or suitable
goggles shall be provided for the protection of eyes of persons employed
on or in the immediate vicinity of manufacturing process which involves:
1. Risk of injury to the eyes from particles or fragments thrown off in
the course of process or
2. Risk to the eyes by reason of exposure to excessive light.
(e) (i) Occupier has been defined in the Factories Act in Section 2(n) as
the person who has ultimate control over the affairs of the factory.
It is also stated further that in case of firm or other association of

individuals, any one of the partners or members thereof shall be
deemed to be the 'occupier'.
The Section 2 further states that in case of a company, any of the
directors shall be deemed to be the 'occupier'. The Supreme Court
resolved in JK Industries vs Chief Inspector of Factories in 1997 that
only a member of Board of Directors of the company can be a
'occupier' of the factory of the company. The ultimate control of the
factory vests with the BOD of the company and not on anyone else.
Any company which owns a factory cannot nominate its employee
or its officer except the director of the company as the occupier of its
factory.
(ii) When the new manager is appointed, it is the duty of the occupier
to inform the inspector and chief inspector in writing regarding the
appointment within seven days of the appointment.
(e) Factories Act, 1948 is applicable to all the factories wherein 50 or more
workers are working. (2 marks)
Answer :
Factories Act, 1948 is applicable to factory which is defined as: Factory :
means any premises including its precincts (means zone, sector, ground,
division, area. Precinct means any area enclosed by wall.) where (i) ten or
more workers are working or were working in any day of the preceding
twelve months, in a manufacturing process which is carried on with the help
of power Or (ii) twenty or more workers are working or were working in any
day of the preceding twelve months, in a manufacturing process which is
carried on without the help of power.
2013 - June [4] (f) As per Factories Act, adequate shelters, rest rooms and
lunch rooms are mandatory in all the factories. Do you agree? Give correct
answer. (2 marks)
Answer :
The occupier is required to provide suitable shelters or rest rooms and a
suitable lunch rooms with provision of drinking water, in his factory if more
than one hundred and fifty workers are ordinarily employed in it.
2014 - June [6] (b) (ii) Does a laundry attached to the hospital (main
Institution) used for washing linen used in the hospital is factory within the
meaning of the Factories Act, 1948? (3 marks)
Answer :
 When hospital is not a factory, it is obvious that any department of
hospital cannot be treated as factory.
 In Dr. PSS Sundar Rao, GS v Inspector of Factories Vellore 1984 II
LLJ 237 Mad, the question was whether a laundry attached to the
Christian Medical College and Hospital, Vellore is Factory within the
meaning of this Act.
 The Madras High Court held that the laundry run by the hospital cannot
be separated from the main Institution. In order to ensure high degree
of hygienic standard the Hospital is having its own laundry for washing
the linen used in the hospital.
 Therefore, laundry is only subsidiary, minor or incidental establishment
of the hospital which is not a factory.
 One department of the Hospital established for the efficient functioning
of the Hospital cannot be therefore be disjoined from the main Institution
and termed to be a factory.
 The paramount or the primary character of the main Institution alone has
to be taken into consideration and when the main Institution is not a
factory; a department thereof cannot become so, even though a
manufacturing process is carried on there.

(d) (iii) Explain the right of workers to warn about imminent danger under
the Factories Act, 1948. (3 marks)
Answer:
As per Section 41H of the Factories Act, 1948, it is the right of workers to
warn about imminent danger
(1) Where the workers employed in any factory engaged in a hazardous
process have reasonable apprehension that there is a likelihood of
imminent danger to their lives or health due to any accident, they may
bring the same to the notice of the occupier, agent, manager or any
other person who is in-charge of the factory or the process concerned
directly or through their representatives in the safety committee and
simultaneously bring the same to the notice of the Inspector.
(2) It shall be the duty of such occupier, agent, manager or the person
incharge of the factory or process to take immediate remedial action if
he is satisfied about the existence of such imminent danger and send a
report forthwith the action taken to the nearest Inspector.
(3) If the occupier, agent manager or the person incharge referred to in
sub-section (2) is not satisfied about the existence of any imminent
danger as apprehended by the workers, he shall, nevertheless, refer the
matter forthwith to the nearest Inspector whose decision on the question
of the existence of such imminent danger shall be final.

(d) (i) Employees of an electricity generation station claimed that their unit
is covered under the definition of ‘factory’ considering the process
of transforming and transmission of electricity generated at the
power station as a ‘manufacturing process’. Will their claim succeed
under Factories Act, 1948. (6 marks)
Answer:
As per Section 2(k) of the Factories Act, 1948, manufacturing process
means any process for:
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling,
washing, cleaning, breaking up, demolishing, or otherwise treating or
adapting any article or substance with a view to its use, sale, transport,
delivery or disposal, or
(ii) Pumping oil, water, sewage or any other substance; or;

(iii) Generating, transforming or transmitting power; or
(iv) Composing types for printing, printing by letter press, lithography,
photogravure or other similar process or book binding;
(v) Constructing, reconstructing, repairing, refitting, finishing or breaking
up ships or vessels;
(vi) Preserving or storing any article in cold storage;
Process undertaken at electricity generating station, Sub-station is
transferring and transmitting electricity is not a manufacturing process and
are not thus factory- [Delhi Electricity Supply Undertaking vs.
Management of DESU, AIR(1973)SCC 365].
2017 - June [4] (a) What are the responsibilities of an occupier in a factory?
(5 marks)
Answer:
Responsibility of the occupier
The occupier has to follow the procedure:
• to lay down a detailed policy with respect to the health and safety of the
workers;
• to disclose all the information regarding dangers including health
hazards and the measures to overcome such hazards arising from the
exposure to or handling of the materials or substances in the
manufacture, transportation, storage and other processes to the workers
employed in the factory;
• to draw up an onsite emergency plan and detailed disaster control
measures for the factory and make known to the workers and to the
general public living in the vicinity of the factory, the safety measures
required to be taken in the event of accident taking place.
• to lay down measures for the handling usage, transportation and storage
of hazardous substances inside the factory premises and the disposal
of such substances outside the factory premises and publicize them in
the manner prescribed among the workers and the general public living
in the vicinity.
Section 41C provides that the occupier is having specific responsibilities in

relation to hazardous processes. He has to maintain the health records of the
employees. He is to appoint experienced persons who possess specified
qualifications in handling hazardous substances and competent to supervise
such handling within the factory.
2018 - June [4] (a) Critically examine the duties of certified surgeon under
the Factories Act, 1948. (8 marks)
Answer:
Section 10 under the Factories Act, 1948 provides that the State
Government may appoint qualified medical practitioners to be certifying
surgeons for the purposes of this Act within such local limits or for such
factory or class or description of factories as it may assign to them
respectively. The duties of certified surgeons are as follows-
• the examination and certification of young persons;
• the examination of person engaged in factories in such dangerous
occupations or processes as may be prescribed;
• the exercising of such medical supervision as may be prescribed for any
factory or class or description of factories, where -
 cases of illness have occurred which it is reasonable to believe are
due to the nature of the manufacturing process carried on, or other
conditions of work prevailing, therein;
 by reason of any change in the manufacturing process carried on or
in the substances used therein or by reason of the adoption of any
new manufacturing process or of any new substance for use in a
manufacturing process, there is a likelihood of injury to the health of
workers employed in that manufacturing process;
 young persons are, or are about to be, employed in any work which
is likely to cause injury to their health.
PRACTICAL QUESTIONS
(b) (iii) ABC Ltd. carrying manufacturing activities with aid of power and
with eight workers for last two years ending on 31.03.2014. Three
more workers were appointed on 01.04.2014, two workmen left the
company on 30.04.2014. Thereafter no workman was employed nor
any workmen left. Mr. Basant, one of the workman demanded that
Factories Act, 1948 shall be applicable to this company but the
management denied. Give your opinion. (3 marks)
Answer:
According to Sec. 2 (m) of the Factories Act, 1948, ‘factory’ means any
premises including the precincts thereof :
(i) Wherein 10 or more workers are working or were working on any day
of the preceding 12 months, and in any part of which a manufacturing
process is being carried on with the aid of power, or is ordinarily so
carried on, or
(ii) Wherein 20 or more workers are working or were working on any day
of the preceding 12 months, and in any part of which a manufacturing
process is being carried on without the aid of power, or is ordinarily so
carried on.
In the given case, during the period 01.04.2014 to 30.04.2014, there were
11 workers carrying manufacturing activities with aid of power. So, the
Factories Act, 1948 is applicable on ABC Ltd. Mr. Basant is correct.
12 PAYMENT OF GRATUITY
ACT, 1972
 Applicability Provisions of Payment of
Gratuity Act, 1972
Legend

6.260
[Chapter  12] Payment of Gratuity Act, 1972 O 6.261
CHAPTER AT A GLANCE
1. Objective and  An act to provide for payment of gratuity to
Scope of employees engaged in certain establishments.
Gratuity Act,  Applies to whole of India including Jammu &
1972 Kashmir.
 Objective of the act is to provide an old age
retirement social security benefit to an
employee at the time of termination of services,
a lump sum payment/amount.
 Amended by virtue of Gratuity (Amendment
Act), 2010
 Ceiling of gratuity has been enhanced from
` 3.5 lakhs to ` 10 lakhs.
2. Applicability of  Factory
the Act  Mine
 Oilfield
 Plantations
 Port
 Railways
 Shop or establishment having 10 or more
persons are/ were employed on any day of the
preceding 12 months.
 Any other establishment to which Central
Government notifies.
Note:
 CG notified Motor transport undertakings, clubs,
Chambers of Commerce and Industry, Water
transport, Local Bodies, Educational Institutions,
Societies , Trusts and circus industry employing
more than 10 employees.
3. Employee for  Person employed for wages.

the purpose of Excludes:
the Act  Apprentice
Note:
 Teachers are to be considered as an employee.
4. Payment of  Gratuity is payable on termination of
Gratuity employment provided he / she has rendered
continuous service for a minimum of 5 years
 Gratuity is calculated on the basis of continuous
service( for every completed year or part in
excess of 6 months) , at the rate of 15 days
wages last drawn
 Gratuity Payable = Wages x Completed years of
service x 15/26
5. Gratuity is • Retirement or resignation
payable on • Death or disability
• Superannuation
6. Forfeiture of  Gratuity forfeited on account of such act,
Gratuity omission or negligence which causes loss,
damage or destruction is termed as partial
forfeiture of gratuity since the same can be
carried out only to the extent of loss, damage or
destruction so caused.
 As against this, in case the services of an
employee get terminated due to violence or
riotous act or committing an offence involving
moral turpitude in relation to his employment,
the same can lead to forfeiture of the whole or
part of the gratuity.
 If the services of an employee are terminated
due to wilful omission or negligence which
causes damage to the property of an employer,
gratuity can be forfeited to the extent of damage

or loss caused. The whole amount cannot be
forfeited for wilful omission by employee.
7. Rights and  As soon as the Gratuity becomes payable the
Obligations of employer shall determine the amount of gratuity
the Employer & shall give the notice to the person to whom
the gratuity is payable and to the controlling
authority.
 The employer shall arrange to pay the amount
of gratuity within 30 days of the date of its
becoming payable to the person to whom it is
payable.
 If such amount is not payable within due time,
the employer shall pay from the date on which
the gratuity becomes payable to the date on
which it is paid, simple interest at the rate of
10% per annum.
SHORT NOTES
2009 - June [4] (a) Write explanatory note on:

(iv) Recovery of Gratuity ; (4 marks)
Answer :
Recovery of Gratuity : If the amount of Gratuity payable under the act is not
paid within the prescribed time i.e 30 days to the entitled thereto, the said
employee may apply to the Controlling Authority for direction to pay the
gratuity.
Controlling Authority may give a reasonable opportunity of showing
cause. After hearing both the parties, the Controlling Authority, issues orders
for payment of gratuity with interest specifying the last date for such
payment.
If the employer fails to pay the gratuity within the prescribed time against
the order of the controlling Authority, then the controlling Authority issues
certificates for that amount to the collector who shall recover the same with
compound interest at such rate as the central Govt. may specify from the
date of expiry of prescribed time as arrears of land revenue and pay the
same to the employee entitled thereto.

(iii) Protection of Gratuity; (4 marks)
Answer :
No gratuity payable under the Payment of Gratuity Act, 1972 and no gratuity
payable to an employee employed in any establishment, factory, mines, oil
field, plantation, port, Railway company or shop exempted u/s 5 shall be
liable to attachment in execution of any decree or order of any civil, revenue
or criminal court. [Sec. 13, The Payment of Gratuity Act, 1972]

(ii) Forfeiture of Gratuity. (4 marks)
Answer :
Forfeiture of Gratuity :
 Gratuity can be forfeited for any employee whose services have been
terminated for any act of violence, wilful omission or negligence causing
damage or destruction to the property belonging to the employer.
 It can also be forfeited for any act which constitutes an offence involving
moral turpitude.
 Where services have not been terminated on any of the above ground,
the employer cannot withhold gratuity due to employee.
 Where the land of the employer is not vacated by the employee, gratuity
cannot be withheld.
2013 - June [3] (a) Write short notes on:

(iii) Forfeiture (Gratuity Act, 1972) (4 marks)
Answer :
Please refer 2012 - Dec [4] (a) (ii) on page no. 264
2009 - Dec [4] (a) Whether Mr. Sham who joined the company on 1.7.05 and
died on 30.11.09 is entitled to Gratuity. Answer citing Rules. (2 marks)
Answer :
In accordance with the Payment of Gratuity Act, the gratuity is payable to the
employee under following conditions :
• On death or disablement due to accident or disease.
• Due to resignation.
• On termination of his employment.
• Due to his superannuation.
Other requirements for payment of gratuity are as follows:
He is required to have rendered continuous period of service for not less
than five years but compliance of this condition is not necessary in case of
death or disablement. Sanctioned leave is counted in service period.
In case of death, the gratuity is payable to his nominee and in the absence
of nominee to his legal heirs. If nominee and legal heirs are minor, the
amount of gratuity is invested until they attain maturity.
provisions:
(a) Gratuity can be attached in execution of a decree or order of any civil,
revenue or criminal court. (2 marks)
Answer :
False : This protection is specifically provided in the Payment of Gratuity Act,
1972 that the gratuity cannot be attached by an order of the Court.
2010 - June [4] (f) When and to whom gratuity is payable? (4 marks)
Answer :
Gratuity is payable to employees who have rendered continuous service for
minimum 5 years in following circumstances :
(i) On the superannuation (ii) on his/her retirement or resignation (iii) on
his/her death or disablement. In case of death, gratuity is paid to the
nominees or to his/her legal heirs, if there was no nominee. In case of death,
the condition of continuous service of 5 years is not applicable.
(d) Payment of Gratuity Act, 1972 applies to all the factories. (2 marks)
Answer :
Payment of Gratuity Act, 1972 applies to
(i) Every factory, mine, oil fields, plantation, Port and Railway company;
(ii) Every shop and establishment employing ten or more persons;
(iii) Any other establishment employing ten or more person.
2011 - June [3] (a) Retirement and superannuation (under Payment of

Gratuity Act) are same. —Comment. (4 marks)
Answer :
False. As per payment of gratuity act the retirement means termination of
service of an employee otherwise than superannuation. Superannuation is
attainment of a prescribed age by the employee at which he is retired from job.
2011 - June [4] (b) Nomination once made cannot be changed (Payment of
Gratuity Act) (2 marks)
Answer :
False : Nomination can be changed as per the will of the person receiving
the gratuity. All provisions of applicable sections must be followed before
such change of nomination.
2014 - June [5] (a) (ii) State the nature of dispute as to gratuity that may be
decided by the Controlling Authority. (3 marks)
Answer :
The Controlling Authority may decide the following disputes:
(a) Dispute as to amount of gratuity payable to an employee under the
Payment of Gratuity Act.
(b) Dispute as to the admissibility of any claim of, or in relation to an
employer for payment of gratuity.
(c) Dispute as to the person entitled to receive gratuity [Sec. 7(4)(a)].

(c) (ii) Under what circumstances the gratuity payable to an employee be
forfeited? (8 marks)
Answer :
Forfeiture of Gratuity:
The legal provisions relating to the forfeiture of gratuity are contained
in Section 4 (6) of the Payment of Gratuity Act, 1972 and may be
summed up as under:
1. The gratuity payable to an employee shall be forfeited where the
services of an employee have been terminated due to any act, willful
omission or negligence on the part of the employee and employee’s
such act etc. has caused:
(a) damage or loss to the property belonging to the employer, or
(b) destruction of the property belonging to the employer.
In this case, the gratuity payable to the employee shall be forfeited to the
extent of the damage or loss caused to employer’s property due to
employees act, omission or negligence [Section 4(6)(a)]
2. The gratuity payable to an employee may be forfeited:
(a) If the services of such employee have been terminated for his
riotous or disorderly conduct or any other Act of violence on his part,
or
(b) If the services of such 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.
In the above stated cases, the gratuity payable to an employee may be
forfeited wholly or partially. [Section 4(6)(b)]
Following judicial decisions are important to note in connection with
the forfeiture of gratuity by the employer:
(i) The right of the employer to forfeit the amount of gratuity of an
employee whose services were terminated due to any Act, willful
omission or negligence causing any damage to the employer’s
property is limited to the extent of damage and the proof of such
damage.
[Permali Wallance Ltd. Vs. State of M.P. (1996) IILLJ 515 (MP)].
(ii) The right of the employer to forfeit the gratuity is available only in the
circumstances enumerated in Section 4(6), as stated in points (1) and
(2) above, and is not available in any other circumstances as
employee’s right to gratuity is the statutory right.
[K.C.Mathew Vs. Plantation Corpn. of Kerala Ltd. (2001) LLR 123
(ker.)].
(iii) The refusal by the employees to surrender land belonging to the
employer is not a ground for forfeiture of gratuity.
[Travancore Plywood Industries Ltd. Vs. Regional Joint Labour
Commissioner, (1996) ll LLJ 85 (ker.)].
(iv) In case of termination of services on account of offence involving
moral turpitude the gratuity may be wholly or partially forfeited. In this
regard, the Karnataka High Court has held that when an offence of
theft under law involves moral turpitude, gratuity stands wholly

forfeited in view of Section 4 (6) of the Act.
[Bharat Gas Mines Ltd. Vs. Regional Labour Commissioner.
(Central) (1987) 70 FJR 11 (Karnataka)].

(b) (ii) Explain the manner in which the gratuity payable to employees in a
seasonal establishments is calculated under the Payment of Gratuity
Act, 1972. State also the maximum amount of gratuity payable under
the Act. (5 marks)
Answer:
Seasonal Establishments:
In the case of seasonal establishment the employees can be classified into
2 groups.
(a) Those who work throughout the year and
(b) Those who work only during the season.
The former are entitled to get the gratuity at the rate of 15 days wages for
every completed year of service or part thereof in excess of 6 months. The
latter are entitled to receive gratuity at the rate of 7 days for each season.
Under Section 4(3) provides that the amount of gratuity payable to an
employee shall not exceed ` 10 lakhs.
2017 - Dec [7] (b) Discuss the procedure for determination of the amount of
gratuity as per Section 7 of the Payment of Gratuity Act, 1972. (5 marks)
Answer:
Section 7 prescribes the procedure for determination of the amount of
gratuity. As soon as the gratuity becomes payable, the employer shall,
whether the employee has made application or not, determine the amount
of gratuity. Then he is to give notice to the person to whom the gratuity is
payable and also to the Controlling Authority, specifying the amount of
gratuity so determined. The notice shall be in Form L.
The employer shall arrange to pay the amount of gratuity within 30 days from
the date of its becoming payable to the person to whom it is payable. If it is
not paid within the stipulated period the employer is liable to pay interest at
the rate of 10% per annum. If the delay in payment is due to the fault of the
employee and the employer has obtained permission in writing from the
controlling authority for the delayed payment, on this ground, no interest is
payable.
If the claim for gratuity is not found admissible, issue a notice in Form ‘M’ to
the applicant employee, nominee or legal heir, as the case may be,
specifying the reasons why the claim for gratuity is not considered
admissible. In either case a copy of the notice shall be endorsed to the
controlling authority.
2018 - Dec [7] (b) Mr. Gill, an employee of M/s Sonabheel Tea Ltd.,
continued to occupy the quarter of the company for eight months after
superannuation, company decided to forfeit the amount of gratuity of Mr. Gill.
Examine the decision taken by the company to forfeit the amount of gratuity
in the light of the Payment of Gratuity Act, 1972. (5 marks)
PRACTICAL QUESTIONS
2008 - Dec [2] (f) Calculate the amount of gratuity of Mr. X who joined the
company on 1.5.78 and retired on 30.11.08 when his salary was ` 26,000/-
per month. During November, 2008 he received overtime and incentive
` 5,000 (2 marks)
Answer :
Mr. X worked from 1.5.78 to 30.11.08. The period is 30 years 6 months and
29 days (30.11.08 is not included), for the purpose of computation of gratuity
the period of service is taken as 31 years. Gratuity is (31 × 26,000 × 15)/26
= ` 4,65,000 . Thus, he will be entitled for a gratuity payment of ` 4,65,000.
2009 - June [2] (f) Every employee, whose salary is not more than ` 3,500
per month is entitled to Gratuity as per Payment of Gratuity Act. State the
legal provision if not correct. (2 marks)
Answer :
False : Now all the employees of the specified establishment excepting
Apprentices are entitled to gratuity under the act.
provisions :
(e) Mr. Sham, who retired on 30.11.09 did not vacate office quarter which
was provided by his employer. Employer withheld the Gratuity to force
him to vacate the quarter. (2 marks)
Answer :
Gratuity can be withheld or forfeited only to the extent of damage, loss and
destruction of property suffered by employer due to wilful act, negligence and
omission of the employee and his services have been terminated on the
grounds of such act, negligence or omission. The non-vacation of quarters
is no reason to withhold gratuity.
(c) Mr. A. B. Roy a dissatisfied worker wilfully causing damage of a
machine. Employer had to spend ` 10,000/- to get the machine rectified.
Hence his gratuity was forfeited. — Whether justified. (2 marks)
Answer :
Gratuity shall be forfeited under the following circumstances:
1. Where the services of the employee have been terminated due to wilful
omission or negligence causing damage, loss or destruction of property
of establishment. The forfeiture in this case will be limited to the amount
of loss/damage.
2. Where the services of the employee have been terminated due to riotous
or disorderly conduct or for any other act of violence by the employee.
The forfeiture in this case may be entire amount or part thereof
depending on the gravity of the offence.
3. Where the employee commits an offence involving moral turpitude while

in the course of his employment.
In the current case, the employer cannot withhold or forfeit gratuity since the
services were not terminated for the damages caused by the worker.
2011 - Dec [3] (g) Mr. Saxena on superannuation on 30.09.2011 submitted

an application in prescribed form to his employer on 05.10.2011 for payment
of gratuity of ` 15,00,000/-.
He has not received any payment till 10.12.2011 inspite of reminders. Advise
the steps to be taken by him and the benefits which he may receive.
(4 marks)
Answer :
The employer was to pay the amount of gratuity within 30 days from the date
it becomes payable. Hence employer has failed. As per Payment of Gratuity
Act, 1972 Maximum ceiling of gratuity is actual amount but not exceeding
` 10,00,000/-. Hence Mr. Saxena is entitled to maximum amount of
` 10,00,000 or the amount based on year of service and his wages
whichever is less. Since Employer has failed to pay, Mr. Saxena shall submit
appeal to the controlling authority for direction to pay
(a) Principal amount of gratuity and
(b) Interest for delayed period till the date of payment.
(d) Mr. S.K. Paul employed in seasonal establishment and was not
employed throughout the year claimed gratuity at the rate of 15 days
wages for each year of service. But Employer refused to pay any
Gratuity to employees of seasonal establishment. (2 marks)
Answer :
Employer shall pay gratuity at the rate of seven days wages for each season
to employees who are employed in a seasonal establishment and who are
not so employed throughout the year. Wages will include Basic and D.A.
Hence Mr. Paul is entitled to Gratuity.
2013 - June [4] (e) (ii) ABC Pvt. Ltd. incorporated on 2nd January 1980
carrying on business from the date of incorporation employing 50 persons.
Due to loss, the number of employees reduced to five w.e.f. 02.06.2011.
Mr. ‘A’ who retired on 31.05.2013 was refused gratuity on the ground that the
total number of employees is below 10 (ten). Whether employer was
justified? (3 marks)
Answer :
 The Act provides for payment of gratuity to worker employed in every
factory, shop, establishments, mines, educational institutions, port and
railway company, employing ten or more persons on any day of the
preceding 12 months.
 If the Act has become applicable to any establishment, it will continue to
be applicable even if the number of persons employed falls below ten or
any number as specified by the Central Government.
 All the employees irrespective of salary or status are entitled to the
payment of gratuity on completion of 5 years of service, in case of death
or disablement there is no minimum eligibility period.
In the light of above the employer is not justified in refusing gratuity to A.
2013 - Dec [3] (b) Anurag was an employee of Coffee Estate Ltd. The whole
undertaking of Coffee Estate Ltd. was taken over by a new company Asian
Coffee Ltd. The Service of Anurag remained continuous in the new company.
After serving for one year, Anurag met with an accident and become
permanently disable. Anurag applied to the new company for the payment
of gratuity. The company Asian Estate Ltd. refused to pay gratuity on the
ground that Anurag has served only for a year in the company. Examine the
validity of refusal of the company in the light of the provisions of the Payment
of Gratuity Act, 1972. (3 marks)
Answer :
According to the 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 service for not less than five years or 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 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 means such disablement as incapacities of 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, Anurag 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.
2013 - Dec [6] (a) Mr. Mahavir joined the company on 25.05.1987 and
retired on 30.11.2012 when his salary was INR 70,000 per month. He also
received conveyance allowance INR 20,000 per month and average
overtime INR 1,000 per month, calculate the amount of gratuity. (3 marks)
Answer :
He superannuated on 30.11.2012
Joined on 25.05.1987
He is entitled for 25 year 6 months + 5 = 26 years
Amount of gratuity
=
= INR 10,50,000
But maximum ceiling being INR 10,00,000
His gratuity is INR 10,00,000
2014 - June [4] (a) (ii) Ram is employed in Sweet Sugar factory, a seasonal
establishment. The factory was in operation for four months only during the
financial years 2011-12. Ram was not in continuous service during this
period. However, he has worked only 60 days. Referring to the provisions of
The Payment of Gratuity Act, 1972, decide whether Ram is entitled to
gratuity payable under the Act. Would your answer be the same in case Ram
works for 100 days? (2 marks)
Answer :
 For entitlement of gratuity one must work for at least 75% of the days on
which the establishment was open and in operation. The factory was in
operation for 120 days.
 One must work for 75% of 120 i.e. 90 days to claim gratuity. Ram is not
entitled to gratuity, since he has actually worked for less than 75% of the
number of days on which the establishment was in operation during such
period.
 If Ram had worked for 100 days, then he would have been entitled to
gratuity since the number of days on which he would have worked, in
that case, would have been 75% or more of the number of days on
which the establishment was in operation.
2015 - Dec [2] (e) (iv) Ajit an employee of Supertech Copper Ltd., continued
to occupy the quarter of the company for eight months after superannuation,
company decided to forfeit the amount of gratuity of Ajit. Examine the
decision taken by the company to forfeit the amount of gratuity in the light of
the Payment of Gratuity Act, 1972. (3 marks)
Answer:
The gratuity of an employee, whose services have been terminated for any
act, willful omission or negligence causing any damage or loss to, or
destruction of, property belonging to the employer, can be forfeited to the
extent of the damage or loss so caused. The gratuity payable to an
employee may be wholly or partially forfeited:
(i) if the services of such employee have been terminated for his riotous
or disorderly conduct or any other act of violence on his part or
(ii) if the services of such 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.
It is not a valid ground for forfeiture of entire gratuity. In such a case, the
company is entitled to charge the quarter rent as per rules and after
adjustment of such charges, Ajit is entitled to receive the balance gratuity.
1 Write short notes on Forfeiture of Gratuity.

12 - Dec [4] (a) (ii), 13 - June [3] (a) (iii) 2 Times
13 EMPLOYEES’ PROVIDENT
FUND AND MISCELLANEOUS
PROVISIONS ACT, 1952
 Object  Definitions and Various
 Scope Provisions of Employees’
 Applicability P ro vid e n t Funds and
 Basic Concepts Miscellaneous Provision Act,
1952
Legend

6.277
CHAPTER AT A GLANCE

1. Objective and - An act to provide for institution of provident
Scope of the Act funds, pension funds and deposit linked
insurance fund
- Applies to whole of India excluding Jammu &
Kashmir.
- Administered by Govt. of India through
Employees’ Provident Fund Office.
- Objective of the act is protect the interest of
workers and provide to them security in old age.
- Applies to employees receiving wages less than
or equal to ` 15,000 per month.
2. Applicability of - Factory having 20 or more persons engaged in
the Act industry mentioned under Schedule I
- Any other establishment to which Central Govt.
notifies.
Excludes:
- Co-operative establishments with less than 50
persons and working without power
- Establishment of/ under control/ under Act of
CG/ SG where employees are entitled to
benefits of provident or pension schemes.
Note:
- Act to apply even if later on number of person
reduce to less than 20
- Act to apply even if the unit divides itself and
operates as an independent unit
[Chapter  13] Employees’ Provident Fund and... O 6.279
3. Employee for the - Person employed for wages.

purpose of the Includes:
Act - Contract employee
- Apprentice excluding apprentice engaged under
Apprenticeship Act
- Part time employee.
4. Provident Fund - Every employee working in a factory or
establishment shall be entitled and required to
be a member from the date of joining onwards.
- Contribution is mandatory.
- 10% of the basic wage, dearness allowance and
retaining allowance of an employee to be paid
by employer as Employer’s Contribution.
- Employee needs to pay an amount equal to the
employer’s contribution.
- Employee may even opt to pay higher, but this
cast no obligation on employer.
5. Pension Scheme - Pension to be provided in case of:
Superannuation ; Retirement; Total
Disablement; Death during service; death after
superannuation; widow pension (minimum : `
450 p.m.); children pension (minimum : ` 115
p.m.); orphan pension (minimum : ` 170 p.m.)
- Minimum 10 years required for entitlement of
pension under the Act.
- Superannuation refers to attainment of age of
58 years.
Pension =
- Pensionable Salary to be computed as 12
months average salary
6. Employee - 1% of the basic wage, dearness allowance and

Deposit Linked retaining allowance & cash value of food
Insurance concessions of an employee to be paid by
Scheme employer as Employer’s Contribution.
- Employee needs not to make any contribution.
- Employer is also required to pay charges at the
rate of 0.01% of the employee-members for
meeting the administrative charges, subject to
minimum ` 2 per month.
7. Noteworthy - Casual / temporary/ workers called on urgency
Points basis or for short durations are not to be
regarded as employees for the purpose of EPF
Act.
- Employees Provident Fund Appellate Tribunal
presides over cases for determining monies due
from employers.
SHORT NOTES
(iv) Employees Deposit Linked Insurance. (4 marks)
Answer :
Employees Deposit Linked Insurance : This is the benefit provided to the
employees who join the EPF scheme. In this scheme, the employer
contributes some amount to the PF account of every employee on some
rational basis. The factors like PF balance, salary drawn, length of service
etc. may be considered for calculating the amount so payable. This is also
called EDLI benefit. This benefit is not available to employee in his lifetime
but is given to his nominee on the event of his death. The benefit shall not
exceed ` 1,30,000.

(v) Protection from attachment (EPF Act 1952) (4 marks)
Answer :
Protection from attachment:
The provident fund of employee is for his security in old age. Hence,
following protections are given to provident fund money which is to the credit
of employee.
(a) 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.
(b) The amount shall not be liable to attachment under any decree or order
of any Court in respect of any debt or liability incurred by the member or
the exempted employee.
(c) The official assignee appointed under the Presidency-Towns Insolvency
Act or any receiver appointed under the Provincial Insolvency Act is not
entitled to have any claim on such amount [Section 10(1)].
The protection is applied to provident fund pension and insurance
amounts receivable by employee under the scheme. 10(3).
2008 - Dec [2] (h) When and under what circumstances a person can
receive pension under Employees Provident Fund Scheme? (2 marks)
Answer :
The circumstances are as follows :
(i) On Superannuation Superannuation means reaching the retirement
age with at least ten years of service.
(ii) Before On attaining the age between 50 and retirement
Superannuation age and at least ten years of service
(iii) Death Death while in service or while not in service.

(iv) Permanent On becoming permanently unfit for employment
Disablement which the person was doing at the time of such
disablement.
provisions :
(d) Mr. Sham joining on 1.11.09 as an accountant wanted to become
member of PF from 1.11.09 but Personnel Manager disagreed.
(2 marks)
Answer :
As per PF Act, the employee becomes member of Provident fund
immediately on joining the duty. Hence Mr. Sham becomes member w.e.f.
1/11/ 2009 the date of joining. The personnel manager is wrong.
2010 - Dec [2] (g) Under what circumstances pension under E.P.F. can be
applied for by an employee? (4 marks)
Answer :
Please refer 2008 - Dec [2] (h) on page no. 281
2011 - June [2] (b) Employees Provident Fund Scheme applies to Sick
Industrial Undertaking with the same Rate of Contribution at par with others.
Do you agree ? (2 marks)
Answer :
Partly true. The EPF scheme is applicable to all sick units within the meaning
of SICA but the rate of contribution is not at par with others. The rate of
contribution is 10% in case of sick units.
2013 - June [4] (e) (i) What are the benefits a member of an Employees
Provident Fund & Misc. Provisions Act 1952 can get on retirement/death?
(2 marks)
Answer:
Retirement benefits are:
1. Accumulated Balance in PF A/C of the employee.
2. The employee pension on reaching 50/58 years of age or leaving/
retirement capital return of pension.
3. Widow pension, children pension, nominee pension or death of member.
4. Deposit linked insurance to family or to nominee.
2014 - June [6] (a) Explain basic wages under The Employees Provident
Fund Act, 1952. Enumerate the items which are not included in it.
(3 marks)
Answer :
Basic Wages: As per Section 2(b) of the Employees Provident Funds
and Miscellaneous Provision Act, 1952, the term “Basic Wages” means
all emoluments which are earned by an employee while on duty or on leave
or on holidays with wages in either case in accordance with the terms of the
contract of employment and which are paid or payable in cash to him, but
does not includes:
(i) the cash value of any food concessions;
(ii) any dearness allowance (that is to say all cash payments, by whatever
name called, paid to an employee on account of rise in the cost of
living), house rent allowance, overtime allowance, bonus, commission
or pay and other similar allowance payable to the employee in respect
of his employment or of work done in such employment; or
(iii) any presents made by the employer.
2014 - Dec [2] (c) (iii) State the Salient features of Employees Deposit
Linked Insurance as outlined in Employee’s Provident Fund & Miscl.
Provisions Act, 1952. (4 marks)
Answer :
Employees Deposit-linked Insurance Scheme:
(1) The Central Government may, by notification in the Official Gazette,
frame a scheme to be called the Employees’ Deposit-linked Insurance
Scheme for the purpose of providing life insurance benefits to the
employees of any establishment or class of establishments to which this
Act applies.
(2) There shall be established, as soon as may be after the framing of the
Insurance Scheme, a Deposit linked Insurance Fund into which shall be
paid by the employer from time to time in respect of every such
employee in relation to whom he is the employer, such amount, not
being more than one percent of the aggregate of the basic wages,
dearness allowance and retaining allowance (if any) for the time being
payable in relation to such employee as the Central Government may,
by notification in the Official Gazette, specify.
Explanation: For the purposes of this sub-section, the expressions
“dearness allowance” and “retaining allowance” have the same meanings
as in Section 6.
(3) The employer shall pay into the Insurance Fund such further sums of
money, not exceeding one fourth of the contribution which he is required
to make under sub-section (2), as the Central Government may, from
time to time, determine to meet all the expenses in connection with the
administration of the Insurance Scheme other than that expenses
towards the cost of any benefits provided by or under that scheme.
(4) The Insurance Fund shall vest in the Central Board and be administered
by it in such manner as may be specified in the Insurance Scheme.
(5) The Insurance Scheme may provide for all or any of the matters
specified in Schedule IV.
(6) The Insurance Scheme may provide that any of its provisions shall take
effect either prospectively or retrospectively on such date as may be
specified in this behalf in that Scheme.

(e) (iii) A person was declared insolvent and the Court ordered attachment
of all his properties. State whether the accumulations in the
Provident Fund Account of the person is attachable. (3 marks)
Answer:
 According to Sec. 10 of E.P.F. & M.P. Act, 1952 the amount standing to
the credit of any member in the fund or of any exempted employee in a
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 any Court
in respect of any debt or liability incurred by the member or order of any
Court in respect of any debt or liability incurred by the member or
exempted employee and neither the Official Assignee or any Receiver
appointed under respective Acts shall be entitled to or have any claim on
any such amount.
 The said treatment will also hold good in case of the death of the person
and accumulated amount is payable to his nominee.

(d) (ii) Is the amount standing to the credit of a member of the Provident
Fund attachable in the execution of decree or order of the Court
Examine the law, on this point, laid down in the Employees’
Provident Funds and Miscellaneous Provisions Act, 1952.
(7 marks)
Answer :
Protection against attachment:
 Statutory protection is provided to the amount of contribution to
Provident Fund under Section 10 from attachment to any Court decree.
Sub-section (1) of Section 10 provides that the amount standing to the
credit of any member in the fund or 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
or any Court in respect of any debt or liability incurred by the member or
the exempted employee and neither the official assignee appointed
under the Presidency Towns 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.
 The amounts standing to the credit of aforesaid categories of persons at
the time of their death and payable to their nominees under the scheme
or the rules, and 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.

(e) (ii) Employees provident funds and Miscellaneous Provisions Act, 1952
is not applicable to certain establishments. List out those
establishments. (5 marks)
Answer:
The Employees Provident Fund and Miscellaneous Provisions Act, 1952
does not apply to certain establishments as specified under Section 16 of
the said Act.
They are as follows:
(a) Any establishment registered under the Co-operative Societies Act,
1912 or under any other law for the time being in force in any state
relating to co-operative societies employing less than 50 persons and
working without the aid of power or
(b) To any establishment belonging to or under the Control of the Central
Government or a State Government and whose employees are entitled
to the benefit of Contributory Provident Fund or old age pension. Or
(c) Any other establishment set up under any Central Provincial or State Act
and whose employees are entitled to any Contributory provident fund or
old age pension.
(d) Any newly setup establishment (less than 3 years).
Central Government having regard to the financial position of any class of
establishment or other circumstances of the case may exempt that class of
establishment from the operation of this Act for such period as specified in
the notification Issued for this purpose.
2017 - Dec [4] (b) When can a member withdraw from his National Pension
Funds account? (5 marks)
Answer:
Withdrawal from the National Pension Fund Account is allowed for the
following purposes-
• For the purchase of a dwelling house/flat or for the construction of a
dwelling house including the acquisition of a suitable site for this
purpose;
• For repayment of loans in special cases;
• Withdrawal within one year before the retirement;
Such withdrawals are not required to be repaid.
2018 - June [4] (b) Enumerate the Central Record Keeping Agency under
Pension Fund Regulatory and Development Act 2013? (7 marks)
Answer:
Section 21 of the Pension Fund Regulatory and Development Act, 2013
deals with Central Record keeping Agency:
(1) The Authority shall, by granting a certificate of registration under
sub-section (3) of Section 27, appoint a central record keeping agency:
Provided that the Authority may, in public interest, appoint more than
one central record keeping agency.
(2) The central record keeping agency shall be responsible for receiving
instructions from subscribers through the points of presence, transmitting
such instructions to pension funds, effecting switching instructions
received from subscribers and discharging such other duties and
functions, as may be assigned to it under the certificate of registration or
as may be determined by regulations.
(3) All the assets and properties owned, leased or developed by the central
record keeping agency, shall constitute regulated assets and upon
expiry of certificate of registration or earlier revocation thereof, the
Authority shall be entitled to appropriate and take over the regulated
assets, either by itself or through an administrator or a person nominated
by it in this behalf:
Provided that the central record keeping agency shall be entitled to be

compensated the fair value, to be ascertained by the Authority, of such
regulated assets as may be determined by regulations:
Provided further that where the earlier revocation of the certificate of
registration is based on violation of the conditions in the certificate of
registration or the provisions of this Act or regulations, unless otherwise
determined by the Authority, the central record keeping agency shall not
be entitled to claim any compensation in respect of such regulated
assets.
PRACTICAL QUESTIONS
provision:
(b) During 2001-02, the number of employees were 50 and subsequently
reduced to 10 during 2009-10. Employer discontinued deduction as EPF
not applicable due to reduction of Employees. (2 marks)
Answer :
EPF Act, 1952 provides that once the Act is applied to any establishment, it
shall continue to be applied even when subsequently the number of
employees has reduced. Employer action is wrong in the eyes of law. EPF
scheme shall continue.
2010 - Dec [2] (f) Mr. Suresh, a casual labour draws ` 5,000/- per month. His
Employer does not include his name for the purpose of provident fund.
Whether the Employer is justified? (2 marks)
Answer :
Yes, the employer is justified because Suresh is a casual labour. Casual
labour is not entitled to be included in EPF scheme. As per EPF Act, all
employees in factories or establishments including contract labour but
excluding casual labour are covered under this act, if their monthly wages
are up to ` 15,000 per month.
Exercise of the powers conferred by Section 5 of the Employees

Provident Funds and miscellaneous Provisions Act, 1952, the Central
Government vide notification G.S.R. 610 (E) dated August, 2014 amended
the Employees’ Provident Funds Scheme, 1952 w.e.f 01st September,
Amendments are as follows:
 The statutory wage ceiling under the Employees’ Provident Funds
Scheme has been increased from ` 6,500 to ` 15,000 per month.
 Employees drawing pay exceeding fifteen thousand rupees per month
treated as excluded employees.
(a) An employee desirous to contribute 20% of salary as against 12%
towards P.F. contributions (8% being voluntary) and demand that
employer shall also contribute 20%. (2 marks)
Answer :
Here, the employee cannot demand for matching contribution because the
employer does not have to make equal contribution over and above the
statutory limit of 12% or 10% as the case may be. The employer is bound to
contribute upto the statutory limit only and if an employee contributes more
than statutory limit that does not mean the employer will also have to do the
same.
2012 - June [2] (c) Mr. Malhotra aged 50 years joined the P.F. Scheme on
01.01.2003. He decided to leave the service w.e.f. 01.07.2012 provided he
gets Pension under E.P.F. Scheme. Advise based on Rules. (2 marks)
Answer :
Pension is allowed when:
(i) an employee attains the age of 50 Years or more and
(ii) when he has completed a total service of 10 years or more and
(iii) when he is not receiving any other EPF Pension from any other
Employer. It is presumed he is not receiving any other EPF Pension.
He has attained the minimum age of 50 years but he has not completed
minimum 10 years of service.
Hence, he will not be entitled to pension if he leaves w.e.f. 1.7.12. He will
however, be entitled for pension if he leaves the Employment after 1.1.2013.
2012 - Dec [2] (b) ‘A’ on retirement withdrew the entire amount of his
accumulation in the Provident Fund. Later on he was appointed for a fixed
tenure. Employer disagreed to allow P.F. benefit in view of his retirement and
withdrawal of entire amount. Offer your views based on Rule position.
(2 marks)
Answer :
When any employee withdraws all his deposited amount from his provident
fund account, his account is treated as closed and no further benefit can be
given to the employee on this account. Hence employer was right.
2013 - Dec [4] (c) An inspector appointed under the Employees’ Provident
Funds and Miscellaneous Provisions Act, 1952 makes an inspection at 10
p.m. (five hours after factory timings) and seeks to take copies of the
“shareholders Register”. How far under the Act is his action reasonable?
(3 marks)
Answer :
Under Section 13(2) of the Employees Provident Funds and
miscellaneous Provision Act,1952, an inspector can inspect and make
copies of, take extract from any book, register or other documents
maintained in relation to the establishment and where he has reason to
believe that any offence under this Act has been committed by an employer
seize with assistance as he may think fit, such book, register or other
documents or portions there of as he may consider relevant in respect of that
offence. The register of shareholders is not relevant in any offence
mentioned in the Act. He is not justified in taking the copies of such register.
Moreover he should take copies of documents during working hours. It is
unreasonable on his part to take copies at 10.00 p.m.
In the present case, the inspector had sought to take copies of the
shareholder's register which is irrelevant to the offence, after the working
hours (10.00 pm) which is not reasonable.
2015 - Dec [2] (c) (iii) Sushil retired from the services of ABC Limited, on 31st
March, 2014. He had a sum of ` 10 lakhs in his Provident Fund Account. It
has become due for payment to Sushil on 30th April, 2014, but the company
made the payment of the said amount after one year. Sushil 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 Sushil is tenable under the provisions
of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
(3 marks)
Answer:
According to 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.
However, the higher rate of interest specified in the Scheme cannot exceed
the lending rate of interest charged by any scheduled bank. As per above
provision, Sushil 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 Sushil can claim
only 12 percent per annum interest on the due amount. Hence, claim of
Sushil for interest rate 15% is not tenable.
2015 - Dec [2] (d) (ii) After serving 15 years, Mr. Anand died on 30.09.2015
when his last twelve months average monthly wages was ` 5,000. Calculate
the amount to Employees Linked Deposit Insurance (ELDI) which can be
paid to nominee of Anand. (3 marks)
Answer:
As per current amendment [The Employees Deposit Linked Insurance
Scheme, 1976 as amended by the Employees Deposit Linked Insurance
(Amendment) Scheme, 2011], higher of the below mentioned would be paid
to the nominee of the deceased.
(A) Average monthly wages drawn (upto ` 6,500) during the twelve months
preceding the month of death, multiplied by twenty. (Maximum amount
payable is ` 1,30,000)
Or
(B) An amount equal to average balance in the accounts of the deceased in
the fund where average balance exceeds ` 50,000, the amount payable
shall be ` 50,000 plus 40% of the amount in excess of ` 50,000 (subject
to maximum benefit of ` 1,00,000). [In this case it is assumed that the
average Fund balance ` 1,00,000]
Hence,
Option A = 5,000 x 20= ` 1,00,000
Option B = 50,000 + 40% of 50,000 = ` 70,000
Therefore, amount to be paid to the nominee of Mr. Anand (Higher of A and
B) is ` 1,00,000
14 EMPLOYEES’ STATE
INSURANCE ACT,1948
 Object  Definitions and Various
 Scope Provisions of Employees State
 Applicability Insurance Act, 1948
 Basic Concepts
Legend

6.293
CHAPTER AT A GLANCE

1. Objective and  An act to provide benefits to employees of
Scope of organised sector.
Employees’  Applies to whole of India including Jammu &
State Kashmir.
Insurance Act  Objective of the act is protect the interest of
workers in contingencies such as sickness,
disability, maternity or death due to
employment injury.
 Amended in 2010 by virtue of ESI
(Amendment) Act, 2010 with a view to
increase the purview of the Act.
 Applies to employees receiving wages less
than or equal to 15,000 per month.
2. Dependent “Dependant” means any of the following relatives of
a deceased insured person, namely,–
(i) a widow, a legitimate or adopted son who
has not attained the age of twenty-five years,
an unmarried legitimate or adopted daughter.
[i (a) a widowed mother].
(ii) if wholly dependent on the earnings of the
insured person at the time of his death, a
legitimate or adopted son or daughter who
has attained the age of twenty five years and
is infirm;
(iii) if wholly or in part dependent on the earnings
of the insured person at the time of his
death,–
(a) parent other than a widowed mother,
[Chapter  14] Employees’ State Insurance Act, 1948 O 6.295
(b) a minor illegitimate son, an unmarried

illegitimate daughter or a daughter
legitimate or adopted or illegitimate if
married and a minor or if widowed and a
minor,
(c) a minor brother or an unmarried sister or
a widowed sister if a minor,
(d) a widowed daughter-in law,
(e) a minor child of a pre-deceased son,
(f) a minor child of a pre-deceased daughter
where no parent of the child is alive, or
(g) a paternal grand-parent if no parent of
the insured person is alive.
3. Employment  Employment injury means an injury caused to
injury an employee arising out of and in the course of
his employment being an insurable
employment.
 Whether the accident occurs within or outside
the territorial limits of India.
 Employment injury need not be confined to
employer’s premises only.
 It extends to time and place(theory of notional
extension).
 It is not limited to injury or wound, but has
broader coverage.
 There needs to be some nexus (means
relation) between the employment and the
accident.
Includes
 Injury by knocking the belt of pulley though
caused by ignorance of employee himself
 Injury caused by person who was beaten at the
job though there was threat pre announced due
to call for strike
Excludes
 Accident while on the way to office
4. Types of (i) Temporary Disablement:

disablement  Condition resulting from an employment
injury which requires medical treatment
and results the employee temporarily
incapable.
(ii) Permanent Partial Disablement:
 It means such disablement of a permanent
nature, as reduced the earning capacity of
an employee in every employment which
he was capable of undertaking at the time
of the accident resulting in the
disablement.
 Provided that every injury specified in Part
II of the Second Schedule to the Act shall
be deemed to result in permanent partial
disablement.
(iii) Permanent Total Disablement:
 It means such disablement of a permanent
nature as incapacitates an employee for all
work which he was capable of performing
at the time of the accident resulting in such
disablement.
 Provided that permanent total disablement
shall be deemed to result from every injury
specified in Part - I of the Second
Schedule to the Act or from any
combination of injuries specified in Part- II
thereof, where the aggregate percentage
of loss of earning capacity, as specified in
the said Part - II against those injuries,
amount to 100% or more.
Noteworthy Points:
 The rate of contribution towards the
Employees’ State Insurance Fund is 4.75%
and 1.75% of employee's wages by the
employers and employees respectively.
 According to ESI Act, 1948 wages includes

any remuneration paid at intervals not
exceeding two months.
 Factory or establishment to which the
Employees’ State Insurance Act,1948
applies has to be registered within 15 days.
 The judge of Employees Insurance Court
(EIC)should be either- Judicial Officer or
Legal practitioner for at least 5 years.
SHORT NOTES
2008 - Dec [6] Write note of the following:

(i) 'Employment injury' under the Employees State Insurance Act, 1948.
(5 marks) [CSEM - II]
Answer:
Employment injury means an injury caused to an employee arising out of and
in the course of his employment being an insurable employment, whether the
accident occurs within or outside the territorial limits of India. For an
employment injury there must be some nexus (means-relation) between the
employment and the accident. Employment injury need not be confined to
employer’s premises only. It extends to time and place (theory of motional
extension)
In the decided case, it was held that mere road accident of an employee
while going for employment will not constitute employment injury.
2009 - June [6] Write note on the following:

(i) 'Dependent' under the Employees' State Insurance Act, 1948.
Answer:
“Dependant” means any of the following relatives of a deceased insured
person, namely,–
(i) a widow, a legitimate or adopted son who has not attained the age of
twenty-five years, an unmarried legitimate or adopted daughter.
[i(a) a widowed mother].
(ii) if wholly dependent on the earnings of the insured person at the time
of his death, a legitimate or adopted son or daughter who has attained
the age of twenty five years and is infirm;
(iii) if wholly or in part dependent on the earnings of the insured person at
the time of his death,–
(a) parent other than a widowed mother,
(b) a minor illegitimate son, an unmarried illegitimate daughter or a
daughter legitimate or adopted or illegitimate if married and a
minor or if widowed and a minor,
(c) a minor brother or an unmarried sister or a widowed sister if a
minor,
(d) a widowed daughter-in law,
(e) a minor child of a pre-deceased son,
(f) a minor child of a pre-deceased daughter where no parent of the
child is alive, or
(g) a paternal grand-parent if no parent of the insured person is alive.
2009 - Dec [6] Write note on the following:

(v) 'Benefits to which insured persons are entitled' under the Employees'
State Insurance Act, 1948. (5 marks) [CSEM - II]
Answer:
Section 46 of the Employees State Insurance Act, 1948 provides for the
following benefits:-
(a) periodical payments in case of sickness certified by medical practitioner.
(b) periodical payment in case of disablement on account of employment
injury.
(c) periodical payment to dependants.
(d) medical treatment related payment.

(e) In case of death of insured, payment at rate of ` 1,500 in relation to
funeral expenses.

(ii) Purposes for which ESI fund may be expended under the Employees’
State Insurance Act, 1948 (5 marks) [CSEM - II]
Answer:
Various purposes for which ESI fund may be expended under the Employees
State Insurance Act, 1948. are as follows:-
 Payment of benefits to the insured person or their families.
 Payment in relation to any contract entered for implementing the
provisions of the Act.
 Payment of salaries to the employees of Employee State Insurance
Corporation.
 Payment of fees to members of standing committee.

(iv) Employees’ Insurance Court constituted under the Employees’ State
Insurance Act, 1948. (5 marks) [CSEM - II]
Answer:
 Employees Insurance court (EIC) is constituted under Section 74 of the
employees State Insurance Act, 1948.
 State Government is empowered to notify the EIC in the official Gazette.
 The judge of such Court should be either-
 Judicial officer or
 Legal practitioner for at least 5 years.
 EIC needs to perform the function of both adjudicating disputes as well
as determining the claims.

(ii) ‘Employment injury’ under the Employees’ State Insurance Act, 1948.
Answer:
Please refer 2008 - Dec [6] (i) on page no. 297

(iv) Purposes for which ESI fund may be expended under the Employees’
Answer:
Please refer 2010 - June [6] (ii) on page no.299
2012 - Dec [6] Write notes on the following:

(i) Purposes for which Employees’ State Insurance Fund may be
expended under the Employees’ State Insurance Act, 1948.
Answer:
Please refer 2010- June [6] (ii) on page no. 299
DISTINGUISH BETWEEN
2008 - Dec [7] (a) Distinguish between the following:

(i) 'Principal employer' and 'immediate employer' under the Employees'
Answer:
According to Section 2(17) of the Employees' State Insurance Act, 1948
principal employer means:-
Type of Organisation
Factory Under Control of Others
Department of any Government
Occupier Appointed Person
Authority responsible
OR for control and
H.O.D.(if none is appointed) supervision
'Immediate employer' means a person, in relation to employees employed
by or through him, who has undertaken the execution on the premises of a
factory or an establishment to which this Act applies or under the supervision
of principal employer or his agent, of the whole or any part of any work
which is ordinarily part of the work of the factory on establishment of the
principal employer.
2010 - June [7] (a) Distinguish between the following:

(ii) ‘Principal employer’ and ‘immediate employer’ under the Employees’
Answer:
Please refer 2008 - Dec [7] (a) (i) on page no. 300

(i) ‘Sickness benefit’ and ‘medical benefit’ under the Employees’ State
Insurance Act, 1948. (5 marks) [CSEM - II]
Answer:
Sickness benefit and medical benefit under the Employee's State
Insurance Act, 1948.
Sickness benefit Sickness benefit is periodical payment to any insured
person in case his sickness is certified by a duly
appointed medical practitioner or by any person having
such qualification and experience as may be specified
by ESI Corporation.
Medical benefit Medical benefit is given to an insured person or a

member of his family whose condition requires medical
treatment and attendance.
Such medical treatment may be given either in the
form of out patient treatment and attendance in a
hospital or dispensary, clinic etc.

(ii) ‘Principal employer’ and ‘immediate employer’ under the Employees’
Answer:
Please refer 2008 - Dec [7] (a) (i) on page no. 300
2017 - June [4] (b) What are the different purposes for which employees’
state insurance fund may be utilized by the central government?
(10 marks)
Answer :
Purposes for which the fund may be expended
Section 28 of the Act provides the Central Government may utilize the State
Insurance Fund only for the following purposes:
• payment of benefits and provision of medical treatment and attendance
to insured persons and, where the medical benefit is extended to their
families, the provision of such medical benefit to their families in
accordance with the provisions of this Act and defraying the charges and
costs in connection therewith;
• payment of fees and allowances to members of the corporation, the
Standing Committee and the Medical Benefit Council, the Regional
Boards, Local Committees and Regional and Local Medical Benefit
Councils;
• payment of salaries, leave and joining time allowances, travelling and

compensatory allowances, gratuities and compassionate allowances,
pensions, contributions to provident or other benefit fund of officers and
servants of the corporation and meeting the expenditure in respect of
offices and other services set up for the purpose of giving effect to the
provisions of this Act;
• establishment and maintenance of hospitals, dispensaries and other
institutions and the provision of medical and other ancillary services for
the benefit of insured persons and, where the medical benefit is
extended to their families;
• payment of contributions to any State Government, local authority or any
private body or individual, towards the cost of medical treatment and
attendance provided to insured persons and, where the medical benefit
is extended to their families, including the cost of any building and
equipment, in accordance with any agreement entered into by the
Corporation;
• defraying the cost (including all expenses) of auditing the accounts of the
Corporation and of the valuation of its assets and liabilities;
• defraying the cost (including all expenses) of the Employees’ Insurance
Courts set up under this Act;
• payment of any sums under any contract entered into for the purpose of
this Act by the Corporation or the Standing Committee or by any officer
duly authorized by the Corporation or the Standing Committee in that
behalf;
• payment of any sums under any decree, order or award of any Court or
tribunal against the corporation or any of its officers or servants for any
act done in the execution of his duty or under a compromise or
settlement of any suit or other legal proceedings or claim instituted or
made against the corporation;
• defraying the cost and other charges of instituting or defending any civil
or criminal proceedings arising out of any action taken under this Act;
• defraying expenditure, within the limits prescribed, on measures for the
improvement of the health, welfare of insured persons and for the
rehabilitation and re-employment of insured person who have been
disabled or injured; and
• such other purposes as may be authorized by the corporation with the

previous approval of the Central Government.
2018 - Dec [4] (b) Mention the benefits that are entitled to the insured
persons under the Employees’ State Insurance Act, 1948. (6 marks)
PRACTICAL QUESTIONS
2009 - June [8] Attempt the following stating relevant legal provisions and
decided case law, if any:
(i) Muskan Theatre is maintaining a canteen and a cycle stand through
private contractors. Regional Director, ESI Corporation sent notices to
the management of the theatre for contribution of the employees
engaged in the canteen and cycle stand. The management contends
that they are not employees but are the workmen of the contractor.
Hence, the management is not liable. Will the management succeed
in its contention?
(iv) An employer failed to pay his contribution under the Employees' State
Insurance Act, 1948. After 6 years, the ESI Corporation issued a
demand notice for payment of arrears of contribution. The employer
contended that the arrears of contribution beyond 5 years are not
recoverable. Will the employer succeed? (4 marks each) [CSEM - II]
Answer:
(i) No, the contention of the management of Muskan Theatre is not
legally tenable.
The theatre owner is liable as principal employer for the payment of
ESI contribution in respect of workers employed in canteen/ cycle
stand. In case of Royal Talkies Hyderabad V/s ESIC, the Supreme
Court held that the two operation namely keeping a cycle stand and
running a Canteen are incidental or adjuncts to the primary purpose
of the theatre and the workers engaged therein are covered under the
definition of employees.
(iv) In the above case, the employer contended that the arrears of
contribution beyond 5 years are not recoverable. But the employer’s
contention is not tenable in law as limitation period of 5 years is not
applicable in this case.
(vi) An employee was on his way to the factory. He met with an accident
one kilometre away from the place of his employment. He pleaded that
the injury was caused by accident “arising out of and in the course of
employment” and claimed employment injury benefits under the
Employees’ State Insurance Act, 1948. Will the employee succeed?
Answer:
The employee will not succeed.
In the case of Regional Director ESI v. Francis de Costa, 1997 LLJ
134 SC, the Court held that where an employee who is on his way to factory
meets with an accident, one K.M. from the place of employment the injury
cannot be said to be caused by accident arising out of and in the course of
his employment. Mere road accident on a public road while employee was
on his way to place of employment cannot be said to have its origin in his
employment in the factory.
2011 - Dec [8] Attempt the following stating relevant legal provisions and
decided case law.
(ii) XYZ Ltd., employing more than 50 workmen in its factory, failed to
register itself and pay contributions under the Employees’ State
Insurance Act, 1948. The inspector of the ESI Corporation issued a
notice to the company and directed it to register and pay contributions
towards its employees. On failure to comply with the terms of notice,
ESI Corporation determined the contributions payable by the company
and demanded payment with interest and penalty. The company

disputed its liability and asked the ESI Corporation to approach the
ESI Court for adjudication of the claim. Is the company justified?
Answer:
 In the above case, XYZ Ltd. employed more than 50 workmen in its
factory.
 XYZ Ltd. (employer) denies the liability or applicability of the provisions
of the Act.
 Employee’s State Insurance Act, 1948 does not stipulate as to who has
to approach the employees Insurance Court.
 In this case, employer is not justified as by general implication of law,
employer should approach the Employees Insurance Court rather than
the ESI corporation.
(v) Visual Electronics Ltd. sells household consumer durables such as TV,
washing machines, electric stoves, etc., of various manufacturers in its
sales outlet. While delivering these items to the homes of the
customers, it deputes its employees to install and explain the salient
features of these items. It pays its employees an additional amount of
defray for the actual travelling expenses. The Employees’ State
Insurance Corporation demanded contribution on this additional
payment including travelling expenses under the head ‘wages’. Is the
demand of Employees’ State Insurance Corporation justified ?
Answer:
In the above case, the employer is not liable to pay contribution on travelling
allowance.
 Travelling allowance does not form part of wages as defined under
Section 2 (22) of the ESI Act as held in ‘S. Ganeshan v/s The Regional
Director, ESI Corporation.’
 Demand of Employee’s State Insurance Corporation is not justified.
2012 - Dec [8] Attempt the following stating relevant legal provisions and
(iii) Lecktronics Ltd. is an establishment covered under the Employees’
State Insurance Act, 1948. The salesmen of the company were paid
a commission @ 10 % of the sales done by them every month. The
ESI Inspector asked the employer to deposit contributions (the sum of
money payable to the ESI Corporation by the principal employer in
respect of an employee) in respect of the commission paid. Is he
justified? Give reasons. (4 marks) [CSEM - II]
Answer:
According to ESI Act, 1948 wages includes any remuneration paid at
intervals not exceeding two months. The employee receives incentives/
commission in addition to wages. As the commission is paid every month,
the ESI Inspector can ask the employer to deposit contributions.

1 Distinguish between the following:
‘Principal employer’ and ‘immediate employer’ under
the Employees’ State Insurance Act, 1948.
10 - June [7] (a)(ii), 12 - June [7] (a) (ii) 2 Times
2 Write notes on the following:
Purposes for which ESI fund may be expended
under the Employees’ State Insurance Act, 1948.
10 - June [6] (ii), 12 - June [6] (iv) 2 Times
15 PAYMENT OF BONUS ACT, 1965
 Applicability Provisions of Payment of
Bonus Act, 1965.
Legend

6.308
[Chapter  15] Payment of Bonus Act, 1965 O 6.309
CHAPTER AT A GLANCE

1. Applicability and – The Act extends to the whole of India and
Objective of the applies to –
Payment of (a) Factory defined under Factories Act, 1948
Bonus Act, 1965 (b) Other establishment in which twenty or
more persons are employed on any day
during an accounting year.
– The objective of the Payment of Bonus Act,
1965 is timely payment of bonus to the
employees.
– The Payment of Bonus Act, contains
provisions relating to applicability, valuation,
set off, set on, payment, calculation of
allocable surplus etc. which ensures that the
employees are not exploited by the employers
while making the payment.
2. Employee – Any person employed on a salary or wage not
exceeding ` 21,000 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
or implied.
– Does not includes an apprentice.
3. Classes of Following are the classes of persons not governed
employees not by Payment of Bonus Act, 1965:
covered by – Employees employed by the Life Corporation
Payment of of India.
Bonus Act – Seamen as per Section 3(42) of the
Merchant Shipping Act, 1958.
– Employees registered or listed under any

scheme made under the Dock Workers
(Regulation of Employment) Act, 1948.
– Employees employed by an establishment
engaged in any industry called or by or under
the authority of any department of Central
Government or a State Government or a local
authority.
– Employees employed by:
(a) the Indian red cross society or any other
institution of a like nature.
(b) universities and other educational
institutions.
(c) institutions established not for the purpose
of profit.
– Employees employed by RBI
– Employees employed by
(a) IFCI
(b) SFC (State Financial Corporation)
(c) Deposit Insurance Corporation
(d) NABARD (National Bank for Agriculture &
Rural Development)
(e) UTI (Unit Trust of India)
(f) IDBI (Industrial Development Bank of
India)
(g) SIDBI (Small Industries Development
Bank of India)
(h) NHB (National Housing Bank)
(i) any other financial institution (other than
Banking Company) being an
establishment in public sector, which the
central government may by notification
specify.
4. What is Allocable – In relation to employer being a company (not

Surplus being a banking company) which has not
made the arrangements prescribed under the
Income tax for the declaration and payments
of the dividends within India: 67% of the
available surplus in an accounting year.
– Other Employers: 60% of the available
surplus
5. Meaning of – All remuneration (other than remuneration in
Salary/Wage as respect of overtime work) capable of being
per Bonus Act 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
– Includes-
Dearness Allowance (DA)
– Excludes-
(a) Any other allowance which the employee
is for the time being entitled to.
(b) Value of any house accommodation or of
supply of light, water, medical attendance
or other amenity
(c) Travelling concession
(d) Bonus (including incentive, production and
attendance bonus)
(e) Contribution paid or payable by the
employer to any pension/provident fund
(f) Retrenchment compensation or any
gratuity or other retirement benefit
payable to the employee
(g) Commission payable to the employee.
Note:
 Free food allowance or free food by his
employer shall be deemed to form part of the
salary or wage of such employee.
 Retaining allowance and dearness allowance
paid to the workman is also included in the
definition of salary or wage.
 Lay off compensation also included within the
ambit of wages.
 Subsistence allowance given during
suspension is not included in wages.
6. Calculation of – Gross profit is calculated as per First or
Amount payable Second Schedule.
as Bonus Computation of Gross Profits
The gross profits derived by an employer from
an establishment in respect of any accounting
year shall:
(a) In the case of a banking company, be
calculated in the manner specified in the
First Schedule.
(b) In any other case, be calculated in the
manner specified in the Second Schedule.
From this Gross profit the sum deductible
under Section 6 are deducted.
Sums Deductible from Gross Profits
(a) any amount by way of depreciation
admissible in accordance with the
provisions of sub-section (1) of Section
32 of the Income-tax Act
(b) any amount by way of development
rebate or investment allowance or
development allowance which the
employer is entitled to deduct from his
income under IT Act.
(c) Any direct tax which the employer is liable

to pay for the accounting year in respect
of his income, profits and gains during that
year
(d) Any other sums as are specified in
respect of the employer in the Third
Schedule.
– Add the sum equal to the difference
between the direct tax calculated on
gross profit for the previous year and
direct tax calculated on gross profit
arrived at after deducting the bonus
paid or payable to the employees.
– The figure so arrived is available
surplus.
– Of this surplus, 67% in case of
company (other than a banking
company) and 60% in all other cases
shall be the “allocable surplus” which
is the amount available for Payment
of bonus to employee.
7. Who is Eligible Every employee shall be entitled to be paid by his
for Bonus employer in an accounting year, bonus, in
accordance with the provisions of this Act,
provided he has worked in the establishment for
not less than thirty working days in that year.
8. When is an An employee shall be disqualified from receiving
employee bonus if he is dismissed from service for:
disqualified for (a) Fraud
Bonus (b) Riotous or Violent behaviour while on the
premises or the establishment.
(c) Theft, misappropriation or sabotage of any
property of the establishment.
9. Concept of – Where in respect of any accounting year, the

Minimum Bonus 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 of twenty per cent of such
salary or wage.
– Where the salary or wage of an employee
exceeds three thousand and five hundred
rupees per mensem, the bonus payable to
such employee, shall be calculated as if his
salary or wage were three thousand and five
hundred rupees per mensem.
10. Time limit for – Where there is a dispute regarding payment of
payment of bonus pending before any authority: Within a
Bonus month from the date on which the award
become enforceable
– In any other case: Within a period of eight
months from the close of the accounting year.
SHORT NOTES
(v) ‘Available surplus’ and ‘Allocable surplus’. (4 marks)
Answer :
Available surplus and Allocable surplus:
Available Surplus: From the gross profit certain deductions are made as
provided in the act. Then a sum is added representing the tax benefit for
bonus payment in the previous years i.e. difference between the direct tax
calculated on gross profit for the previous year and direct tax calculated on
gross profit arrived at after deducting the bonus paid or payable to the
employees. This is available surplus.
Allocable Surplus:
(i) 67% of Available surplus if the company (not banking company) has
not made provisions for payment of dividend as per Income Tax Act.
(ii) 60% of available surplus for any other case.
provisions :
(b) Every employee in an establishment is entitled to bonus under the
Payment of Bonus Act. (2 marks)
Answer :
False : Following conditions should be satisfied for entitlement of bonus
under Payment of Bonus Act. (i) he has worked not less than 30 days (ii) his
salary/ wage does not exceed ` 21,000 per month. [Section 2(13)] (iii)
provided such establishment comes under the Payment of Bonus Act.
However, an employee who is dismissed from service for fraud or riotous
behaviour or theft, mis-appropriation or sabotage of any property of an
establishment is not entitled to bonus.
The Amendment Act has amended the Principal Act in the following
manner:
Amendment of Eligibility Limit through Amendment of Sec. 2(13).
The Amendment Act has now widened the scope of employees eligible for
payment of bonus from those drawing salary of INR 10,000 per month to INR
21,000 per month.
2008 - Dec [4] (b) A dismissed employee is not entitled to bonus under
Bonus Act.Comment, based on legal provision. (2 marks)
Answer :
Following conditions should be satisfied for entitlement of bonus under
Payment of Bonus Act. (i) he has worked not less than 30 days (ii) his
salary/wage does not exceed ` 21,000 per month [Section 2(13)] (iii)
provided such establishment comes under the Payment of Bonus Act.
Section 21 of the Bonus Act, states that for the purpose of bonus due
from employer, the term employee includes a person who is no longer in
service. Hence a dismissed/retrenched employee is also entitled to receive
bonus. However, if the dismissal or retrenchment is on account of fraud,
riotous behaviour, misappropriation, theft and sabotage, he shall not be
entitled to any bonus.
2009 - June [2] (d) Is there any time limit for payment of bonus under Bonus
Act? (2 marks)
Answer :
(a) Where there is dispute regarding payment of bonus pending before any
Authority, under Sec. 22 all amounts payable within a month from the
date on which the award becomes enforceable or the settlement comes
into operation in respect of such disputes.
(b) In any other case within 8 months from the close of accounting year.
Appropriate Government or such Authority authorized by Govt. may
extend the said period of 8 months but total period so extended shall not
in any case exceed 2 years.
2010 - Dec [1] {C} Comment on the following based on legal provisions (No
marks for wrong reasons/justification)
(a) A dismissed employee who was reinstated without wages for the period
of dismissal is entitled to bonus. (2 marks)
Answer :
No. It is incorrect. A reinstated employee is entitled to bonus if he is
reinstated with wages for the period of dismissal. In this case, the dismissed
employee is reinstated but without wages for the period of dismissal hence
he/she is not entitled to bonus. Bonus is related with the wages paid and
when wages have not been paid, question of paying bonus does not arise.
2011 - Dec [2] (e) Under Payment of Bonus Act number of days actually
worked is one of the conditions and therefore state the method of calculation
of working days. (3 marks)
Answer :
In addition to actual attendance following shall also be considered in
computation of numbers of working days :
Section 14, of the Payment of Bonus Act, 1965 provides that an employee
shall be deemed to have worked in an establishment in any accounting year
also on the days on which:
(a) he has been laid off under an agreement or as permitted by standing
orders under the Industrial Employment (Standing Orders) Act 1946 (20
of 1946) or under the Industrial Disputes Act 1947 (14 of 1947) or under
any other law applicable to the establishment;
(b) he has been on leave with salary or wages;
(c) he has been absent due to temporary disablement caused by accident
arising out of and in the course of employment; and
(d) the employee has been on maternity leave with salary or wage, during
the accounting year.
(e) ABC Ltd. which incurred heavy loss during 2011-12 has not paid Bonus
to any of its employees. (2 marks)
Answer:
As per Payment of Bonus Act, 1965 the employer should pay minimum
bonus of 8.33% to the employee on his salary or wages earned during the
accounting year. The minimum bonus should not be less than INR 100
otherwise INR 100 will be paid. Minimum bonus will have to be paid even if
the employer does not have any allocable surplus in the concerned
accounting year. If the employee has not attained fifteen year of age at the
beginning of the year, the minimum bonus will not be less than INR 60.
2014 - Dec [2] (d) (iii) The workers of a factory were paid a lump sum Bonus
during Id festival, which was not in a fixed time of the year. When the
statutory bonus becomes due, can the employer adjust the festival bonus
from it? What other dues, if any, may be deducted from the statutory bonus?
(3 marks)
Answer :
It is very customary these days to pay interim bonus in the form of puja
bonus or other customary bonus, then the employer is entitled to deduct the
amount of bonus so paid from the amount of bonus payable by him to the
employee under this Act in respect of that accounting year and the employee
will be entitled to receive only the balance. Moreover, if an employee is found
guilty of misconduct causing financial loss to the employer, then the
employer can deduct the amount of loss from the amount of bonus payable
by him to the employee under this Act in respect of that accounting year only.
If an employee has not worked for all the working days in an accounting
year, the minimum bonus of one hundred rupees or, as the case may be, of
sixty rupees, if such bonus is higher than 8.33 percent of his salary or wage
for the days he has worked in that accounting year, is proportionately
reduced.

(d) (ii) A worker was caught red handed for theft and was suspended for
four days after proper enquiry. Is he entitled to bonus payable to an
employee under The Payment of Bonus Act, 1965? (2 marks)
Answer:
Notwithstanding anything contained in this Act, 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 behaviour while on the premises of the
establishment; or
(c) Theft, misappropriation or sabotage of any property of the establishment.
Hence, the worker is not entitled to bonus.

(c) (i) What procedure shall an employee adopt for the recovery of the
amount of bonus due to him from his employer under the Payment
of Bonus Act, 1965? (7 marks)
Answer :
Recovery of bonus due from an employer:
In those cases where any money by way of bonus is due to an employee
from his employer under a settlement or an award or agreement, the
employee is entitled to recover the same by following the procedure
prescribed in Section 21 of the Act. It is important to note here that the mode
of recovery of bonus prescribed under this section shall be available only if
the bonus sought to be recovered is due under a settlement or an award or
an agreement. It will not apply to recovery of bonus which is payable under
the Act.
The provisions relating to the recovery of bonus, as contained in
Section 21, are as under:
1. The bonus due to an employee from his employer under a settlement or
an award or agreement, can be recovered by him by making an
application to the Appropriate Government for the recovery of the same.
2. The application may be made by the employee himself or by any person

authorised by him in writing. In case of death of the employee, such an
application may be made by his assignee or heirs.
3. On receipt of the application, if the Appropriate Government is satisfied
that any money is so due to the employee, it shall issue the certificate for
that amount to the collector, and the collector shall proceed to recover
the same in the same manner as an arrear of land revenue.
4. The application to the Appropriate Government should be made within
one year from the date on which the money became due to the
employee from the employer. However, the Government may entertain
such application even after the expiry of said period of one year, if it is
satisfied that the applicant had sufficient cause for not making the
application within the prescribed period of one year.

(b) (i) Explain the ‘time limit for payment of bonus’ to the employees in
different circumstances under the provisions of the Payment of
Bonus Act, 1965. (5 marks)
Answer:
Time limit for payment of bonus:
Section 19 of the Payment of Bonus Act, 1965 prescribes the time limit for
the payment of bonus under the following conditions:
(1) Under Section 19 (1) (a) of the said Act, where the dispute is between
the employer and the employees regarding the payment of bonus and
such dispute is under reference to the prescribed authority, the employer
is bound to pay his employee bonus in cash within one month from the
date on which the award becomes enforceable or the settlement comes
into operation, in respect of such dispute.
(2) Under Section 19 (1) (b) of the said Act, in all other cases, the payment
of bonus is to be made within a period of 8 months from closing of the
accounting year. But this period of 8 months may be extended up to a
maximum of 2 years by the Appropriate Government or by any authority
prescribed by the Appropriate Government only on an application to it by

the employer and is satisfied that sufficient reasons exist for granting
extension. Moreover, the extension can be made only by an order.
2017 - June [7] (b) Discuss the procedure for the recovery of bonus due
from an employer. (5 marks)
Answer:
Procedure for the Recovery of Bonus Due from an Employer
Section 21 of the Act provides the procedure for the recovery of bonus in
case the employer has not paid under a settlement or an award or
agreement. In such cases:
• the employee himself; or
• any other person authorized by him in writing in this behalf; or
• in the case of death of the employee, his assignee or heirs
may make an application to the appropriate Government for the recovery of
the money due to him. If the appropriate Government or such authority
authorized is satisfied that any money is due, it shall issue a certificate to the
Collector for that amount to the Collector who shall proceed to recover the
said amount in the same manner as an arrear of land revenue.
It may be noted that every such application shall be made within one year
from the date on which the money become due to the employee from the
employer. As such application may be entertained after the expiry of the said
period of one years; if the Appropriate Government is satisfied that the
applicant had sufficient cause for not making the application within the said
period.
PRACTICAL QUESTIONS
2012 - Dec [2] (g) All the employees who are covered under Bonus Act were
paid Holi Bonus of ` 500/- each. Later on due to loss, the Employer paid
minimum Bonus @ 8.33% but after deduction of said ` 500/-. Whether
Employer was justified. (2 marks)
Answer :
Yes, Employer was justified as per provisions of Section 17 of the Payment
of Bonus Act, 1965. The Employer is entitled to deduct the amount of any
Puja Bonus or other customary Bonus (here Holi Bonus) so paid from the
amount of bonus payable to the employees in respect of that accounting
year.
2013 - June [1] {C} Comment on the following based on legal provision:
(d) Mr. E joined as Supervisor on monthly salary of INR 6,450 on 1st Feb
2013 and resigned on 28th Feb 2013. His employer paid Bonus @ 10%
to all the eligible employees. Hence Mr. E is entitled to Bonus for the
period of his service. (2 marks)
Answer :
Following conditions should be satisfied for entitlement of bonus under
Payment of Bonus Act. (i) he has worked for not less than 30 days’ (ii) his
salary/wages does not exceed ` 21,000 per month [Section 2(13)] (iii)
provided such establishment comes under the Payment of Bonus Act. Mr. E
is not entitled to bonus as he has not worked for minimum period of 30 days.
2013 - Dec [4] (a) (ii) A company having its registered head office in Kolkata
has three departments in Delhi, Chennai and Mumbai. The company paid
minimum bonus under Payment of Bonus Act, to all its entitled employees
of head office excepting the employees of departments located outside
Kolkata. State whether employer was right. (3 marks)
Answer :
The employer is wrong. As per Section 3 of the Payment of Bonus Act,
1965, for the purpose of computation of bonus, an establishment shall
include departments, undertakings, and branches. It is immaterial whether
these are situated in same place or not.
Exception: A branch, department or undertaking shall not be treated as part
of an establishment if the following 2 conditions are satisfied:
(a) A separate B/S and P&L A/c has been prepared for such branch,
department or undertaking.
(b) Such branch, department or undertaking has never been treated as part
of the establishment for the purpose of computation of bonus.
But since the question is silent regarding the above mentioned exceptions,
we may assume that the establishment consists of different departments,
undertakings, and branches and all such units are treated as part of same
establishment for the purpose of computation of bonus.
Hence, the employer’s contention is not correct and the employees of all the
three departments are entitled to bonus.
2014 - June [2] (b) Mr. Sharma is a supervisor in a factory drawing salary of
` 7,000 pm. In a particular accounting year he was on one month leave with
salary. His employer declared minimum bonus payable as per the Payment
of Bonus Act, 1965, to all eligible employees. State in this connection:
(i) What shall be the salary that shall be taken into account for the
purpose of calculating bonus payable to him?
(ii) What shall be the total bonus payable to him in that accounting year?
(iii) What would be your answer if the company suffer losses in that
accounting year?
(iv) Is bonus payable to him if he was illegally terminated?
(1× 4 = 4 marks)
Answer :
(i) The bonus will be calculated on ` 7,000 even if the employee earns a
higher salary. Where the salary or wage of an employee exceeds
` 7,000 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 and wage were ` 7,000 per mensem
(Section 12). This means employees getting salary or wage upto
` 1,000 will be covered by the Act, but for payment of bonus their
salary will be taken as ` 7,000.
Amendment of Calculation of Bonus through Amendment of
Sec. 12.
Sec. 12 of the Principal Act, provided that the bonus payable to an
employee shall be in proportion to his/her salary. However, where an
employee’s salary was over INR 3,500 per month, for the purpose of
calculating bonus, the salary was assumed to be ` 3,500 per month.
With a view to maximise bonus earnings, the Amendment Act, has
increased the wage ceiling from ` 3,500 per month to ` 7,000 per
month or the minimum wage for the scheduled employment as fixed
by the appropriate government, whichever is higher.
Again for the purpose of this section, the Scheduled Employment shall
have the same meaning as assigned to it in Clause (g) of Sec. 2 of the
Minimum Wages Act, 1948.
(ii) The total bonus payable to him in that accounting year should be
` (7,000 × 12 × 8.33%) = ` 6,997.2. For the purpose of calculating the
total working days, leave with salary or wages shall be deemed to be
working days for the employee. Therefore, Mr. Sharma would be
eligible for 12 months bonus.
(iii) The bonus shall have to be paid by the employer notwithstanding
anything contained in Section 10(1), but this payment is subject to the
other provisions of the Act. And even if the employer suffers loss
during the accounting year, he is bound to pay the minimum bonus as
prescribed in Section 10 (State vs Sardar Dalip Singh Majhithia,
1979).
(iv) Disqualifications for payment of Bonus: (Section 9) notwithstanding
anything contained in the Act, an employee shall be disqualified from
receiving bonus under the Act, if he is dismissed from services for:
(a) Fraud;
(b) Riotous or violent behavior while on the premises of the
establishment; or
(c) Theft, misappropriation or sabotage of any property of the

establishment.
If an employee is illegally terminated from service, he still remains
qualified and eligible to receive bonus. Where an employee was prevented
from working by reason of an illegal order, he would be eligible for bonus.
2015 - Dec [2] (d) (iii) A workshop is employing 50 workmen. A shop-

supervisor is drawing a monthly wages of ` 9,000. HRD paid bonus to all
employees except the supervisor. The supervisor contends that he is also
entitled to bonus. Referring to the provisions of Payment of Bonus Act, 1965,
decide whether HRD’s action is correct? (2 marks)
Answer:
No, HRD’s action is not correct. The upper limit of salary fixed in Section 2
(13) by the Payment of Bonus (Amendment) Act, 2015. Every employee
whose gross salary is less than ` 21,000 shall be entitled to be paid bonus
by his employer provided he has worked in the establishment for not less
than thirty working days. In view of this, the supervisor drawing monthly
salary of ` 9,000 is entitled to receive bonus from the company.
2018 - June [7] (b) Kelson Limited has two separate units at Delhi and
Mumbai in India. Every unit of the said company prepares and maintains
separate Balance Sheet and Profit and Loss Account. Delhi unit is incurring
continuous losses and hence bonus is not paid to the employees of this unit.
Decide, under the Payment of Bonus Act, 1965 whether the employees of
the said unit can claim bonus on the ground that the unit incurring loss is a
part of one single establishment ? (5 marks)
Answer:
All the two units shall be treated as two separate establishments since all the
two units maintain separate B/S and P&L Account.
Employees of the unit which is incurring losses:
• are not entitled to claim bonus on the ground that the unit incurring loss
is a part of one single establishment;
• are entitled to minimum bonus as per the provisions of Sections 10,12,13

and 14 of the Payment of Bonus Act,1965, since minimum bonus is
payable whether or not there is any allocable surplus (and whether the
establishment has made a profit or incurred a loss).
However, for the purpose of computation of bonus, the amount of allocable
surplus shall be taken for that particular unit only, and not of all the two units
taken together.
16 MINIMUM WAGES ACT, 1948
 Basic Concepts  Definitions and Various
 Object Provisions of Minimum Wages
 Scope Act, 1948
 Applicability
Legend

6.327
CHAPTER AT A GLANCE

1. Objective and - An Act to protect the interests of workers
Scope of the employed in unorganised sector.
Minimum Wages - The Act extends to whole of India.
Act, 1948 - Objective of the Act was to prevent the
exploitation of labour and prescribe the
minimum wages for the employees in certain
employment.
2. Who is an Employee means any person who is employed
Employee for:
- hire or reward to do any work
- skilled or unskilled
- manual or clerical
in a scheduled employment in respect of
which minimum rates of wages have been
fixed
Includes:
- An out-worker to whom any articles or
materials are given out by another person to
be made up, cleaned, washed, altered,
ornamented, finished, repaired, adapted or
otherwise processed.
- Employee declared to be an employee by the
appropriate Government;
- Employee includes contract employees
Excludes:
- Member of the Armed Forces.
3. What is meant by - Wages means all remunerations, capable of
the term Wages being expressed in terms of money, which
would be payable to a person employed in
[Chapter  16] Minimum Wages Act, 1948 O 6.329
respect of his employment in case the terms

of the contract of employment were fulfilled.
Includes-
- House rent allowance
Excludes-
- Any house accommodation supply of light,
water, medical attendance
- Any other amenity or any service excluded by
Appropriate Government
- Any contribution paid by the employer to any
PF
- Any travelling allowance
- Any sum paid to the person employed to
defray special expenses
- Any gratuity payable on discharge
4. Who fixes the - The Appropriate Government has to fix the
minimum rates of minimum rates of wages payable to
Wages employees employed in an employment.
- The appropriate Government shall review the
minimum rates so fixed at such intervals as it
may think fit ,such intervals not exceeding
5 years and revise the minimum rate of
wages ,if necessary.
 Can fix only if there are a minimum of
1000 employees in the state in that
Scheduled Industry
 Minimum wages can be revised on
retrospective basis.
Minimum wages under the Minimum Wages Act,
1948 may be fixed as:
- Time work
- Piece work
- Guaranteed time rate
- Overtime rate
Apart, from the aforesaid manner, it can also be
fixed as follows:
- Different scheduled employments
- Different classes of work
- On the basis of adults, adolescents, etc.
5. Procedure for There are two methods, the Appropriate
Fixing and government may follow in fixing minimum rate of
Revising Minimum wages:
Wages - Committee Method
 Under the committee method the
appropriate Government appoint
committees and sub-committees.
 After considering the advise of the
committee, the appropriate Government
shall fix or revise the minimum wages by
official notification in the Official
Gazette.
 Government is not bound to accept the
recommendations given by the
committee.
- Notification Method
 Under the notification method, the
appropriate Government by notification in
the Official Gazette publish the proposals
for minimum rates of wages from a date
not less than 2 months from the date of
notification. The persons so affected by
the rates of wages may give their
representation.
 After considering the representation from
the various groups, Government will
prescribe the minimum rates of wages.
- Other Noteworthy Points:

• Payment of less than minimum wages is
an offence
• Even if the Company is running into
losses it has to pay minimum wages
• Minimum wages needs to be paid in
cash, though they may be paid in kind
too.
• In case of termination of services of an
employee, wages are to be paid within 2
days from date of such termination.
• Imprisonment of 6 months or fine of upto
` 500 or both in case of breach of the Act
by paying lesser than stipulated minimum
wages.
6. Central For Scheduled employment carried under the
Government authority of Central Act
 Railway
 Mines
 Oil field
SHORT NOTES

(ii) Powers of Inspectors (Minimum Wage Act). (4 marks)
Answer :
Powers of Inspector : (Minimum Wages Act)
The inspector may enter at all reasonable hours any premises for the
purpose of examining any register, record of wages or notices and require
the production of such documents for inspection.
Examine any person whom he finds in any such premise or place and
who he has reasonable cause to believe is an employee/employed therein
or an employee to whom work is given out therein.
Require any person giving out work and outworkers to give any
information.
Seize or take copies of such register, record of wages or notice, or
portion thereof as he may consider relevant in respect of an offence under
the Minimum Wages Act 1948, which he has reasons to believe has been
committed by an employer and exercise such other powers as may be
prescribed.

(d) ‘Overtime’ under Minimum Wages Act, 1948 (5 marks)
(f) Mr. Malhotra, Factory Manager, stated that payment of wages can also
be made in kind. (Minimum Wages Act 1948) - offer your views. (2 marks)
Answer :
The Minimum Wages Act 1948 states that the wages shall be paid in cash
and not in kind. If payment in kind is approved by the Govt. then and only
then the wages can be paid in kind.
2011 - Dec [3] (e) Mr. Singh is engaged in two types of jobs in a factory that
of a welder and security guard. As the wage rates are different for two
different jobs, the employer calculates his minimum wages at an average
rate. Whether this is correct. (2 marks)
Answer :
Where an employee performs two or more classes/types of work having
different minimum rates of wages the employer shall pay to such employee
in respect of the time respectively occupied in each such class of work,
wages at not less than the minimum rate in force in respect of each such
class. Thus employer just can not pay him at simple average rate of both
wages of both classes of job. (Sec. 16 of the Minimum Wages Act, 1948).
2014 - June [5] (a) (i) Explain Cost of living Index Number under The
Minimum Wages Act, 1948. (2 marks)
Answer :
“Cost of living Index Number” in relation to employees in any scheduled
employment in respect of which minimum rates of wages have been fixed,
means the Index Number ascertained and declared by the Competent
Authority by notification in the official gazette to be the cost of living index
number applicable to employee in such employment.
2014 - Dec [2] (c) (ii) A is engaged in two types of job in a factory, that of
mechanic and watchman. The wage rates are different for two different jobs.
The employer calculates his minimum wage on an average rate. State
whether this is correct, and explain your views as per Payment of Minimum
Wages Act, 1948. (2 marks)
Answer :
Where an employee does two or more classes of work, to each of which a
different minimum rate of wages is applicable, the employer shall pay to such
employee in respect of the time respectively occupied in each such class of
work, wages at not less than the minimum rate in force in respect of each
such class. Thus, employer just cannot pay him at simple average rate of
both wages of both classes of job.
2015 - Dec [2] (c) (iv) Explain the procedure for fixing and revising minimum
wages under Minimum Wages Act, 1948. (3 marks)
Answer:
Procedure for Fixing and revising Minimum Wages (Sec.5) :
(1) In fixing minimum rates of wages in respect of any scheduled
employment for the first time under this Act or in revising minimum rates
of wages so fixed the appropriate government shall either:
(a) appoint as many committees and sub-committees as it considers
necessary to hold enquiries and advise it in respect of such fixation
or revision as the case may be, or
(b) by notification in the Official Gazette, publish its proposals for the
information of persons likely to be affected thereby and specify a
date not less than two months from the date of the notification on
which the proposals will be taken into consideration.
(2) After considering the advice of the committee or committee appointed
under clause (a) of sub- sec. (1) or as the case may be, all
representations received by it before the date specified in the notification
under clause (b) of that sub-section, the appropriate government shall
by notification in the Official Gazette, fix or as the case may be revise the
minimum rates of wages in respect of each scheduled employment and
unless such notification otherwise provides it shall come into force on the
expiry of three months from the date of its issue :
Provided that where the appropriate government proposes to revise the
minimum rates of wages by the mode specified in clause (b) of sub-sec.
(1) the appropriate government shall consult the Advisory Board also.
2015 - Dec [2] (d) (iv) Explain the procedure for fixing and revising minimum
Answer:
Please refer 2015 - Dec [2] (c) (iv) on page no. 334

(b) (ii) The Minimum Wages Act, 1948 prescribes payment of wages in
cash only. Comment. (4 marks)
Answer :
1. Minimum wages payable under this Act shall be paid in cash.
2. Where it has been the custom to pay wages wholly or partly in kind, the
Appropriate Government being of the opinion that it is necessary in the
circumstances of the case may by notification in the Official Gazette
authorise the payment of minimum wages either wholly or partly in kind.
3. If Appropriate Government is of the opinion that provision should be
made for the supply at essential commodities at concession rates the
Appropriate Government may by notification in the Official Gazette
authorise the provision of such supplies at concessional rates.
4. The cash value of wages in kind and of concessions in respect of
supplies of essential commodities at concessional rates authorised
under sub-sections (2) and (3) shall be estimated in the prescribed
manner.
2018 - Dec [4] (a) Explain the procedure for fixing and revising minimum
17 PAYMENT OF
WAGES ACT, 1936
 Basic Concepts  Definitions and Various
 Object Provisions of Payment of
 Scope Wages Act, 1936
 Applicability
Legend

6.336
[Chapter  17] Payment of Wages Act, 1936 O 6.337
CHAPTER AT A GLANCE

1. Objective and  Regulates the payment of wages to certain
Scope of the classes of persons employed in the industry.
Payment of  Prevents exploitation of workers by ensuring
Wages Act, timely payment without unauthorised deductions
1936  The scope of this act is limited to the person
drawing the wages for the month, which does
not exceed ` 18,000.
 The department is enforcing this legislation to
the persons employed at the registered factories.
 Applies to whole of India including J&K.
 Prevents exploitation of workers by ensuring
timely payment without unauthorised deductions.
2. Responsibility  Every employer shall be responsible for the
for payment of payment to persons employed by him of all
wages wages required to be paid under this Act.
 Employer includes legal representatives of
deceased employer.
3. Fixation of wage  Wage period should not exceed one month.
period and time  In case an employee is engaged in an
of payment of establishment in which less than one thousand
wages persons are employed, wages shall be paid
before the expiry of the seventh day after the
last day of wage period.
 In case an employee in an establishment in
which more than one thousand persons are
employed, wages shall be paid before the expiry
of the tenth day after the last day of wage
period.
 Prevents exploitation of workers by ensuring

timely payment without unauthorised
deductions.
Wages to be paid in currency coins and
currency notes
4. Deduction Following deductions can be made by an employer
which may be while making payment of wages :
made from  fines.
wages  deduction for absence of duty.
 deduction for damage to or loss of goods
expressly entrusted to the employed person.
 deduction for house accommodation supplied
by an employer.
 deduction for amenities and services provided
by the employer.
 deduction for recovery of advances provided by
employer.
 deduction for recovery of loan given by
employer.
 deduction required to be made by order of a
Court.
 deduction for subscription to, and for repayment
of advances from any provident fund.
 deduction made with the written authorisation of
the person employed for payment of any
premium on his Life Insurance Policy.
 deduction for contribution to fund made for
welfare of employees.
 deduction for contributions to any insurance
scheme framed by the Central Government for
the benefit of its employees.
5. Mode of  Wages can be paid in coins or currency notes or

Payment both
 Employer may pay by cheque or by crediting the
wages in Bank A/c with written consent of
employee.
6. Maintenance of An employer shall maintain registers and records
registers and giving full particulars of the person employed by him,
records work performed by them, wages paid to them, the
deduction made from wages etc.
7. Claims arising  The State Government shall appoint an
out of deduction authority to hear and decide claims arising out
from wages or of deductions from the wages, or delay in
delay in payment of wages.
payment of  An aggrieved person can apply to the authority
wages and appointed by The State Government.
penalty for  Where an application is made by an applicant,
malicious or the authority shall hear the applicant and the
vexatious employer. After hearing and further enquiry the
claims authority can direct the refund to the employed
person of the amount deducted or the payment
of delayed wages.
8. Other  Includes contract employees
Noteworthy  Deduction in relation to fine imposed cannot
Points exceed 3% of wage
SHORT NOTES

(d) Limit of deductions from wages (5 marks)
Answer:
Limit of Deductions from Wages
Section 7(3) provides up to which limit of the wage, the deductions may be
made from the wages of the employees. Notwithstanding anything contained
in this Act the total amount of deductions which may be made in any
wage-period from the wages of any employed person shall not exceed:
• in cases where such deductions are wholly or partly made for payments
to co-operative societies – 75% of such wages and
• in any other case – 50% of such wages.
Where the total deductions authorized under sub-section (2) exceed
seventy five per cent or as the case may be, fifty per cent of the wages the
excess may be recovered in such manner as may be prescribed.
2008 - Dec [4] (a) Write explanatory note on:
(ii) Permissible deduction under Payment of Wages Act; (4 marks)
Answer :
The deductions from wages of an employee may be of the following kinds
subject to limit on deductions as prescribed in the Act. The deductions relate
to following may be made as per the provisions of the Act : (i) For fines (ii)
for absence from duty (iii) for damage or loss (iv) for services (v) for recovery
of advances (vi) for payments to cooperative societies and insurance claims
(vii) other permissible deductions. It is needless to state the deductions made
should not exceed the prescribed limits. If the aggregate of deductions made
exceeds the limits prescribed in this regard, the excess recovery may be
made in such manner as prescribed.
provisions :
(a) Wages of all the workers shall be paid before 5th of following month.
(2 marks)
Answer :
This relates to Payment of Wages Act, 1936.
Particulars Wage payment
Any railway, factory, industrial Before expiry of 7th day of last day
establishment, other establishment of working period.
where less than 1,000 employees are
employed.
Where 1,000 or more employees are Before expiry of 10th day of last day
employed. of working period.
Dock Wharf or Jetty or Mine. Before expiry of 7th day of last day
of working period.
2011 - June [3] (d) Mr. Bakshi wants to submit claims arising out of
deduction made contrary to the provision of the Act from his wages, by his
employer. Following information be informed (Payment of Wages Act):
(i) Besides the Employee, who can apply to the Authority for direction for
refund and compensation ? (2 marks)
(ii) Time limit within which to apply ? (1 mark)
(iii) Besides refund of deducted amount, whether any compensation is
allowed ? (1 mark)
Answer :
(i) Employee himself or any legal practitioner or any official of a
Registered Trade Union authorized in writing or any Inspector under
payment of wages Act or any other person acting with the permission
of the Authority appointed under the Act may apply for direction.
(ii) Every such application be presented within 12 months from the date
on which the deduction from the wages was made or from the date on
which the payment was due to be made. Application may be admitted
after the said 12 months subject to certain condition.
(iii) Yes, refund of the deducted, compensation not exceeding 10 times the
amount so deducted be allowed after hearing of both the parties.
2011 - Dec [3] (f) The employer is not liable to pay any wages or
compensation to workman when an undertaking closes down.- State legal
position. (2 marks)
Answer :
Where the employment of any person in an establishment is terminated due
to the closure of the establishment for any reason other than weekly or other
recognised holiday, the wages earned by him shall be paid before expiry of
the second day from the day on which his employment is so terminated.
(Sec. 5(2) of the Payment of Wages Act, 1936)
(f) Works Manager has deducted INR 500 from wages towards the cost of
tools and raw materials supplied to workers for purpose of employment
(Payment of Wages Act). (2 marks)
Answer :
As per Payment of Wages Act, 1936, the deductions will be made only if
there is a provision in this regard. Tools etc. are not eligible for deductions
as per this Act, hence the works manager is wrong if he deducts any amount
on account of tools and raw materials.
2013 - June [4] (d) (ii) Wages can not be paid by cheque but can be paid in
kind. Answer based on provision of Payment of Wages Act 1936. (2 marks)
Answer :
Employer may after obtaining written authorization of employed persons pay
them the wages either by cheque or by crediting to their Bank A/c. In all other
cases, wages shall be paid in current coins or currency notes or both but
cannot be paid in kind.
2013 - Dec [5] (c) What are the conditions to deduct for recovery of
advances made under the Payment of Wages Act, 1936? (3 marks)
Answer :
Deductions under Clause (f) of sub-Section (2) of Section 7 (the Payment
of Wages Act, 1936) shall be subject to the following conditions namely:
(i) recovery of advance of money given before employment began shall
be made from the first payment of wages in respect of a complete
wage period, but no recovery shall be made of such advances given
for travelling expenses;
(ii) recovery of an advances of money given after employment began shall
be subject to such conditions as the Appropriate Government may
impose;
(iii) recovery of advances of wages not already earned shall be subject to
any rules made by the Appropriate Government regulating the extent
to which such advances may be given and the installments by which
it may be recovered.
2014 - Dec [2] (c) (i) Anil Pvt. Ltd. imposed a fine on Anurag, one of its
employees for regularly reporting late for work. The fine was imposed on 4th
June 2014. The management wanted to recover the amount in November
2014 during half yearly increment. Can the Company recover this amount of
fine, state your views as per Payment of Wages Act, 1936. (2 marks)
Answer :
As per Section 8 (6) of the Payment of Wages Act 1936 no fines can be
recovered after expiry of 90 days from the date on which it is imposed. So
ABC Pvt. Ltd. will not be able to recover the fine in November 2014 as the
gap exceeded 90 days.

(c) (i) ‘The responsibility for payment of wages is that of employer’. Explain.
(3 marks)
Answer:
Sec. 3 of Payment of Wages Act, 1936, lays down that every employer shall
be responsible for the payment to persons employed by him of all wages
required to be paid under this Act. In addition to the employer, the following
persons shall also be responsible for the payment of wages.
(a) In factories, the person named as manager,
(b) In industrial or other establishments, the person, if any, who is
responsible to the employer for the supervision and control of the
industrial or other establishments;
(c) Upon railways otherwise than in factories, the person nominated by the
railway administration in this behalf for the local area concerned;
(d) In case of a contractor, a person designated by such contractor;
(e) In any other case, a person designated as responsible for complying
with the provisions of the Act.
2017 - Dec [4] (a) What are the different kinds of deduction that can be
made from wages under the Payment of Wages Act, 1936? (10 marks)
Answer:
Section 7 gives the details of deduction from wages. The wages of an
employed person shall be paid to him without deductions of any kind except
those authorized by or under this Act. Every payment made by the employed
person to the employer or his agent shall for the purposes of this Act, be
deemed to be a deduction from wages.
Any loss of wages resulting from the imposition, for good and sufficient
cause upon a person employed of any of the following penalties, namely:-
• the withholding of increment or promotion (including the stoppage of
increment at an efficiency bar);
• the reduction to a lower post or time scale or to a lower stage in a time
scale; or
• Suspension;
shall not be deemed to be a deduction from wages in any case where
the rules framed by the employer for the imposition of any such penalty
are in conformity with the requirements if any which may be specified in

this behalf by the Appropriate Government by notification in the Official
Gazette.
Section 7(2) provides that Deductions from the wages of an employed
person shall be made only in accordance with the provisions of this Act
and may be of the following kinds only namely:
• fines;
• deductions for absence from duty;
• deductions for damage to or loss of goods expressly entrusted to the
employed person for custody, or for loss of money for which he is
required to account, where such damage or loss is directly attributable
to his neglect or default;
• deductions for house-accommodation supplied by the employer or by
government or any housing board set up under any law for the time
being in force (whether the government or the board is the employer or
not) or any other authority engaged in the business of subsidizing
house-accommodation which may be specified in this behalf by the
appropriate Government by notification in the Official Gazette;
• deductions for such amenities services supplied by the employer as the
Appropriate Government or any officer specified by it in this behalf may
by general or special order authorize;
• deductions for recovery of advances of whatever nature (including
advances for travelling allowance or conveyance allowance), and the
interest due in respect thereof, or for adjustment of over-payments of
wages;
• deductions for recovery of loans made from any fund constituted for the
welfare of labour in accordance with the rules approved by the
appropriate Government and the interest due in respect thereof;
• deductions for recovery of loans granted for house-building or other
purposes approved by the appropriate Government and the interest due
in respect thereof;
• deductions of income-tax payable by the employed person;
• deductions required to be made by order of a court or other authority

competent to make such order;
• deductions for subscriptions to and for repayment of advances from any
provident fund to which the Provident Funds Act, 1952 applies or any
recognized provident funds as defined in Section 2(38) of the Indian
Income Tax Act, 1961 or any provident fund approved in this behalf by
the appropriate Government during the continuance of such approval;
• deductions for payments to co-operative societies approved by the
appropriate Government or any officer specified by it in this behalf or to
a scheme of insurance maintained by the Indian Post Office and
• deductions, made with the written authorisation of the person employed
for payment of any premium on his life insurance policy to the Life
Insurance Corporation of India established under the Life Insurance
Corporation Act, 1956 or for the purchase of securities of the
Government of India or of any State Government or for being deposited
in any Post Office Saving Bank in furtherance of any savings scheme of
any such government.
• deductions made with the written authorization of the employed person,
for the payment of his contribution to any fund constituted by the
employer or a trade union registered under the Trade Unions Act, 1926
for the welfare of the employed persons or the members of their families,
or both, and approved by the appropriate Government or any officer
specified by it in this behalf, during the continuance of such approval;
• deductions made, with the written authorisation of the employed person,
for payment of the fees payable by him for the membership of any trade
union registered under the Trade Unions Act, 1926;
• deductions, for payment of insurance premium on Fidelity Guarantee
Bonds;
• deductions for recovery of losses sustained by a railway administration
on account of acceptance by the employed person of counterfeit or base
coins or mutilated or forged currency notes;

on account of the failure of the employed person to invoice, to bill, to
collect or to account for the appropriate charges due to that
administration, whether in respect of fares, freight, demurrage wharfage
and carnage or in respect of sale of food in catering, establishments or
in respect of sale of commodities in grain shops or otherwise;
on account of any rebates or refunds incorrectly granted by the
employed person where such loss is directly attributable to his neglect
or default;
• deductions, made with the written authorization of the employed person,
for contribution to the Prime Minister’s National Relief Fund or to such
other Fund as the Central Government may, by notification in the Official
Gazette specify;
• deductions for contributions to any insurance scheme framed by the
Central Government for the benefit of its employees.
Nothing contained in this section shall be construed as precluding the
employer from recovering from the wages of the employed person or
otherwise any amount payable by such person under any law for the time
being in force other than the Indian Railways Act 1890.
PRACTICAL QUESTIONS
2009 - Dec [3] (b) Mr. Sham was terminated from employment by the
employer on 25.11.09. Personnel Manager directed him to collect his wages
earned on 1.12.09. Mr. Sham objected to the date. State legal provision as
to the date of payment. (2 marks)
Answer :
Sham's objection is right. When any worker is terminated, his wages earned
should be paid to him before the expiry of second working day from the day
of his termination. It is not so in the given case. Sham's wages should be
paid to him before the expiry of 27/11/2009.
2009 - Dec [4] (b) Manager of ABC Ltd. told that total amount of deduction
which may be made from the wages of any workman during a month shall
not exceed 90% of such wages.—State legal provisions. (2 marks)
Answer :
Section 7 (2) of the Payment of Wages Act, 1936 contains the illustrations
of various kinds of deductions which the employer can make from the wages
of an employed person.
As per the Section 7(3) of the Payment of Wages Act, 1936 the total
amount of deductions, which may be made in any wage period from the
wages of any employee, shall not exceed
(i) 75% of such wages in cases where such deductions are wholly or
partly made for payments to co-operative societies;
(ii) in any other case, they shall not exceed 50% of such wages.
Where the total deductions authorised under Section 7(2) exceed
75%, or 50% of the wages as the case may be, the excess may be
recovered in such a manner as may be prescribed.
In the light of legal provisions, the action of employer is not valid.
Section - C
Corporate Law
18 COMPANY TYPES, PROMOTION,
FORMATION AND RELATED
PROCEDURES
 Company: Formation  Share Capital
 Incorporation  MOA
 Types of Company  AOA
 Prospectus  Buyback
 Private Placement  Registers
 Allotment of Securities  Meetings
Legend

6.351
6.352 O Scanner CMA Inter Gr. I Paper 6C (2016 Syllabus)
CHAPTER AT A GLANCE

1 Company A company is an association of both natural and
artificial persons incorporated under the existing law
of a country. A company has a separate legal entity
from the persons constituting it.
2 Characteristics The main characteristics of a company are corporate

of a Company personality, limited liability, perpetual succession,
separate property, transferability of shares, common
seal, capacity to sue and be sued, contractual rights,
limitation of action, separate management,
termination of existence etc.
3 Compared to As compared to other types of business associations,

other types of an incorporated company has the advantage of
business corporate personality, limited liability, perpetual
associations succession, transferable shares, separate property,
capacity to sue, flexibility and autonomy.
4 Disadvantages There are, however, certain disadvantages and

and inconven- inconveniences in incorporation. Some of these
iences in disadvantages are formalities and expenses,
incorporation corporate disclosures, separation of control from
ownership, greater social responsibility, greater tax
burden in certain cases, cumbersome winding-up
procedure.
5 Doctrine of (1) Separate personality of a company is a statutory
lifting of or privilege and it must be used for legitimate
piercing the business purposes only.
corporate veil
[Chapter  18] Company Types, Promotion, ... O 6.353
(2) Where a fraudulent and dishonest use is made of

the legal entity, the individuals concerned will not
be allowed to take shelter behind the corporate
personality.
(3) The Tribunal will break through the corporate
shell and apply the principle/doctrine of what is
called as “lifting of or piercing the corporate veil”.
6 LLP It is an alternative corporate business form that gives
the benefits of limited liability of a company and the
flexibility of a partnership. LLP can continue its
existence irrespective of changes in partners. It is
capable of entering into contracts and holding
property in its own name. LLP is a separate legal
entity, and is liable to the full extent of its assets but
liability of the partners is limited to their agreed
contribution in the LLP.
7 Corporation An organization formed under state law for the
purpose of carrying on a business enterprise is such
a manner as to make the enterprise distinct from its
owners.
8 Illegal As per Section 464 of Companies Act, no
association association or partnership consisting of more than
such number of persons as may be prescribed 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 this Act or is formed under any other
law for the time being in force. The number of
persons which may be prescribed under this section
shall not exceed 100. Rule 10 of Companies
(Miscellaneous) Rules, 2014 prescribes 50 persons
in this regard.
9 Types of From the point of view of incorporation, companies can

Company be classified as chartered companies, statutory
companies and registered companies.
 Companies can be categorized as unlimited
companies, companies limited by guarantee and
companies limited by shares.
 Companies can also be classified as public
companies, private companies, one person
companies, small companies, associations not for
profit having license under Section 8 of the Act,
Government Companies, Foreign Companies,
Holding Companies, Subsidiary Companies,
Associate Companies, Investment Companies and
Producer Companies.
10 Private A private company has been defined under Section
Company 2(68) of the Companies Act, 2013 as a company
which has a minimum paid-up capital of ` 1,00,000 or
such higher paid-up capital as prescribed and by its
articles restricts the right to transfer its shares, limits
the number of its members to two hundred and
prohibits any invitation to the public to subscribe for
any securities of the company.
 Amendment Made by Companies (Amendment)
Act, 2015
Provides that in clause (68), the words “of one
lakhs rupees or higher paid up share capital” shall
be omitted.
11 One Person One Person Company” means a company which has
Company only one person as a member.
12 “Small “Small company’’ means a company, other than a
Company’’ public company, (i) paid-up share capital of which does
not exceed ` 50,00,000 or such higher amount as may
be prescribed which shall not be more than ` 5 crores;

or (ii) turnover of which as per its last profit and loss
account does not exceed ` 2 crore or such higher
amount as may be prescribed which shall not be more
than ` 20 crores.
Amendment made by Companies (Amendment)
Act, 2017:
Revised Section 2(85)-
“Small Company means a company, other than a
public company,—
(i) paid-up share capital of which does not exceed
fifty lakh rupees or such higher amount as may be
prescribed which shall not be more than ten crore
rupees; and
(ii) turnover of which as per profit and loss account
for the immediately preceding financial year
does not exceed two crore rupees or such higher
amount as may be prescribed which shall not be
more than one hundred crore rupees.”
13 Public A public company is a company which (a) is not a
Company private company (b) has a minimum paid-up share
capital of ` 5 lakh or such higher paid-up capital, as
may be prescribed.
 Amendment Made by Companies (Amendment)
Act, 2015:
Provides that in clause (68), the words “of ` 5 lakhs
or higher paid up share capital” shall be omitted.
14 Limited A limited company is a company limited by shares or

Company by guarantee. An unlimited company is a company not
having any limit on the liability of its members.
15 Foreign Foreign Company means any company or body

Company corporate incorporated outside India which (a) has a
place of business in India whether by itself or through
an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other
manner.
16 Investment Investment Company means a company whose

Company principal business is the acquisition of shares,
debentures or other securities.
17 Association Section 8(1) permits the registration, under a licence
not for profit granted by the Central Government, of associations
not for profit with limited liability without being required
to use the word “Limited” or the words “Private Limited”
after their names. The Central Government may grant
such a license if:
(a) it is intended to form a company for promoting
commerce, art, science, sports, education,
research, social welfare, religion, charity protection
of environment or any such other object; and
(b) the company prohibits payment of any dividend to
its members but intends to apply its profits or other
income in promotion of its objects.
18 Government A company in which not less than 51% of the paid-up
Companies share capital is held by the Central Government, or by
any State Government or Governments or partly by the
Central Government and partly by one or more State
Governments and includes a company which is a
subsidiary company of such a Government Company.
19 Holding As per Section 2 (46), holding company, in relation to

Company one or more other companies, means a company of
which such companies are subsidiary companies.
Act, 2017:
Explanation to Section 2(46)-
“Explanation.— For the purposes of this clause, the
expression "company" includes anybody corporate;”
20 Subsidiary Section 2 (87) provides that subsidiary company or
Company subsidiary, in relation to any other company (that is to
say the holding company), means a company in which
the holding company—
(i) controls the composition of the Board of Directors;
or
(ii) exercises or controls more than one-half of the
total share capital either at its own or together with
one or more of its subsidiary companies.
21 Control It shall include the right to appoint majority of the
directors or to control the management or policy
decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including
by virtue of their shareholding or management rights or
shareholders agreements or voting agreements or in
any other manner.
22 Dormant As per Section 455 (1) where a company is formed
Companies and registered under this Act for a future project or to
hold an asset or intellectual property and has no
significant accounting transaction, such a company or
an inactive company may make an application to the
Registrar in such manner as may be prescribed for
obtaining the status of a dormant company.
23 Associate As per Section 2(6), “Associate Company”, in relation

Company to another company, means a company in which that
other company has a significant influence, but which is
not a subsidiary company of the company having such
influence and includes a joint venture company.
Act, 2017:
Revised Explanation to Section 2(6)-
“Explanation.—For the purpose of this clause—
(a) the expression "significant influence" means
control of at least twenty per cent. of total voting
power, or control of or participation in business
decisions under an agreement;
(b) the expression "joint venture" means a joint
arrangement whereby the parties that have joint
control of the arrangement have rights to the net
assets of the arrangement.”
24 Position of As per Section 2(62) of the Companies Act, 2013,
OPC in India “One Person Company” means a company which has
under the only one person as a member.
Companies Section 3(1)(c) lays down that a company may be
Act, 2013 formed for any lawful purpose by one person, where
the company to be formed is to be One Person
Company that is to say, a private company. In other
words, one person company is a kind of private
company.
A One person company shall have a minimum of one
director. Therefore, a One Person Company will be
registered as a private company with one member and
one director.
Promoters
25 Promoters are the persons who conceive the idea of forming a
company and take the necessary steps to incorporate it by registration,
provide it with share and loan capital and acquire the business or
property which it is to manage [Section 2(69)].
26 A promoter is neither an agent of, nor a trustee for the company. But
he occupies a fiduciary position in relation to the company.
27 Disclosure by promoters to the company should be through the
medium of the Board of Directors.
28 A promoter has no legal right to claim promotional expenses for his
services unless there is a valid contract.
29 Liabilities of (a) Incorporation of company by furnishing false
promoter information. (b) Civil Liability for misstatements in
prospectus; (c) Punishment for fraudulently inducing
persons to invest money; (d) Contravention of
provisions relating to private placement; (d) Failure to
cooperate with Company Liquidator during winding
up; (e) Criminal Liability for misstatement in
prospectus.
30 Rights of (a) Right to receive preliminary expenses;
promoters (b) Right to recover proportionate amount from the
Co-promoters.
31 Procedure for (a) Application for Availability of Name of Company;
incorporation (b) Preparation of Memorandum and Articles of
of a Company Association;
(c) Filing of Documents with Registrar of
Companies;
(d) Declaration from the professional;
(e) Declaration from the subscribers to the
Memorandum;
(f) Furnishing verification of Registered Office
(g) Filing of particulars of Subscribers

(h) Filing particulars of first directors along with their
consent to act as directors
(i) Power of Attorney : Execution of power of
attorney on a non-judicial stamp paper of a value
prescribed in state stamp laws.
(j) Issue of Certificate of Incorporation by Register.
32 Steps to be The first few steps to be taken by a promoter in
taken by a incorporating a company are to apply for availability
promoter of name of company, prepare the memorandum and
articles of association and get them vetted, printed,
stamped and signed. The promoter should then
execute power of attorney and file additional
documents as required under section 7. He should
then file statutory declaration and pay the registration
fees.
33 Civil as well as Civil as well as criminal liability may be imposed on a
criminal promoter for any misleading statement in the
liability prospectus if loss or damage has been sustained by
a person who has subscribed for any securities of the
company on the faith of the prospectus.
34 Conclusive The certificate of incorporation is conclusive evidence
evidence that everything is in order as regards registration and
that the company has come into existence from the
earliest moment of the day of incorporation stated
therein.
35 Memorandum The Memorandum of Association is a document

of Associa- which sets out the constitution of the company and is
tion the foundation on which the structure of the company
stands. It defines as well as confines the powers of
the company. If the company enters into contract or
engages in any trade or business which is beyond

the powers conferred on it by the memorandum, such
a contract or the act will be ultra vires the company
and hence void. However, the Companies Act, 2013
shall override the provisions in the memorandum of
a company, if the latter contains anything contrary to
the provisions in the Act.
36 Clauses Memorandum of Association consists of:

(a) Name Clause
(b) Situation Clause
(c) Object Clause
(d) Liability Clause
(e) Capital Clause
(f) Subscription Clause
37 Articles Articles means the articles of association of a

company as originally framed or as altered from time
to time in pursuance of any previous company law or
of this Act. It also includes the regulations contained
in Tables F to J in Schedule I of the Act, in so far as
they apply to the company.
38 Scope and The memorandum lays down the scope and powers
powers of the of the company and the articles govern the ways in
company which the objects of the company are to be carried
out and can be framed and altered by the members.
39 Alter its A company has a statutory right to Alter its articles of

articles of association. But the power to alter is subject to the
association provisions of the Act and to the conditions contained
in the memorandum. Any alteration so made shall be
as valid as if originally contained in the articles.
40 Registration of The memorandum and articles, when registered, bind

MOA/AOP the company and its members to the same extent as
if they have been signed by the company and by
each member to observe and be bound by all the
provisions of the memorandum and of the articles.
41 Alteration of (1) Name Change:

memorandum - Pass Special Resolution
- Approval of Central Government
- To delete the word “private” approval from
Central Government is not required in case
of conversion of private company to public
company.
(2) Change in Registered Office:
(a) Change within local limits:
 Pass Board Resolution and Special
Resolution Notice of change to registrar
in INC 22 within 15 days of such
change
(b) Change of State:
 Approval of Central Govt. In INC 23 the
Approval should be registered with
Registrar for Incorporation Certificate
(c) Change in jurisdiction of Registrar:
 Get confirmation by Regional Director
Communication of confirmation by
Regional Director to the company within
30 days.
Amendment made by Companies
(Amendment) Act, 2017:
In Section 12 of the Principal Act,—
In sub-section (1), for the words "on and from the
fifteenth day of its incorporation", the words "
within thirty days of its incorporation" shall be
substituted;
In sub-section (4), for the words "within fifteen

days", the words "within thirty days" shall be
substituted.
(3) Change in Liability:
 Needs Special Resolution to be passed.
 File the same with Registrar in form MGT 14.
(4) Change in Capital:
 alteration of capital clause to be authorised
by the Articles of Association [Section 61];
Ordinary Resolution
 If by division or consolidation in capital the
voting% gets affected then a confirmation
from Tribunal is mandatory.
 Notify the alterations made and a copy of
Resolutions passed shall be filed with
Registrar within 30 days.
 Registrar shall record the notice and make
alterations required.
42 Doctrine of As per doctrine of constructive notice, every
constructive person dealing with the company is deemed to have
notice a “constructive notice” of the contents of its
memorandum and articles. Outsiders dealing with
incorporated bodies are bound to take notice of limits
imposed on the corporation by the memorandum or
other documents of constitution. Nevertheless they
are entitled to assume that the directors or other
persons exercising authority on behalf of the
company are doing so in accordance with the internal
regulations as set out in the Memorandum & Articles
of Association.
43 Doctrine of While the doctrine of constructive notice seeks to
indoor protect the company against the outsiders, the
management doctrine of indoor management operates to protect
the outsiders against the company. While persons
contracting with a company are presumed to know

the provisions of the contents of the memorandum
and articles, they are entitled to assume that the
provisions of the articles have been observed by the
officers of the company. However, there are certain
exceptions to doctrine of indoor management.
44 Doctrine of In the case of a company whatever is not stated in
ultra vires the memorandum as the objects or powers is
prohibited by the doctrine of ultra vires (The word
‘ultra’ means beyond and the word ‘vires’ means
powers).
45 Share capital Share capital of a company can be classified as:
(a) nominal, authorized or registered capital;
(b) issued and subscribed capital;
(c) called up and uncalled capital;
46 Share A share is defined as a share in the share capital of
a company, including stock except where a
distinction between stock and shares is expressed or
implied.
47 Two classes of The Companies Act, 2013 permits a company
shares limited by shares to issue two classes of shares,
namely equity share capital and preference share
capital.
48 Preference A preference share or preference share capital is that
share part of share capital which carries a preferential right
with respect to both dividend and capital.
49 Types of Preference shares may be of various types, namely
preference participating and non- participating, cumulative and
shares non-cumulative shares, redeemable and
irredeemable preference shares.
50 Equity share Equity share capital means all share capital which is
capital not preference share capital
51 Sweat equity Means equity shares issued by a company to its

shares employees or directors at a discount or for
consideration, other than cash for providing
know-how or making available rights in the nature of
intellectual property rights or value additions, by
whatever name called.
• Issue of sweat equity shares to be authorized by
special resolution at a general meeting.
• The special resolution authorizing sweat equity
shares is not valid if the allotment is made after
12 months of passing the resolution. i.e the
validity of special resolution is 12 months.
• The price of sweat equity shares is to be
determined by a registered valuer.
• The company shall maintain a Register of Sweat
Equity Shares in Form No. SH 3
• Issue of sweat equity shares to employees and
directors at a discount under section 54 is
outside the scope of Section 53.
52 Rights issue Rights issue is an issue of capital to be offered to the
existing shareholders of the company through a letter
of offer.
• Listed companies to inform concerned stock
exchanges
• Company to give notice to equity shareholder
giving him 15-30 days to decide
• Company can issue shares to other than existing
share holder for cash or other than cash if a
special resolution is obtained
• Price to be determined by the registered valuer’s
report
• The provisions of Section 62 are applicable to all
type of companies.
53 Bonus share When a company is prosperous and accumulates

large distributable profits, it converts these
accumulated profits into capital and divides the
capital among the existing members in proportion to
their entitlements. Members do not have to pay any
amount for such shares. A company may, if its
Articles provide, capitalize its profits by issuing
fully-paid bonus shares
• Authorised by articles
• Authorised on recommendation of the board in
general meeting
• No default in payment of interest or principle in
respect of debt securities and fixed deposits and
in respect of payment to employees
• Partly paid up shares to be made fully paid up on
allotment
• Listed companies to follow SEBI regulations
• Once announced by the board about bonus
issue no company shall withdraw the same.
54 Issue of • Share premium to be transferred to share
shares at premium account.
premium • Utilisation of share premium account should be
[Section 52] as prescribed in Section 52.
55 Issue of • Issue of shares at discount is prohibited except
shares at by issue of sweat equity shares.
discount • Any share issued by the company at a
[Section 53] discounted price shall be void.
56 Issue of • Articles to authorise the issue
shares with • Ordinary resolution to be passed and if shares
differential are listed then approval through postal ballot.
voting rights • Not to exceed 26% of total post issue paid up
[Section 43(a) equity capital including shares with differential
(ii)] voting rights at any point of time
• The company not to be penalised under

specified legislature in last 3 years
• No default in filing financial statements in the last
3 years.
• No default in payment of dividend.
57 Issue / • Issue to be authorised by special resolution
redemption of • Explanatory statement to be annexed to the
preference notice of general meeting containing the relevant
shares material facts
[Section 55] • No company shall issue irredeemable preference
shares of redeemable preference shares with the
redemption period beyond 20 years.
• Infrastructural companies may issue preference
shares for a period exceeding 20 years but not
exceeding 30 years
58 ESOP • Pass special resolution
• Disclosures to be made in explanatory statement
• Free pricing in conformity with accounting
policies
• Separate resolution to be obtained for granting
options to employees of holding/subsidiaries
• Minimum 1 year period between grant of options
and vesting of option
• Company is free to set lock-in period
• Option granted shall not be transferable,
pledged, hypothecated, mortgaged in any
manner
• Disclosures to be made in board report
• Register to be maintained in form sh-6
• Listed companies to comply with SEBI guidelines
59 Preferential • Pass special resolution

issue Rule 13 • Listed company shall follow SEBI regulations
of the com- • Issue to be authorised by the articles
panies (share • Securities to be made fully paid up on allotment
capital and • Disclosures to be made in explanatory statement
debentures) to be annexed to the notice of general meeting
rules, 2014 • Allotment to get completed within 12 months if
not completed a fresh resolution is required
• Price determination by the registered valuer’s
report
60 Prospectus Prospectus has been defined as any document
described or issued as a prospectus and includes a
red herring prospectus referred to in Section 32 or
shelf prospectus referred to in Section 31 or any
notice, circular, advertisement or other document
inviting offers from the public for the subscription or
purchase of any securities of a body corporate. A
company is an association of both natural and
artificial persons incorporated under the existing law
of a country. A company has a separate legal entity
from the persons constituting it.
61 Ingredients of One of the ingredients of a prospectus is to make
a prospectus invitation to the public to subscribe for securities of a
body corporate which is construed as including a
reference to any section of the public, whether
selected as members or debentureholders of the
company or as clients of the person issuing the
prospectus. However, there are exceptions to it.
62 Shelf Shelf prospectus means a prospectus in respect of
prospectus which the securities or class of securities included
therein are issued for subscription in one or more
issues over a certain period without the issue of a
further prospectus (Section 31).
63 Red herring Red herring prospectus means a prospectus which

prospectus does not include complete particulars of the quantum
or price of the securities included therein.
64 Content of Companies Act and SEBI guidelines provide for
prospectus contents and disclosures required in a prospectus.
65 Abridged Abridged prospectus is usually a shorter form of the
prospectus Prospectus and possesses all the significant features
of a Prospectus. This accompanies the application
form of public issues.
66 Private "Private placement" means any offer of securities or
placement invitation to subscribe securities to a select group of
persons by a company (other than by way of public
offer) through issue of a private placement offer letter
and which satisfies the conditions specified in
Section 42.
• Offer Letter to be in Form No. PAS-4
• The offer shall not be made to more than 200
persons excluding QIBs and the employees of
the company in a financial year under the
scheme of ESOS only the person addressed in
the application can apply
• All monies payable on subscription shall not be
paid by cash.
• If unable to allot within 60 days then repay the
money in 15 days from the end of those 60 days
and money shall be refunded with interest
@12%p.a.
- Offer only to be made to those whose names
are recorded by the company
- The record shall be kept in Form No. PAS-5
- A copy of record to be filed with registrar
along with PAS-4 and with SEBI and the
stock exchange within 30 days.
Amendment made by Companies

(Amendment) Act, 2017:
The Private Placement process is simplified by
doing away with separate offer letter details to be
kept by company and reducing number of filings
to Registrar.
In order to ensure that investor gets
adequate information about the company which
is making private placement, the disclosures
made under Explanatory Statement referred to in
Rule 13(2)(d) of Companies (Share Capital and
Debenture) Rules, 2014, embodied in the Private
Placement Application Form.
There would be ease in the private
placement offer related documentation to enable
quick access to funds.
Change in definition of private placement is
proposed to cover all securities offer and
invitations other than right.
There is condensed format of private placement
offer letter and application form likely to be
introduced
The Companies would be allowed to make
offer of multiple security instruments
simultaneously.
Restriction on utilization of subscription money
before making actual allotment and additionally
before filing the allotment return to the registrar.
Since contract is concluding on allotment and
return filing is just a post conclusion compliance,
there may be difficulty in compliance.
The penalty provisions for raising of capital are

proposed to be rationalized by linking it to the
amount involved in the issue ( twice the amount
involved or 2 crores whichever is lower).
Period for filing return of return of allotment is
proposed to be reduced to 15 days.
List of Important Forms
1 URC-1 Application by a company for registration under section
366.
2 FC-1 Information to be filed by foreign company.
3 FC-2 Return of alteration in the documents filed for
registration by foreign company.
4 FC-3 List of all principal places of business in India
established by foreign company.
5 FC-4 Annual Return.
6 GNL-1 Form for filing an application with Registrar of
Companies.
7 GNL-2 Form for submission of documents with Registrar of
Companies.
8 GNL-3 Particulars of person(s) or director(s) or charged or
specified for the purpose of Section 2(60).
9 ADJ 40 ADJ Memorandum of Appeal.
10 MSC-1 Application to ROC for obtaining the status of dormant
company.
11 MSC-3 Return of dormant companies.
12 MSC-4 New form Application for seeking status of active
company.
Form Form Purpose of Form as per Important Important

No. Type Companies Act, 2013 Section Rule
INC-1 e-Form Application for reservation of 4(4) 89
Name
INC-2 e-Form One Person Company - 3(1), 7(1) 4,10,
Application for incorporation 12,15
INC-3 e-Form One Person Company– 3(1) 4(2), (3),
Nominee Consent Form (4), (5), (6)
INC-4 e-Form One Person Company – 3(1) 4(4), (5),
Change in Member/Nominee (6)
INC-5 e-Form One Person Company - – 6 (4)
Intimation of exceeding
threshold
INC-6 e-Form One Person Company – 18 7 (4)
Application for Conversion
INC-7 e-Form Applicant for incorporation of 7(1) 10, 12,
Company (Other than OPC) 14, 15
INC-8 Physical Declaration 7(1)(b) 14
Form
INC-9 Physical Affidavit 7(1)(c) 15
Form
INC-10 Physical Form for verification of – 16 (1) (q)
Form signature of subscribers
INC-11 Physical Certificate of Incorporation 7(2) 8
Form
INC-12 Physical Application for grant of License 8(1), 8(5) 19, 20
Form under section 8
INC-13 Physical Memorandum of Association – 19 (2)
Form
INC-14 Physical Declaration 7(1)(b) 19 (3) (b)
Form
INC-15 Physical Declaration – 19 (3) (d)

Form
INC-16 Physical Licence under section 8(1) of – 20
Form the Companies Act, 2013
INC-17 Physical Licence under section 8 (5) of – 20
Form the Companies Act, 2013
INC-18 e-Form Application to Regional 8 (4) (ii) 21(3)
Director for conversion of
Section 8 company into
company of any other kind
INC-19 e-Form Notice – 22
INC - 20 e-Form Intimation to Registrar of 8 (4),8(6) 23
revocation/surrender of license
issued under section 8
INC - 21 e-Form Declaration prior to the 11(1) (a) 24
commencement of business or
exercising borrowing powers
INC - 22 e-Form Notice of situation or change of 12(2), (4) 25, 27
situation of registered office
INC - 23 e-Form Application to the Regional 12(5), 13(4) 2830
Director for approval to shift the
Registered Office from one
state to another state or from
jurisdiction of one Registrar to
another Registrar within the
same State
INC - 24 e-Form Application for approval of 13 (2) 29 (2)
Central Government for
change of name
INC - 25 Physical Certificate of Incorporation – 29
Form pursuant to change of name
INC - 26 Physical Advertisement to be published – 30

Form in the newspaper for License
for existing companies
INC - 27 e-Form Conversion of public company 14 33
into private company or private
company into public company
INC - 28 e-Form N o t ice o f O r d e r o f t h e – –
Court/Tribunal or any other
competent authority
SH- 1 Physical Share Certificate 46(3) 5 (2)
Form
SH- 2 Physical Register of Renewed and 46(3) 6(3)(a)
Form Duplicate Share Certificates
SH- 3 Physical Register of Sweat Equity 54 8(14)
Form Shares
SH- 4 Physical Securities Transfer Form 56 11(1)
Form
SH- 5 Physical Notice for transfer of partly paid 56 (3) 11(3)
Form securities
SH- 6 Physical Register of Employee Stock 62 (1)(b) 12(10)
Form Options
SH- 7 e-Form Notice to Registrar of any 64(1) 15
alteration of share capital
SH- 8 e-Form Letter of offer 68 17(2)
SH- 9 e-Form Declaration of Solvency 68(6) 17(3)
SH- 10 Physical Register of Shares or other 68(9) 17(12)
Form securities bought-back
SH- 11 e-Form Return in respect of buy-back 68(10) 17(13)
of securities
SH- 12 Physical Debenture Trust Deed 71(13) 11
Form
SH- 13 Physical Nomination Form 72 19(1)

Form
SH- 14 Physical Cancellation or Variation of 72(3) 19(9)
Form Nomination
SH- 15 Physical Certificate of Compliance in – 17(14)
Form respect of buy-back of
securities
PAS-1 Physical Advertisement giving details of 27(1) 7(2)
Form notice of special resolution for
varying the terms of any
contract referred to in the
prospectus or altering the
o bjects for which t h e
prospectus was issued
PAS-2 e-Form Information Memorandum 31(2) 10
PAS-3 e-Form Return of Allotment 39(4), 42(9) 1214
PAS-4 Physical Private Placement Offer Letter 42 14(1)
Form
PAS-5 Physical Record of a private placement 42(7) 14(3)
Form offer to be kept by the company
SHORT NOTES

(b) Revocation of licence (5 marks)
Answer:
Revocation of Licence
Section 8(6) provides that the Central Government, by order, revoke the
licence granted to the company registered under this section:
• if the company contravenes any of the requirements of this section; or

• any of the conditions subject to which a licence is issued; or
• the affairs of the company are conducted fraudulently or in a manner
violative of the objects of the company.
The Central Government shall direct the company to convert its status and
change its name to add the words ‘limited’ or ‘private limited’ to its name. No
such order will not be passed without giving opportunity to the company of
being heard.
A copy of such order shall be given to the Registrar. The Registrar shall,
without prejudice to any action taken, on application, in the prescribed form
register the company accordingly.
2018 - June [8] Write short notes on out of the following term:
(b) Alteration of Share Capital (5 marks)
Answer:
Alteration of Share Capital:
A Limited Company having a Share Capital may, if so authorised by its
articles, alter its memorandum by passing an ordinary resolution in its
general meeting to:
(a) increase its authorised share capital by such amount as it thinks
expedient;
(b) consolidate and divide all or any of its share capital into shares of a
larger amount than its existing shares;
(c) convert all or any of its fully paid-up shares into stock, and reconvert that
stock into fully paid up shares of any denomination.
(d) sub-divide its shares, or any of them, into shares of smaller amount than
is fixed by the memorandum, so, however, that in the sub-division the
proportion between the amount paid and the amount, if any, unpaid on
each reduced share shall be the same as it was in the case of the share
from which the reduced share is derived.
(e) cancel shares which, at the date of the passing of the resolution in that
behalf, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
cancelled.

(b) Small Companies (5 marks)
2013 - Dec [9] (b) A chemical manufacturing company distributed ` twenty

lakhs to scientific institutions for furtherance of scientific education and
research. Referring to the provisions of The Companies Act, 2013, decide
whether the said distribution of money was ‘ultra vires’ the company.
(2 marks)
Answer :
Doctrine of Ultra Vires :
 Ultra means beyond and Vires mean powers. Ultra Vires means beyond
powers. Any action of the company is Ultra Vires if such action is not
authorised in the MOA.
 The MOA defines and confines the powers of the company and
company can operate only within the scope of the authority given to it by
its MOA and Company's Act, 2013.
 Any action beyond the scope of MOA or Company's Act, 2013 is Ultra
Vires of the company.
 It is also clear that the company can not ratify such action or make such
action valid, even if every member assents to it.
 Whatever was ultra vires the company will remain ultra vires.
 Any action which is ultra vires but intra vires to the company, can be
ratified by the company. If any act is ultra vires to the directors the body
of shareholders can ratify it.
 The term ultra vires means beyond powers. Here, in the given case, a
chemical manufacturing company distributed ` 20 lakhs to scientific
institutions for furtherance (means continuance, persistence,
maintenance) of scientific education and research. It is not ultra vires
since it is conductive to the continued growth of the company as
chemical manufacturers.
 Similar view was found in the case of Evans v. Brunner Mond &
Company, (1921) Ch 359. Here, a company was incorporated for
carrying on business of manufacturing chemicals. The objects clause in
the memorandum of the company authorized the company to do “all
such business and things as may be incidental or conductive to the
attainment of the above objects or any of them” by a resolution the
directors were authorized to distribute £ 1,00,000 out of surplus reserve
account to such universities in U.K. as they might select for the
furtherance of scientific research and education. The resolution was
challenged on the ground that it was beyond the objects clause of the
memorandum and therefore it was ultra vires the power of the company.
 The directors proved that the company had great difficulty in finding
trained men and the purpose of the resolution was to encourage
scientific training of more men to enable the company to recruit staff and
continue its progress.
 The Tribunal held that the expenditure authorized by the resolution was
necessary for the continued progress of the company as chemical
manufacturers and thus the resolution was incidental or conductive to
the attainment of the main object of the company and consequently it
was not ultra vires.
 “Acts incidental or ancillary” are those acts, which have a reasonable
proximate connection with the objects stated in the objects clause of the
memorandum.
2014 - Dec [3] (b) (i) Explain provisions of the Companies Act, 2013
regarding document containing offer of securities for sale to be deemed
prospectus. (5 marks)
Answer :
Document Containing offer of Securities for Sale to be Deemed
Prospectus:
Section 25(1) of Companies Act, 2013 states that when a company allots
or agrees to allot any securities of the company with a view to all or any of
those securities being offered for sale to the public:
(a) any document by which the offer for sale to the public is made shall, for
all purposes, be deemed to be a prospectus issued by the company; and
(b) all enactments and rules of law as to the contents of prospectus and as
to liability in respect of mis-statements, in and omissions from,
prospectus, or otherwise relating to prospectus, shall apply with the
modifications specified in sub-sections (3) and (4) and shall have effect
accordingly, as if the securities had been offered to the public for
subscription and as if persons accepting the offer in respect of any
securities were subscribers for those securities, but without prejudice to
the liability, if any, of the persons by whom the offer is made in respect
of mis-statements contained in the document or otherwise in respect
thereof.
Section 25(2) states that unless the contrary is proved, it shall be
evidence that an allotment of, or an agreement to allot, securities was
made with a view to the securities being offered for sale to the public if
it is shown:
 that an offer of the securities or of any of them for sale to the public
was made within six months after the allotment or agreement to
allot; or
 that at the date when the offer was made, the whole consideration
to be received by the company in respect of the securities had not
been received by it.
As per Section 25(3); Section 26 as applied by this section shall have

effect as if :
(i) it required a prospectus to state in addition to the matters required
by that section to be stated in a prospectus:
(a) the net amount of the consideration received or to be received
by the company in respect of the securities to which the offer
relates; and
(b) the time and place at which the contract where under the said
securities have been or are to be allotted may be inspected;
(ii) the persons making the offer were persons named in a prospectus
as directors of a company.

(a) (i) A company wants to buy back its own shares in the current financial
year. State the defaults which make the company ineligible to buy
back its own shares as outlined in the Companies Act, 2013.
(4 marks)
Answer:
Prohibition for Buy-Back in Certain Circumstances [Section 70]
1. No company shall directly or indirectly purchase its own shares or other
specified securities:
(a) through any subsidiary company including its own subsidiary
companies;
(b) through any investment company or group of investment
companies; or
(c) if a default, is made by the company, in the repayment of deposits
accepted either before or after the commencement of this Act,
interest payment thereon, redemption of debentures or preference
shares or payment of dividend to any shareholder, or repayment of
any term loan or interest payable thereon to any financial institution
or banking company.
Provided that the buy-back is not prohibited, if the default is remedied

and a period of three years has lapsed after such default ceased to
subsist.
2. No company shall, directly or indirectly, purchase its own shares or other
specified securities in case such company has not complied with the
provisions of Sections 92, 123, 127 and 129.

(a) (i) Can a non-profit organisation be registered as a company under the
Companies Act, 2013? If so, what procedure does it have to adopt?
(7 marks)
(ii) ABC Limited decides to buy-back its own shares. Advise the
Company’s Board of Directors about the sources of which the
company can buy-back its own shares. (4 marks)
(b) (ii) Define the term ‘Small Company’ as contained in the Companies
Answer :
(a) (i) Registration of a non-profit organisation as a company :
1. Where it is proved to the satisfaction of the Central Government
that a person or an association of persons proposed to be
registered under this Act as a limited company:
(a) has in its objects the promotion of commerce, art, science,
sports, education, research, social welfare, religion, charity,
protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in
promoting its objects; and
(c) intends to prohibit the payment of any dividend to its
members, the Central Government may, by licence issued
in such manner as may be prescribed, and on such
conditions as it deems fit, allow that person or association
of persons to be registered as a limited company under this
section without the addition to its name of the word
“Limited”, or as the case may be, the words “Private

Limited”, and thereupon the Registrar shall, on application,
in the prescribed form, register such person or association
of persons as a company under this section.
2. The company registered under this section shall enjoy all the
privileges and be subject to all the obligations of limited
companies.
3. A firm may be a member of the company registered under this
section.
4. (i) A company registered under this section shall not alter the
provisions of its memorandum or articles except with the
previous approval of the Central Government.
(ii) A company registered under this section may convert itself
into company of any other kind only after complying with
such conditions as may be prescribed.
5. Where it is proved to the satisfaction of the Central Government
that a limited company registered under this Act or under any
previous company law has been formed with any of the objects
specified in clause (a) of sub-section (1) and with the restrictions
and prohibitions as mentioned respectively in clauses (b) and (c)
of that sub-section, it may, by licence, allow the company to be
registered under this section subject to such conditions as the
Central Government deems fit and to change its name by
omitting the word “Limited”, or as the case may be, the words
“Private Limited” from its name and thereupon the Registrar
shall, on application, in the prescribed form, register such
company under this section and all the provisions of this section
shall apply to that company.
6. The Central Government may, by order, revoke the licence
granted to a company registered under this section if the
company contravenes any of the requirements of this section or
any of the conditions subject to which a licence is issued or the
affairs of the company are conducted fraudulently or in a
manner violative of the objects of the company or prejudicial to

public interest, and without prejudice to any other action against
the company under this Act, direct the company to convert its
status and change its name to add the word “Limited” or the
words “Private Limited”, as the case may be, to its name and
thereupon the Registrar shall, without prejudice to any action
that may be taken under sub-section (7), on application, in the
prescribed form, register the company accordingly.
Provided that no such order shall be made unless the company
is given a reasonable opportunity of being heard.
Provided further that a copy of every such order shall be given
to the Registrar.
7. Where a licence is revoked under sub-section (6), the Central
Government may, by order, if it is satisfied that it is essential in
the public interest, direct that the company be wound up under
this Act or amalgamated with another company registered under
this section.
Provided that no such order shall be made unless the company
is given a reasonable opportunity of being heard.
8. Where a licence is revoked under sub-section (6) and where the
Central Government is satisfied that it is essential in the public
interest that the company registered under this section should
be amalgamated with another company registered under this
section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central
Government may, by order, provide for such amalgamation to
form a single company with such constitution, properties,
powers, rights, interest, authorities and privileges and with such
liabilities, duties and obligations as may be specified in the
order.
9. If on the winding up or dissolution of a company registered
under this section, there remains, after the satisfaction of its
debts and liabilities, any asset, they may be transferred to
another company registered under this section and having

similar objects, subject to such conditions as the Tribunal may
impose, or may be sold and proceeds thereof credited to the
Rehabilitation and Insolvency Fund formed under Section 269.
10. A company registered under this section shall amalgamate only
with another company registered under this section and having
similar objects.
(ii) Sources:
According to Section 68(1) of the Companies Act, 2013 a company
may purchase its own shares or other specified securities (hereinafter
referred to as “buy-back”) out of:
(i) its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of any shares or other specified securities.
However, no buy-back of any kind of shares or other specified
securities can be made out of the proceeds of an earlier issue of the
same kind of shares or same kind of other specified securities.
Thus, the company must have at the time of buy-back, sufficient
balance in any one or more of these accounts to accommodate the
total value of the buy-back.
(b) (ii) ‘‘Small company’’ means a company, other than a public company,:
(i) paid-up share capital of which does not exceed fifty lakh rupees
or such higher amount as may be prescribed which shall not be
more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not
exceed two crore rupees or such higher amount as may be
prescribed which shall not be more than twenty crore rupees.
Amendment made by Companies (Amendment) Act, 2017
For the purposes of this clause, the expression "company"
includes anybody corporate;”
Provided that nothing in this clause shall apply to:
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any Special Act;

(a) (iii) Explain Red Herring Prospectus under the Companies Act, 2013.
(5 marks)
(b) (ii) State the procedure for shifting of a registered office of the company
from one state to another state under the provisions of the
Companies Act, 2013. (5 marks)
Answer:
(a) (iii) Red Herring Prospectus [Section 32 of the Companies Act,
2013]:
(1) A company proposing to make an offer of securities may issue
a red herring prospectus prior to the issue of a prospectus.
(2) A company proposing to issue a red herring prospectus under
sub-section (1) shall file it with the Registrar at least three days
prior to the opening of the subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are
applicable to a prospectus and any variation between the red
herring prospectus and a prospectus shall be highlighted as
variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the
prospectus stating therein the total capital raised, whether by
way of debt or share capital, and the closing price of the
securities and any other details as are not included in the red
herring prospectus shall be filed with the Registrar and the
Securities and Exchange Board.
(b) (ii) Procedure for shifting the registered office from one state to
another state (Section 13, of the Companies Act, 2013):
In order to shift the registered office from one state to another the
following procedure will have to be followed:
(i) Hold a Board Meeting for the purpose of calling a general
meeting of the members of the company in which the shifting
of the registered office from one state to another will have to
be approved;
(ii) The general meeting of the members will have to pass a

special resolution approving the change of address of the
registered office from one state to another as required by
Section 13 (1) of the Companies Act, 2013.
(iii) Make an application to the Central Government in such form
and manner as may be prescribed, for getting its approval
under Section 13 (4) of the Companies Act, 2013.
(iv) Under Section 13 (7) of the Companies Act, 2013, where an
alteration of the Memorandum results in the transfer of the
registered office of the company from one state to another, a
certified copy of the order of the Central Government
approving the alteration shall be filed by the company with the
registrar of each of the states, within such time and in such
manner as may be prescribed, and the registrars shall register
the same. The registrar of the state where the registered office
is being shifted to shall issue a fresh certificate of incorporation
indicating the alteration.
(v) The change in name will be effective only after the issue of the
fresh certificate of incorporation by the Registrar of the state
where the registered office is being shifted to.
2017 - June [5] (a) What are the conditions stipulated in the Companies Act,
2013 in formation of One Person Company? (5 marks)
(b) Discuss the procedure of alteration of memorandum of association as per
the Companies Act, 2013. (10 marks)
Answer:
(a) Conditions
The following are the conditions in formation of a OPC:
• No person shall be eligible to incorporate more than a OPC or
become nominee in more than such company;
• Where a natural person, being a member of OPC in accordance with
this rule becomes a member in another such company by virtue of
his being a nominee in that OPC, such person shall meet the
eligibility criteria within a period of 182 days;
• No minor shall become member or nominee of OPC or can hold

share with beneficial interest;
• Such company cannot be incorporated or converted into Section 8
company;
• Such company cannot carry out Non Banking Financial investment
activities including investment activities in securities of anybody
corporate;
• No such company can convert voluntarily into any kind of company
unless two years have expired from the date of incorporation of
OPC, except threshold limit of paid up share capital is increased
beyond ` 50 lakh or its average annual turnover during the relevant
period exceeds ` 2 crore rupees.
(b) Procedure of alteration of memorandum:
Section 13 of the Companies Act, 2013 provides the provisions that
deal with the alteration of the memorandum. The provision says that:
1. Alteration by special resolution: Company may alter the
provisions of its memorandum with the approval of the members by
a special resolution.
2. Name Change of the company: Any change in the name of a
company shall be effected only with the approval of Central
Government in writing. However, no such approval shall be
necessary where the change in the name of the company is only the
deletion there from, or addition thereto, of the word “Private”, on the
conversion of any one class of companies to another class. The
change of name shall not be allowed to a company which has
defaulted in filing its annual returns or financial statements or any
document due for filing with the Registrar or which has defaulted in
repayment of matured deposits or debentures or interest on deposits
or debentures.
3. Entry in register of companies: On any change in the name of a
company, the Registrar shall enter the new name in the register of
companies in place of the old name and issue a fresh certificate of
incorporation with the new name and the change in the name shall
be complete and effective only on the issue of such a certificate.
4. Change in the registered office: The alteration of the

memorandum relating to the place of the registered office from one
State to another shall not have any effect unless it is approved by
the Central Government on an application in such form and manner
as may be prescribed.
5. Disposal of the application of change of place of the registered
office: The Central Government shall dispose of the application of
change of place of there registered office within a period of sixty
days Before passing of order, Central Government may satisfy itself
that:
• The alteration has the consent of the creditors,
debenture-holders and other persons concerned with the
company, or
• the sufficient provision has been made by the company either
for the due discharge of all its debts and obligations, or
• adequate security has been provided for such discharge.
6. Filing with Registrar: A company shall, in relation to any alteration
of its memorandum, file with the Registrar:
• the special resolution passed by the company under sub-section
(1);
• the approval of the Central Government under sub-section (2),
if the alteration involves any change in the name of the
company.
7. Filing of the certified copy of the order with the registrar of the
states: Where an alteration of the memorandum results in the
transfer of the registered office of a company from one State to
another, a certified copy of the order of the Central Government
approving the alteration shall be filed by the company with the
Registrar of each of the States within such time and in such manner
as may be prescribed, who shall register the same.
8. Issue of fresh certificate of incorporation: The Registrar of the
State where the registered office is being shifted to, shall issue
afresh certificate of incorporation indicating the alteration.

In Section 12 of the Principal Act,—
In sub-section (1), for the words "on and from the fifteenth day of its
incorporation", the words "within thirty days of its incorporation" shall
be substituted;
In sub-section (4), for the words "within fifteen days", the words
"within thirty days" shall be substituted.
9. Change in the object of the company: A company, which has
raised money from public through prospectus and still has any
unutilised amount out of the money so raised, shall not change its
objects for which it raised the money through prospectus unless a
special resolution through postal ballot is passed by the company
and:
• The details, in respect to of such resolution shall also be
published in the newspapers (one in English and one in
vernacular language) which is in circulation at the place where
the registered office of the company is situated and shall also be
placed on the website of the company, if any, indicating there in
the justification for such change;
• The dissenting shareholders shall be given an opportunity to exit
by the promoters and shareholders having control in accordance
with regulations to be specified by the Securities and Exchange
Board.
10. Registrar to certify the registration on the alteration of the
objects: The Registrar shall register any alteration of the
memorandum with respect to the objects of the company and certify
the registration within a period of thirty days from the date of filing of
the special resolution.
11. Alteration to be registered: No alteration made under this section
shall have any effect until it has been registered in accordance with
the provisions of this section.
12. Only member have a right to participate in the divisible profits

of the company: Any alteration of the memorandum, in the case of
a company limited by guarantee and not having a share capital,
intending to give any person a right to participate in the divisible
profits of the company otherwise than as a member, shall be void.
2017 - Dec [5] (a) Discuss the procedure for conducting a poll in a meeting
of a company. (9 marks)
(b) Elucidate the circumstances in which a company cannot buy-back its own
shares as per the provisions of the Companies Act, 2013. (6 marks)
Answer:
(a) Section 108 (5) provides that where a poll is to be taken, the Chairman
of the meeting shall appoint such number of persons, as he deems
necessary, to scrutinize the poll process and votes given on the poll to
report thereon to him. Section 108(6) provides that the Chairman of the
meeting shall have power to regulate the manner in which the poll shall
be taken.
Rule 21 provides that Chairman of a meeting shall, in the poll process,
ensure that-
• The Scrutinizers are provided with the Register of Members,
specimen signatures of the Members, Attendance Register and
Register of proxies;
• The Scrutinizers are provided with all documents received by the
company;
• The Scrutinizers shall arrange for polling papers and distribute them
to the members and proxies present at the meeting;
• In case of joint shareholders, the polling paper shall be given to the
first named holder or in his absence to the joint holder attending the
meeting as appearing in the chronological order in the folio
• The polling shall be in Form No. MGT-12;
• The Scrutinizers shall keep a record of the polling papers received
in response to poll by initializing it;
• The Scrutinizers shall lock and seal and empty polling box in the
presence of members and proxies;
• The Scrutinizers shall open the polling box in the presence of two
persons as witnesses after the voting process is over;
• In case of ambiguity about the validity of a proxy, the Scrutinizer
shall decide the validity in consultation with the Chairman;
• The Scrutinizers shall ensure that if a member who has appointed
in a proxy, has voted in person, the proxy’s vote shall be
disregarded;
• The Scrutinizers shall count the votes cast on poll and prepare a
report thereon addressed to Chairman;
• The Scrutinizer shall submit the report to the Chairman who shall
countersign the same;
• The Chairman shall declare the result of voting on poll. The result
may either be announced by him or a person authorized by him in
writing.
The Scrutinizers shall submit a report to the Chairman of the meeting in
Form No. MGT-13. The report shall be signed by the scrutinizer(s) and
the same shall be submitted by them to the Chairman within 7 days from
the date of the poll is taken.
(b) Section 70 provides that no company shall directly or indirectly purchase
its own shares or other specified securities-
• Through any subsidiary company including its own subsidiary
companies;
• Through any investment company or group of investment
companies; or
• If a default, is made by the company, in the repayment of deposits
accepted either before or after the commencement of this Act,
interest payment thereon, redemption of debentures or preference
shares or payment of dividend to any shareholder, or repayment of
any term loan or interest payable thereon to any financial institution
or banking company. The buy back is not prohibited if the default is
remedied and a period of three years has lapsed after such default
ceased to subsist.
2018 - June [5] (a) Discuss the procedure for conversion of private company
into One Person Company. (7 marks)
Answer:
Conversion of Private Company into a OPC:
Rule 7 provides the procedure for conversion of private company into OPC.
Rule 7(1) provides that a private company other than Section 8 company,
having paid up share capital of ` 50 lakh or less and average annual
turnover during the relevant period is ` 2 crores or less may convert itself into
OPC by passing a special resolution in the general meeting. Before passing
such resolution the company shall obtain 'No Objection Certificate' in writing
from the members and creditors. The OPC shall file copy of the resolution
with the Registrar of Companies within 30 days from the date of passing
such resolution in Form No. MGT-14.
The company shall file an application in Form No. INC-6 for its conversion
into OPC along with fees. The following documents are to be attached:
• the directors of the company shall give a declaration by way of affidavit
duly sworn in confirming that all members and creditors of the company
have given their consent for conversion, the paid up share capital of the
company is ` 50 lakhs or less or average annual turnover is less than ` 2
crores, as the case may be;
• the list of members and creditors;
• the latest Audited Balance sheet arid the Profit and Loss Account;
• the copy of No objection letter of secured creditors.
On being satisfied and complied with the requirements the Registrar shall
issue the certificate.
2018 - June [5] (b) What are the procedures of sending notice through
electronic mode under the Companies Act, 2013? (8 marks)
Answer:
Company may give notice through electronic mode. For the purpose of this
rule, the expression “electronic mode” shall mean any communication sent
by a company through its authorized and secured computer programme
which is capable of producing confirmation and keeping record of such
communication addressed to the person entitled to receive such
communication at the last electronic mail address provided by the member.
(2) A notice may be sent through e-mail as a text or as an attachment to

e-mail or as a notification providing electronic link or Uniform Resource
Locator for accessing such notice.
(3) (i) The e-mail shall be addressed to the person entitled to receive such
e-mail as per the records of the company or as provided by the
depository:
Provided that the company shall provide an advance opportunity
atleast once in a financial year, to the member to register his e-mail
address and changes therein and such request may be made by
only those members who have not got their email id recorded or to
update a fresh email id and not from the members whose e-mail ids
are already registered.
(ii) The subject line in e-mail shall state the name of the company,
notice of the type of meeting, place and the date on which the
meeting is scheduled.
(iii) If notice is sent in the form of a non-editable attachment to e-mail,
such attachment shall be in the Portable Document Format or in a
non-editable format together with a ‘link or instructions’ for recipient
for downloading relevant version of the software.
(iv) When notice or notifications of availability of notice are sent by
e-mail, the company should ensure that it uses a system which
produces confirmation of the total number of recipients e-mailed and
a record of each recipient to whom the notice has been sent and
copy of such record and any notices of any failed transmissions and
subsequent re-sending shall be retained by or on behalf of the
company as “proof of sending”.
(v) The company’s obligation shall be satisfied when it transmits the
e-mail and the company shall not be held responsible for a failure
in transmission beyond its control.
(vi) If a member entitled to receive notice fails to provide or update
relevant e-mail address to the company, or to the depository
participant as the case may be, the company shall not be in default
for not delivering notice via e-mail.
(vii) The company may send e-mail through in-house facility or its
registrar and transfer agent or authorise any third party agency
providing bulk e-mail facility.
(viii) The notice made available on the electronic link or Uniform

Resource Locator has to be readable, and the recipient should be
able to obtain and retain copies and the company shall give the
complete Uniform Resource Locator or address of the website and
full details of how to access the document or information.
(ix) The notice of the general meeting of the company shall be
simultaneously placed on the website of the company if any and on
the website as may be notified by the Central Government.
2018 - Dec [5] (a) What are the features of companies registered under
section 8 of the Companies Act, 2013? (7 marks)
(b) Discuss the provisions of the Companies Act, 2013 regarding issue of
bonus shares. (8 marks)
PRACTICAL QUESTIONS
2013 - Dec [7] (a) A Company was incorporated on 6th October, 2013. The
certificate of incorporation of the company was issued by the Registrar on
25th October, 2013. The company on 10th October, 2013 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, 2013, whether the company can be
exempted from the said contractual liability. (3 marks)
Answer :
Upon the registration of the documents as required under the Companies
Act, 2013 for incorporation of a company, and on payment of the necessary
fees, the Registrar of Companies issues a certificate that company is
incorporated (u/s 34) Section 35 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 date of incorporation is the birth certificate of a company. The date

of issue of birth certificate cannot affect the date of birth of company.
The facts as given in the problem are similar to those in case of Jubilee
Cotton Mills Vs. 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.
Applying the above principles the contention of the company in this case
cannot be tenable (means acceptable).
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.
As per Companies (Amendment) Act, 2015:

Provides that Section 11 Pertaining to commencement of business
certificate to be omitted.
2014 - June [9] (a) The MOA of a Company was signed by two adult
members and by a guardian of the other five minor members, the guardian
signing separately for each minor member. The Registrar registered the
company and issued under his hand a certificate of incorporation. The
plaintiff contented that (a) conditions of registration were not duly complied
with, (b) that there were no seven subscribers to the MOA. Will the Tribunal
upheld his contention? (3 marks)
Answer :
No. Once the ROC issues the certificate of incorporation, it is the conclusive
evidence that all the formalities as required by law regarding the
incorporation of company have been complied with.
The certificate of incorporation is conclusive for all purposes.
According to the Section 35 of the Companies Act, 2013 a certificate

of incorporation given by the Registrar in respect of any association shall be
conclusive evidence that all requirements of this Act have been complied
with in respect of registration and matters precedent and incidental thereof
and no arguments whatsoever can be heard against the incorporation after
the issue of certificate of incorporation.

(a) (i) The management of Ambika Properties Ltd., has decided to take up
the business of chemical processing activity because of the
downward trend in real estate business. There is no provision in the
object clause of the Memorandum of Association to enable the
company to carry on such business. State with reasons whether its
object clause can be amended. State briefly the procedure to be
adopted for change in the object clause in the light of Companies
(c) (i) Manish, a textiles dealer, supplied certain bales of cloth to the
company which is duly incorporated has obtained a certificate of
incorporation. However, the company went into liquidation before it
could obtain certificate to commence business. Can Manish claim
the price of bales of cloth in liquidation proceedings? (2 marks)
Answer:
(a) (i) According to Section 13(8) of the Companies Act, 2013, a
company, which has raised money from public through prospectus
and still has any unutilized amount out of the money so raised, shall
not change its objects for which it raised the money through
prospectus unless a special resolution is passed by the company
and-
(i) The prescribed details in respect of such resolution are
published in the newspapers (one in English and one in
vernacular language) which is in circulation at the place where
the registered office of the company is situated and are also
placed on the website of the company, if any, indicating herein
the justification for such change;
(ii) The dissenting shareholders shall be given a opportunity to exit

by the promoters and shareholders having control in accordance
with regulations to be specified by the Securities and Exchange
Board.
The Registrar shall register the alteration of the memorandum
with respect to the objects of the company and certify the
registration within a period of thirty days from the date of filing of
the special resolution.
It may be noted that no alteration with respect to objects shall
have any effect until it has been registered as aforesaid
[Sec.13(10)].
(c) (i) No, as all contracts, after incorporation but before obtaining
certificate to commence business are provisional and not binding on
the company till such certificate is obtained.
[Note: The answer is given as per Section 149(4) of Companies Act,
1956, which is replaced by Section 11 of Companies Act, 2013. As per
Companies (Amended) Act, 2015 Section 11 stands omitted]
19 DIRECTORS
 Directors: Qualifications  Appointment
 Disqualifications  Duties
 Number  Powers
 Restriction on Powers
Legend

6.398
[Chapter  19] Directors O 6.399
CHAPTER AT A GLANCE

1 No. of Every public company shall have at least 3 directors
directors and every private company shall have at least 2
directors and every one person company shall have at
least 1 director under Section 149.
2 Legal Directors are trustees for the company i.e. the directors
position of are persons selected to manage the affairs of the
director company for the benefit of the shareholders.
3 Maximum Maximum Number of Director is 15, which can be
Number of increased by passing a special Resolution.
Director
4 Woman Certain prescribed class or classes of companies is
director required to have at least one woman director. This is a
mandatory provision.
5 Resident of Every company including one person company shall
director have at least one director who stays in India for a
period of not less than 182 days in the previous
calendar year.
6 Number of Maximum limit on total number of directorship has
directorship been fixed at 20 companies including sub limit of 10 for
public companies.
7 Removed of A director may be removed from the office by giving a
director special notice.
8 Managerial The overall limit on managerial remuneration shall not
remuneration exceed 11% of the net profits.
9 More than If there is more than one such director, remuneration
one such shall not exceed 10% of the net profits of the company.
director
10 Independent An independent director in relation to a company

director means a director other than a managing director or a
whole-time director or a nominee director.
11 An independent director can be selected from a data bank containing
names, addresses and qualifications of persons who are eligible and
willing to act as independent director.
12 Independent Every listed company shall have one-third independent
No. of directors.
director
13 Section Section 149(8) provides that the company and
149(8) independent directors shall abide by the provisions
specified in Schedule IV.
14 Term of An independent director shall hold office for a term up
independent to 5 consecutive years on the Board of a company.
director
15 Resignation The resignation or removal of an independent director
or removal of will be in the manner as is provided in Sections 168 &
an indepen- 169 of the act.
dent director
16 Composition 50% of the Board is to be independent if the Chairman
of Board of is a promoter, otherwise 1/ 3rd of the board are to be
Director independent prescribed under Clause 49* of Listing
Agreement.
Note:
*Regulation 17(1) of the SEBI (LODR) Regulation
2015. SEBI has notified new regulation named SEBI
(Listing Obligations and Disclosure Requirements)
Regulation, 2015 on 2nd September, 2015. A time
period of 90 days has been given for implementing the
Regulations. However, two provisions of the
regulations, which are facilitating in nature, are
applicable with immediate effect. Other provisions of
this new regulation have come into effect from 1st Dec.
2015.
The new regulation aim to consolidate and streamline

the provisions of existing Listing Agreements for
different segments of the capital market.
However, for the sake of students help, we have
provided the questions and answer under this chapter
as per old listing Agreement as well as new regulation
about listing agreement.
17 Nomination The Nomination Committee shall lay down the
Committee evaluation criteria for performance evaluation of
independent directors.
18 Director Director can participate in the Board Meeting through
video conferencing or other audio visual mode as may
be prescribed.
19 Notice of Notice of not less than seven days in writing is required
Board to call a board meeting and notice of meeting to all
Meeting directors shall be given, whether he is in India or
outside India by hand delivery or by post or by
electronic means.
20 The participation of director at Board Meeting through video
conferencing or by other electronic means shall be counted for the
purpose of Quorum.
21 Audit Every Listed Company and such other company as
Committee may be prescribed shall form Audit Committee
comprised of minimum 3 directors with majority of the
Independent Directors and majority of members of
committee shall be person with ability to read and
understand financial statement.
22 Nomination Every listed company and prescribed class or classes
and of companies, shall constitute the Nomination and
Remuneration Remuneration Committee consisting of three or more
Committee non-executive directors out of which not less than one
half shall be independent directors.
23 Inter corpo- Inter corporate investments not to be made through

rate invest- more than 2 layers of investment companies.
ments
24 Meeting of • In addition to the first meeting to be held within
Board thirty days of the date of incorporation, there shall
be minimum of four Board Meetings every year
and not more one hundred and twenty days shall
intervene between two consecutive Board
Meetings.
• In case of One Person Company (OPC), small
company and dormant company, at least one
Board Meeting should be conducted in each half of
the calendar year and the gap between two
meetings should not be less than Ninety days.
25 Matters not to (i) the approval of the annual financial statements;
be dealt with (ii) the approval of the Board’s report;
in a Meeting (iii) the approval of the prospectus;
through (iv) the Audit Committee Meetings for consideration
Video of accounts; and
Conferencing (v) the approval of the matter relating to
or other amalgamation, merger, demerger, acquisition and
Audio Visual takeover.
Means
26 Quorum for One third of total strength or two directors, whichever
Board is higher, shall be the quorum for a meeting.
Meeting For the purpose of determining the quorum, the
participation by a director through Video Conferencing
or other audio visual means shall also be counted.
If at any time the number of interested directors
exceeds or is equal to two-thirds of the total strength of
the Board of Directors, the number of directors who are
not interested and present at the meeting, being not
less than two shall be the quorum during such time.
27 Audit The requirement of constitution of Audit Committee has

Committee been limited to:
(a) Every listed Companies; or
(b) The following class of companies –
(i) all public companies with a paid up capital of
` 10 crores or more;
(ii) all public companies having turnover of `100
crores or more;
(iii) all public companies, having in aggregate,
outstanding loans or borrowings or debentures
or deposits exceeding ` 50 crores or more.
28 Corporate The Section applies to the following classes of
Social Res- companies during any financial year:
ponsibility (i) Companies having Net Worth of ` 500 crores or
Committee more;
(ii) Companies having turnover of ` 1,000 crores or
more;
(iii) Companies having Net Profit of ` 5 crores or
more.
Act, 2017
“Every company having net worth of rupees five
hundred crore or more, or turnover of rupees one
thousand crore or more or a net profit of rupees five
crore or more during the immediately preceding
financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of
three or more directors, out of which at least one
director shall be an independent director.
Provided that where a company is not required to
appoint an independent director under sub- section (4)
of Section 149, it shall have in its Corporate Social
Responsibility Committee two or more directors.”
Revised Section 135(3)(a)-

“(a) formulate and recommend to the Board, a
Corporate Social Responsibility Policy which shall
indicate the activities to be undertaken by the company
in areas or subject, specified in Schedule VII.”
Revised Explanation to Section 135(5)
“For the purposes of this section "net profit" shall not
include such sums as may be prescribed, and shall be
calculated in accordance with the provisions of Section
198.”
29 Prohibitions The non-government company or the company which
and Restric- has been in existence less than three financial years
tions Regard- may contribute any amount directly or indirectly to any
ing Political political party.
Contributions Further, the limit of contribution to political parties is
7.5% of the average net profits during the three
immediately preceding financial years.
30 Key Mana- • Under Section 2(51) a Key Managerial Personnel

gerial is define as the Chief Executive Officer or
Personnel Managing Director or the manager or, a Company
Secretary or the whole time director and the Chief
Financial Officer in relation to a company.
Act, 2017
“Key managerial personnel" in relation to a
company, means—
(i) the Chief Executive Officer or the managing
director or the manager;
(ii) the Company Secretary;
(iii) the whole-time Director;
(iv) the Chief Financial Officer;
(v) such other officer, not more than one level

below the directors who is in whole-time
employment, designated as key managerial
personnel by the Board; and
(vi) such other officer as may be prescribed;”
• Every listed Company having a paid up share capital
of ` 10 crore or more is compulsorily required to
have a key managerial personnel.
• The whole time key managerial personnel is to be
appointed by the Board and shall not hold office in
more than one company however he is permitted to
hold such other office with the permission of Board
of the company.
31 Penalty Every director or the key managerial personnel who is
in default shall be punishable with a fine which may
extend to ` 50,000 and a further fine which may be
extended to ` 1,000 for every day during which the
default continues.
32 Section 203 The Company Secretary has been covered under the
same section of KMP i.e. Section 203.
• Rule 8A Appointment of Company Secretaries in
companies not covered under rule 8 A company
other than a company covered under rule 8 which
has a paid up share capital of ` 5 crore or use shall
have a whole the company secretaries.
33 Remuneration 1. Overall managerial remuneration
to managerial Section 197 of the Companies Act, 2013
personnel prescribed the maximum ceiling for payment of
managerial remuneration by a public company to
its managing director whole-time director and
manager which shall not exceed 11% of the net
profit of the company in that financial year
computed in accordance with Section 198 except

that the remuneration of the directors shall not be
deducted from the gross profits.
2. Remuneration to Managing Director/whole time
Director/Manager
The remuneration payable to any one managing
director or whole- time director or manager shall
not exceed 5% of the net profits of the company
and if there are more than one such director
remuneration shall not exceed 10% of the net
profits to all such directors.
3. Remuneration to other directors
Except with the approval of the company in
general meeting, the remuneration payable to
directors who are neither managing directors nor
whole-time directors shall not exceed,—
- 1% of the net profits of the company, if there is
a managing or whole-time director or manager;
- 3% of the net profits in any other case.
4. Remuneration by a Company having no Profit
or Inadequate Profit
If, in any financial year, a company has no profits
or its profits are inadequate, the company shall not
pay to its directors, including managing or whole
time director or manager, any remuneration
exclusive of any fees payable to directors except
in accordance with the provisions of Schedule V
and if it is not able to comply with Schedule V, with
the previous approval of the Central Government.
Managerial Remuneration under Schedule V(Part II)
Section I :
Remuneration by Companies having Profits
A company having profits in a financial year may pay

remuneration to its managerial persons in accordance
with Section 197.
Section II: Remuneration by Companies having no
profits or inadequate profits without Central
Government approval
Where the effective capital L i m i t of yearly
is remuneration payable shall
not exceed (`)
Negative or less than 5 60 Lakhs

Crore
5 Crore and above but less 84 Lakhs

than 100 Crore
100 Crore and above but 120 Lakhs

less than 250 Crore
250 Crore and above 120 Lakhs plus 0.01% of

the effective capital in
excess of ` 250 Crore
If a special resolution is passed by the shareholders,

the above limits shall be doubled.
Act, 2017
Revised First Proviso to Section 197(1)-
“Provided that the company in general meeting may,
with the approval of the Central Government, authorise
the payment of remuneration exceeding eleven per
cent. of the net profits of the company, subject to the
provisions of Schedule V:”
Revised Second Proviso to Section 197(1)-
“Provided further that, except with the approval of the

company in general meeting by a special resolution,—
(i) the remuneration payable to any one managing
director; or whole-time director or manager shall
not exceed five per cent. of the net profits of the
company and if there is more than one such
director remuneration shall not exceed ten per
cent. of the net profits to all such directors and
manager taken together;
(ii) the remuneration payable to directors who are
neither managing directors nor whole-time
directors shall not exceed,—
(A) one per cent. of the net profits of the
company, if there is a managing or whole-
time director or manager;
(B) three per cent. of the net profits in any other
case.
Third Proviso to Section 197(1)-
“Provided also that, where the company has defaulted
in payment of dues to any bank or public financial
institution or non-convertible debenture holders or any
other secured creditor, the prior approval of the bank
or public financial institution concerned or the non
-convertible debenture holders or other secured
creditor, as the case may be, shall be obtained by the
company before obtaining the approval in the general
meeting.”
34 Secretarial The Central Government through rules has prescribed

audit such other class of companies as under-
(a) every public company having a paid-up share
capital of fifty crore rupees or more; or
(b) every public company having a turnover of two
hundred fifty crore rupees or more
Steps for the Appointment of Whole-time Director

S.No. Appointment of Whole-time Appointment of Whole-time
Director as per Schedule V Director with the prior approval
of Central Government
1 Convene a Board Meeting- Convene a Board Meeting-
(a) to appoint Whole-time (a) to appoint Whole-time
Director of the Company till Director of the Company till
the ensuing. General Meeting the ensuing General Meeting
of the Company (additional of the Company (additional
director). director).
(a) To fix date, time and place of (b) To fix date, time and place of
the General Meeting in order the General Meeting in order
to take the approval of the to take the approval of the
shareholders to appoint shareholders to appoint
“Whole-time Director” of the “Whole-time Director” of the
Company. Company.
2 File E-form MGT-14 and DIR-12 File E-form MGT-14 and DIR-12
(with necessary attachments) with (with necessary attachments) with
ROC within 30 days from the date ROC within 30 days from the date
of appointment as an additional of appointment as an additional
director of the Company. director of the Company.
3 Convene Extra-ordinary General Convene Extra-ordinary General
Meeting of the Company and take Meeting of the Company and take
shareholders approval for the shareholders approval for the
appointment of Whole-time appointment of Whole-time
Director of the Company. Director of the Company.
4 Not Applicable File E-form MR-2 to obtain the
approval of Central Government
with regard to the appointment of
whole-time Director of the
Company.
5 File E-Form DIR-12 within 30 File E-Form DIR-12 within 30

days from the date of general days from the date of general
meeting for regularization of meeting for regularization of
whole-time Director of the whole-time Director of the
Company. Company.
6 File E-form MR-1 (Return of File E-form MR-1 (Return of
Appointment) within 60 days of Appointment) within 60 days of
the date of appointment in the the date of appointment in the
board meeting with regard to the board meeting with regard to the
appointment of whole-time appointment of whole-time
director. director.
List of Important Forms
Form Form Purpose of Form as per Important Important
No. Type Companies Act, 2013 Section Rule
DIR-1 Physical Application for inclusion of 150 6(4)
Form name in the databank of
independent Directors
DIR-2 Physical Consent to act as it director of 152(5) 8
Form a company
DIR-3 Physical Applicant for allotment of 153 Rule 10 of
Form Director Identification Number Limited
Liability
Partnership
Rules,
2009
DIR-4 Physical Verification of applicant for 153 9(3)(a)(iv)
Form applicant for DIN
DIR-5 Physical Application for surrender of 153 11(f)
Form Director Identification Number
DIR-6 Physical Intimation of change in parti- — 12(1)
Form culars of Director to be given
to the Central Government
DIR-7 Physical Verification of applicant for — 12(1)(i)

Form change in DIN particulars
DIR-8 Physical Intimation by Director 164(2) 14(1)
Form
DIR-9 Physical Report by the company to 164(2) 14(2)
Form Registrar
DIR-10 Physical Form of Applicant for Removal 164(2) 14(5)
Form of Disqualification of Directors
DIR-11 e-Form Notice of resignation of a 168(1) 16
Director to the Registrar
DIR-12 e-Form Particulars of appointment of 7(1)(c), 17
directors and the key 168,170
managerial personnel and the (2)
changes among them
MR. 1 e-Form Return of appointment of key 196,197 3
managerial personnel and sch. V
MR. 2 e-Form Form of application to the 196, 7
Central Government for 197,200,
approval of appointment or 201 (1),
reappointment and 203 (1)
remuneration or increase in and Sch V
remuneration or waiver for
excess or over payment to
managing director or whole
time director or manager and
commission or remuneration
to directors
MR. 3 Physical Secretarial Audit Report 204 (1) 9
Form
SHORT NOTES
2017 - Dec [8] Write short note of the following term:

(b) Director Identification Number (DIN) (5 marks)
Answer:
Every individual, who is to be appointed as director of a company shall make
an application electronically in Form No. DIR-3 to the Central Government
for allotment of DIN along with the prescribed fees. The applicant can
download the said from the website of Ministry of Corporate Affairs (‘MCA’
for short) duly filled in all respects along with photograph and signed digitally.
The form shall be verified by a Chartered Accountant in practice or a
Company Secretary in practice or a Cost Accountant in practice.
On application, the system shall generate an application number. The
Central Government shall process the application and decide the approval
or rejection and communicate the same to the applicant along with the DIN
allotted in case of approval by way of a letter by post or electronically or in
any other mode within 30 days from the receipt of such application.
If any defect is found in the application the Central Government shall give
intimation of such defect or incompletion to the applicant by placing it on its
web site and by email to the applicant to rectify such defects within 15 days
from the date of intimation. If the same has not been rectified the
Government shall reject the application directing to file a fresh application.
In case of rejection or invalidation of application the fee so paid with the
application shall neither be refunded nor adjusted with any other application.
The DIN allotted to a director before the commencement of this Act shall be
deemed to be the DIN allotted under the present Act. The DIN allotted shall
be valid up to the life time of the Director. The said number shall not be
allotted to any other person. Similarly a person shall be allotted only one
DIN.
The director, on allotment of DIN, is to intimate the company in Form No.
DIR-3C within 15 days from the intimation, given to him. Every company
shall, within 15 days of the receipt of intimation, furnish the same with the
Registrar. If a company fails to furnish DIN the company shall be punishable
with fine which shall not be less than ` 25,000 but which may extend to
` 1 lakh. Every officer of the company who is default shall be punishable with
fine which shall not be less than ` 25,000/- but which may extend to ` 1 lakh.
Section 159 provides that if any individual or director of a company,
contravenes any of the provisions of Section 152 (dealing with the
appointment of directors), Section 155 (dealing with prohibition to obtain
more than one DIN) and Section 156 (Director to intimate DIN), such
individual or director shall be punishable with imprisonment for a term which
may extend to six months or with fine which may extend to ` 50,000. If the
contravention is continuing one further fine will be imposed which may
extend to ` 500 for every day after the first during which the contravention
continues.
Proviso to Section 153-
“Provided that the Central Government may prescribe any identification
number which shall be treated as Director Identification Number for the
purposes of this Act and in case any individual holds or acquires such
identification number, the requirement of this section shall not apply or apply
in such manner as may be prescribed.”
2013 - Dec [8] (a) (i) A company was formed and commenced business but
directors were not appointed. In such case who will act as director?
(2 marks)
(ii) Board acts on the advice given by a person in his professional
capacity, whether he shall be treated as director. (1 mark)
(b) What are the conditions to be complied with to keep the minutes in the
loose leaf binders? (3 marks)
(c) “Audit committee is only luxury to the company”. Do you agree?
(2 marks)
Answer :
(a) (i) Director : The designation as director does not mean that he indeed
is a director. A person who has control over direction, conduct or
management of the business of the company is a director.
Company's Act, 2013 provides that only individuals can be director
hence a firm, company, association of persons, body of individuals
or company can not function as director of a company.
Appointment of first directors: (Section 152 of Companies Act,
2013)
1. Normally AOA contains the names of first directors.
2. If AOA does not contain first directors then those who sign the
MOA shall decide the names of first directors.
3. If first directors are not decided in this manner, the subscribers
(signatories) to MOA will be deemed as first directors of the
company.
(ii) As per Section 35 of, Indian Companies Act, 2013 such person
shall not be deemed to be directors.
(b) Minutes may be kept in the loose leaf binders :
The modern practice is to type out or obtain computerized printing of the
minutes in loose leaves and then keep them in a binder. The Department
of Company affairs vide File No. 8/16(l)/61 PR have prescribed that, in
certain cases, minutes may be kept in loose leaf binder provided the
following conditions are fulfilled:
(i) The pages are serially numbered;
(ii) The loose leaves are bound up at reasonable interval, say not
exceeding six months;
(iii) There should be proper locking device to ensure security and proper
control to prevent irregular removal of the loose leaves.
(c) Audit committee serves as a communication link among various
departments and has to interact with management, internal auditor,
statutory auditor and the public.
Audit Committee provides an independent and impartial reassurance
to the board through its oversight, supervisory and monitoring role.
The chief role of audit committee is to ensure that the reporting and
disclosure made in the financial statements of the company are correct,
accurate and proper.
The Audit Committee has a responsibility to ensure that the

company’s financials do not contain any misrepresentation or misleading
information.
There has been many failures on the field of corporate governance and
this has given birth to the necessity of audit committee in corporate
governance and the Audit Committee has become increasingly relevant
in enhancing confidence in the integrity of an organization’s processes
and procedures relating to internal control and financial reporting.
The Audit Committee has become one of the main pillars of
corporate governance in checking and forestalling corporate misconduct.
The effectiveness of the Audit Committee determines to a large
extent the integrity of a company’s financial statements.
So, it can be said that the given statement is not true. Audit
committee is not a luxury to the company and it is an essential element
of good corporate governance.
2013 - Dec [9] (a) Describe the provisions for disclosure of interest by
directors u/s184 of the Companies Act, 2013. (3 marks)
Answer :
The Act provides for the disclosure by directors relating his concern or
interest in any company or companies or body corporate (including
shareholding interest), firms or other association of individuals by giving a
notice in writing in form MBP 1 (Rule 9(1)) at the first meeting of board after
being appointed as director and at first meeting of board of every financial
year, in addition to this, any change required to be disclosed in next board
meeting.
Every director is required to disclose the nature of his concern or interest
at the meeting of board in which the contract or arrangement is discussed
and he has not to participate in such meeting.
The abovementioned interest may be direct or indirect and relating to
some contract or arrangement or proposed contract or arrangement entered
into or to be entered into with a body corporate in which such director or such
director in association with other director holds more than two percent
shareholding or is a promoter, manager, Chief Executive Officer of that body

corporate or with a firm or other entity in which such director is a partner,
owner or member as the case maybe.
It shall be the duty of the director giving notice of interest to cause it to
be disclosed at the meeting held immediately after the date of the notice.
(Rule 9(2))
If a director is not concerned or interested at the time of contract but,
subsequently becomes concerned or interested is required to disclose his
interest or concern at the first meeting of the board.
All notices shall be kept at the registered office and such notices shall be
preserved for a period of eight years from the end of the financial year to
which it relates and shall be kept in the custody of the company secretary of
the company or any other person authorized by the Board for the purpose.
(Rule 9(3))
If a contract or arrangement entered into by the company without
disclosure of interest by director or with participation by a director who is
concerned or interested in any way, directly or indirectly, in the contract or
arrangement, shall be voidable at the option of the company.
The contravention of the provisions leads to punishment for a term which
may extend to one year or with fine which shall not be less than fifty
thousand rupees but which may extend to one lakh rupees or both.
Any contract or arrangement entered into or to be entered into between
two companies, where any director of any company holds more than two
percent of the paid up capital in other company, the provisions of this section
shall not apply.
In Section 184 of the Companies Act, 2013,—
(i) in sub-section (4), the words "shall not be less than fifty thousand
rupees but which" shall be omitted;
(ii) in sub-section (5), for clause (b), the following clause shall be
substituted, namely:—
(b) shall apply to any contract or arrangement entered into or to be entered
into between two companies or between one or more companies and
one or more bodies corporate where any of the directors of the one
company or body corporate or two or more of them together holds or
hold not more than two per cent. of the paid-up share capital in the other
company or the body corporate.
2014 - June [7] (a) In a public company the total number of Directors are 9
and 2 offices of the Directors have fallen vacant. Referring to the relevant
provisions of the Companies Act, 2013:
(i) What would be the quorum for the Board Meeting?
(ii) Can the articles of a company fix the quorum (higher or lower) for the
Board Meeting? (2 marks)
Answer :
Where the total number of Directors is 9 and 2 offices of the Directors have
fallen vacant, the number of directors remaining is 7. Therefore, quorum is
to be calculated with reference to 7.
(i) As per Section 174 of Companies Act, 2013, quorum shall be 1/3rd
of total strength of the directors and any fraction shall be rounded off
to next full figure. In the given case 1/3rd is 2.33. Therefore, where the
total strength is 7, the quorum shall be 3.
(ii) The articles of the company may fix a quorum higher than 1/3rd of total
strength but not lower than that. If it is fixed on lower side, it will be
void.

(c) (iii) What is the time limit within which the Board has to appoint an
Independent director and at which meeting the Independent director
is appointed under the Companies Act, 2013? (2 marks)
Answer:
Section 149(5) of the Companies Act, 2013 inter alia provides that
company existing on before the commencement of this Act, which are falling
within the ambit of Section 149(4), shall have to appoint Independent
Directors within one year from the commencement of Companies Act, 2013
or rules made in this behalf, as may be applicable.
Further, as per Section 152(2) read with Schedule IV of the Companies

Act, 2013, inter alia provides that, the appointment of the Independent
Director shall be approved by the Company in its meeting of shareholders.

(b) (i) How many Independent Directors have to be appointed in a
company under the Companies Act, 2013? (5 marks)
Answer:
Number of Independent Directors:
The following class or classes of companies shall have at least two
directors as independent directors:
(i) the Public Companies having paid up share capital of ten crore rupees
or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or
more; or
(iii) the Public Companies which have, in aggregate, outstanding loans,
debentures and deposits, exceeding fifty crore rupees.
Provided that in case a company covered under this rule is required to
appoint a higher number of independent directors due to composition of its
audit committee, such higher number of independent directors shall be
applicable to it.
Provided further that any intermittent vacancy of an independent director
shall be filled-up by the Board at the earliest but not later than immediate
next Board meeting or three months from the date of such vacancy,
whichever is later.
Provided also that where a company ceases to fulfill any of three conditions
laid down in sub-rule (1) for three consecutive years, it shall not be required
to comply with these provisions until such time as it meets any of such
conditions.
Provided that a company belonging to any class of companies for which a
higher number of independent directors has been specified in the law for the
time being in force shall comply with the requirements specified in such law.
2017 - June [6] (a) Describe the Procedure for the resignation of Director.
(9 marks)
(b) Describe the term ‘independent director’ as per the Companies Act, 2013.
(6 marks)
Answer:
(a) Resignation of a Director
Section 168 provides the procedure for the resignation of a director as
detailed below:
• A director may resign from his office by giving a notice in writing to
the company;
• He shall within 30 days from the date of resignation, forward to the
Registrar a copy of his resignation along with the reasons for the
resignation, in Form No. DIR – 11 along with the fee;
• A foreign director may authorize in writing a practicing Chartered
Accountant or Cost Accountant in practice or Company Secretary in
practice or any other resident director of the company to sign the
Form No. DIR – 11 and file the same on his behalf intimating the
reasons for the resignation;
• The Board shall on receipt of such notice take notice of the same;
• The company shall intimate the Registrar in Form No. DIR-12 within
one month from the date of receipt of such notice;
• The said information is to be posted on the website of the company;
• The fact of the resignation shall be laid in the report of directors
immediately following the general meeting by the company;
• The resignation of a director shall take effect from the date on which
the notice is received by the company or the date, if any, specified
by the director in the notice, whichever is later;
• The director who has resigned shall be liable even after his
resignation for the offences which occurred during his tenure;
Where all directors of a company resign from their offices the promoter
or , in his absence, the Central Government shall appoint the required
number of directors, who shall hold the office till the directors are
appointed by the company in general meeting.
(b) ‘Independent director’ is defined under Section 149(6) of the

Companies Act as a director other them a managing director or a whole
time director or a nominee director:
• who, in the opinion of the Board, is a person of integrity and
possesses relevant expertise and experience;
• he shall not a promoter of the company or its holding, subsidiary or
associate company;
• he shall not relate to the promoters of directors in the company, its
holding, subsidiary or associate company;
• he shall not have any pecuniary relationship with the company or
their promoters or directors during two immediately preceding
financial years or during the current financial year;
• his relatives shall not have any pecuniary relationship with the
company or their promoters of directors amounting to 2% or more of
its gross turnover or total income or ` 50 lakhs or such higher
amount as may be prescribed, whichever is lower, during the two
immediately preceding financial years or during the current financial
years;
• he or his relatives:
• holds or has held the position of a key managerial personnel or
is or has been employee of the company or its holding,
subsidiary or associate company, in any of the three financial
years immediately preceding the financial year;
• is or has been an employee or proprietor or partner, in any of
the three financial years immediately preceding the financial
year in which he is proposed to be appointed, of:
 a firm of auditors or company secretaries in practice or cost
auditors of the company; or
 any legal or a consulting firm that has or had any
transaction with the company, amounting to 10% or more of
the gross turnover of such firm.
• holds together with his relatives 2% or more of the total voting
power of the company; or
• is a Chief Executive or Director of any nonprofit organization

that receives 25% or more of its receipts from the company, any
of its promoters, directors or its holding, subsidiary or associate
company or that holds 2% or more of the total voting power of
the company; or
• who possess such other qualifications as may be prescribed.
2017 - Dec [6] (a) What are the different duties of a director in a company as
per the Companies Act, 2013? (8 marks)
(b) Enumerate the provisions relating to Restrictions on powers of Board.

(7 marks)
Answer:
(a) Section 166 of the Act prescribes the duties of a director under the
provisions of this Act as detailed below:
• A director of a company shall act in accordance with the articles of
the company;
• A director of a company shall act in good faith in order to promote
the objects of the company for the benefit of its members as a
whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment;
• A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent
judgment;
• A director shall not involve in a situation in which he may have a
direct or indirect interest that conflicts, or possibly may conflict, with
the interest of the company;
• A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives,
partners, or associates and if such director is found guilty of making
any undue gain, he shall be liable to pay an amount equal to that
gain to the company;
• A director of a company shall not assign his office and any

assignment so made shall be void;
If a director of the company contravenes the provisions of Section 166
such director shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees.
(b) The board can exercise the following powers only with the consent
of the company by special resolution, namely –
(a) to sell, lease or otherwise dispose of the whole or substantially the
whole of the undertaking of the company or where the company
owns more than one undertaking, of the whole or substantially the
whole of any of such undertakings.
(b) to invest otherwise in trust securities the amount of compensation
received by it as a result of any merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with
the money already borrowed by the company will exceed aggregate
of its paid-up share capital and free reserves, apart from temporary
loans obtained from the company’s bankers in the ordinary course
of business;
(d) to remit, or give time for the repayment of, any debt due from a
director.
The special resolution relating to borrowing money exceeding paid up
capital and free reserves specify the total amount up to which the money
may be borrowed by Board.
The title of buyer or the person who takes on lease any property,
investment or undertaking on good faith cannot be affected and also in
case if such sale or lease covered in the ordinary business of such
company.
The resolution may also stipulate the conditions of such sale and
lease, but this doesn’t authorise the company to reduce its capital except
the provisions contained in this Act.
The debt incurred by the company exceeding the paid up capital and
free reserves is not valid and effectual, unless the lender proves that the
loan was advanced on good faith and also having no knowledge of limit
imposed had been exceeded.
2018 - June [6] (a) Discuss the provisions of the Companies Act, 2013
regarding disqualifications for appointment of director. (10 marks)
Answer:
Section 164 of the Companies Act, 2013 details the disqualification of a
person for the appointment as a Director. A person shall not be eligible for
appointment as a Director of a company, if -
(i) he is of unsound mind and stands so declared by a competent court;
(ii) he is an undischarged insolvent;
(iii) he has applied to be adjudicated as an insolvent and his application
is pending;
(iv) he has been convicted by a Court of any offence, whether involving
moral turpitude or otherwise and sentenced to imprisonment for not
less than 6 months and a period of 5 years has not elapsed from the
date of expiry of the Sentence;
(v) if a person has been convicted of any offence and sentenced in
respect thereof to imprisonment for a period of 7 years or more, he
shall not be eligible to be appointed as a director in any company;
(vi) an order disqualifying him for appointment as a director has been
passed by the Court Or Tribunal and the Order is in force;
(vii) he has not paid any calls in respect of any shares of the company held
by him, whether alone or jointly with others and six months have
elapsed from the last day fixed for the payment of the call;
(viii) he has been convicted of the offence dealing with related party
transactions under Section 188 at any time during the last preceding
five years; or
(ix) he has not obtain DIN.

A private company may by its articles provide for any disqualifications
for appointment as a director in addition to the above disqualifications.
The disqualifications in (iv), (v), (vi) and (viii) shall not take effect:
• for 30 days from the date of conviction or order of disqualification;
• where an appeal or petition is preferred within 30 days against the
conviction resulting in sentence or order, until expiry of 7 days from
the date on which such appeal or petition is disposed of;
• where any further appeal or petition is preferred against order or
sentence within 7 days until such further appeal of petition is
disposed of.
2018 - June [6] (b) “ Directors are agents of the company.”– Discuss.
(5 marks)
Answer:
The company can act only through Directors, and so the relationship
between the company and the Director is that of Principal and Agent.
Contract entered into by a person as a Director of a company, will be binding
on the Company. However, Directors are not Agents of Members of the
company.
Directors have personal liability. They would be personally liable under
the following circumstances:
• Director acts in his own name,
• Director enters into an agreement/ contract which does not state clearly
as to whether the Director signing in his personal capacity or in his
representative capacity as an Agent of the Company.
Rights of the Company:
• Contract executed by the Director in excess of his authority, is binding
on the Company. However, the Company may claim damages from the
Director for breach of implied warranty of authority.
• When Directors act properly on behalf of the Company, they do not incur
personal liability; they do not exceed their powers.
2018 - Dec [6] (a) Discuss the powers of the Board of Directors of a
company as per the Companies Act, 2013. (10 marks)
(b) Enumerate the provisions of the Companies Act, 2013 relating to women
director in a company (5 marks)
PRACTICAL QUESTIONS
2014 - June [8] (a) Mr. Lalit, a Director of XY Limited proceeding on a long
foreign tour, appointed Mr. Mohan as an alternate director to act for him
during his absence. The articles of the company provide for appointment of
alternate directors. Mr Lalit claims that he has a right to appoint alternate
director. State whether Mr. Lalit is correct based on legal provision?
(3 marks)
Answer :
Appointment of alternate director can be done by the BOD and not by any
individual director. Mr. Lalit is not correct based on legal provision. Section
161 (2) of the Companies Act, 2013 provides that the Board of Directors of
a company may, if authorized by its Articles or by resolution passed by the
company in general meeting, appoint an alternate director to act for a
director during his absence for a period of not less than 3 months from the
State in which the meetings of the Board are ordinarily held. The alternate
director can be appointed only by the Board of Directors and only in cases
where the Board is authorized by Articles or by the company in general
meeting.
Hence Mr. Lalit the director in question, is not competent to appoint
alternate director and the appointment of Mr. Mohan as alternate director is
not valid.

(b) (i) Mr. Joseph is the director of a Public Limited Company. He has
been removed by the company before the expiry of his term, by
passing an ordinary resolution in general meeting. Is the company
justified in its action? Is Mr. Joseph entitled to claim compensation
for loss of his office? (3 marks)
Answer:
(a) Yes, the company is justified in this action;
(b) As per Section 169 of Companies Act, 2013, a company has the power
to remove a director by ordinary resolution before the expire of his office.
Mr. Joseph is not entitled to claim any compensation for loss of his
office. As per Section 202, a director is not entitled to any compensation
for loss of office.
In the present case Mr. Joseph is removed by passing an ordinary
resolution, and such removal is valid being authorized under Section
169. There is no entitlement of a director to claim compensation for such
removal in view of Section 202.
Only a managing director, or a director holding office of manager, or
a director in whole time employment are entitled to compensation for
loss of office [Section 202].

(b) (i) Atul was appointed director of the company in its Annual General
Meeting. He took over the office and started acting on behalf of the
company as its director. Subsequently, it was found that the
appointment of the director was not valid because in the meeting
where he was appointed, certain members who had voted were not
qualified to vote and certain members had voted twice by mistake.

There were also certain mistakes in the counting of votes. As such,
the appointment of the director was held to be invalid. Would the
acts of Atul, done by him as director, be valid and binding upon the
company? (3 marks)
Answer:
According to Sec. 176 of Companies Act, 2013, all acts of the director are
valid notwithstanding the fact that his appointment is afterwards discovered
to be invalid, the reason of any defect in his appointment.
This is to protect outsiders as well as members dealing with the
company.
In this case, the defects in the appointment of the director were found out
subsequent to his appointment. The director had no knowledge of the
defects until he had started acting as a director. The validity of the acts of the
director cannot be questioned just on the basis of irregularities subsequently
discovered in the appointment of the director.

(b) (iii) AB Ltd. has advanced a loan of ` 2,00,000 to one of its directors in
Contravention of the provision of Section 185 of the Companies
Act, 2013. State the consequences of such contravention.
(5 marks)
Answer:
Loans to Directors (Section 185 of Companies Act, 2013):
Amendment made by Companies (Amendment) Act, 2017. Section 185 of
the principal Act, the following section shall be substituted, namely:—
(1) No company shall, directly or indirectly, advance any loan, including any
loan represented by a book debt to, or give any guarantee or provide
any security in connection with any loan taken by,—
(a) any director of company, or of a company which is its holding
company or any partner or relative of any such director; or
(b) any firm in which any such director or relative is a partner.
(2) A company may advance any loan including any loan represented by a
book debt, or give any guarantee or provide any security in connection
with any loan taken by any person in whom any of the director of the
company is interested, subject to the condition that—
(a) a special resolution is passed by the company in general meeting:
Provided that the explanatory statement to the notice for the relevant
general meeting shall disclose the full particulars of the loans given, or
guarantee given or security provided and the purpose for which the loan
or guarantee or security is proposed to be utilised by the recipient of the
loan or guarantee or security and any other relevant fact; and
(b) the loans are utilised by the borrowing company for its principal business
activities.
Explanation.—For the purposes of this sub-section, the expression "any
person in whom any of the director of the company is interested"
means—
(a) any private company of which any such director is a director or
member;
(b) any body corporate at a general meeting of which not less than
twenty-five per cent. of the total voting power may be exercised or
controlled by any such director, or by two or more such directors,
together; or
(c) any body corporate, the Board of directors, managing director or
manager, whereof is accustomed to act in accordance with the
directions or instructions of the Board, or of any director or directors,
of the lending company.
(3) Nothing contained in sub-sections (1) and (2) shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company
to all its employees; or
(ii) pursuant to any scheme approved by the members by a special
resolution; or
(b) a company which in the ordinary course of its business provides
loans or gives guarantees or securities for the due repayment of any
loan and in respect of such loans an interest is charged at a rate not
less than the rate of prevailing yield of one year, three year, five
year or ten year Government security closest to the tenor of the
loan; or
(c) any loan made by a holding company to its wholly owned subsidiary
company or any guarantee given or security provided by a holding
company in respect of any loan made to its wholly owned subsidiary
company; or
(d) any guarantee given or security provided by a holding company in
respect of loan made by any bank or financial institution to its
subsidiary company:
Provided that the loans made under clauses (c) and (d) are utilised
by the subsidiary company for its principal business activities.
(4) If any loan is advanced or a guarantee or security is given or provided
or utilised in contravention of the provisions of this section,-
(i) the company shall be punishable with fine which shall not be less
than five lakh rupees but which may extend to twenty-five lakh
rupees,
(ii) every officer of the company who is in default shall be punishable

with imprisonment for a term which may extend to six months or with
fine which shall not be less than five lakh rupees but which may
extend to twenty-five lakh rupees; and
(iii) the director or the other person to whom any loan is advanced or
guarantee or security is given or provided in connection with any
loan taken by him or the other person, shall be punishable with
imprisonment which may extend to six months or with fine which
shall not be less than five lakh rupees but which may extend to
twenty-five lakh rupees, or with both.”
Section - D
Ethics
20 BUSINESS ETHICS
 Meaning of Ethics  Values and Attitudes of
 Nature Professional Accountants
 Importance  Seven Principles of Public Life
 Relevance to Business  Ethics in Business
Legend

6.433
6.434 O Scanner CMA Inter Gr. I Paper 6D (2016 Syllabus)
CHAPTER AT A GLANCE

1. Genesis of  The question of what is right and what is wrong
Ethics gave birth to ethical and unethical codes.
 The word “ethics” is derived from the Greek word
“ethos” (character), which means “way of living”
and from the Latin word “mores” (customs).
 Ethics is a branch of philosophy that is
concerned with human conduct.
 It studies what is morally right or wrong, just or
unjust.
 It defines what is good for the individual and for
the society.
 Ethics refers to well based standards of right
and wrong that prescribe what humans ought
to do, usually in term of rights, obligations,
benefits to society, fairness, or specific virtues.
 It is related to issues of propriety, rightness and
wrongness.
 What is wrong is unethical and what is right is
ethical.
 If it is ethical, it is right, proper fair and just.
 It is also defined as the science of the highest
good.
 Mackenzie defines ethics as, “the study of
what is right or good in human conduct” or “the
science of the ideal involved in human life”.
 Applied ethics is the practice of ethics that
aims to guide the moral judgement governing
the decisions we make in all areas of our lives.
 Values are our standards of right and wrong.
[Chapter  20] Business Ethics O 6.435
2. Background to Ethics is the area of philosophy concerned with the

Ethics evaluation of human conduct.
3. Major branches (1) Meta - ethics
of ethics (2) Political ethics
(3) Normative ethics
(4) Virtue ethics
(5) Practical ethics
(6) Rule - based ethics.
(a) Meta Ethics concerned with meaning of
philosophical language, thus focus is on the
grounds used to justify moral judgements
rather than on making moral judgements.
(b) Political Ethics consists of:
 examination of good society,
 the origins,
 forms of political power i.e. Government.
(c) Normative Ethics:
 It is a branch of philosophy.
 concerned with developing theories that
determine which human actions are right or
wrong.
 It is evaluative and constructive.
 It is not descriptive.
 e.g. - deontological ethics, utilitarian ethics,
virtue ethics etc.
(d) Virtue Ethics:
 Viewed as a separate branch.
 It is certainly normative
 It is concerned with possessing moral traits
and living a good life.
(e) Rule based Ethics:
 It seeks to evaluate moral considerations.
 Rules are divided into 2 parts:
(1) Consequentialism (or teleology) 

under this it is claimed that action
should be judged according to their
consequences.
(2) Deontology  under this it is
assumed that rightness or wrongness
is a judgement not dependent on
consequences but on the intrinsic
goodness of action itself.
(f) Practical (or applied) Ethics:
 Applies ethical principles and theories to
practical disciplines.
 Its purpose is to give guidance on a
specific issue.
 e.g. - medical ethics, business ethics,
environment ethics etc.
4. History of  Business Ethics has existed as an academic
Business Ethics field since 1970s.
 Social responsibility has been described as
being pyramid with four types of
responsibilities:
 Philanthropic (top level)
 Ethical
 Legal
 Economic (bottom level)
 Business ethics is different from social ethics in
following three ways:
(1) Business ethics provide ethical framework
for evaluating business.
(2) It allows critical analysis of business and
development of new and different
methods.
(3) It fuses personal and social responsibility
together.
 Thus, business ethics is broader than social

ethics and is more systematic and
constructive.
5. Business Ethics  It refers to application of ethics in business.
 It facilitates and promotes:
 good to society,
 improves profitability,
 fosters business relations and
 employee productivity.
 Generally it means, coming to know what is
right or wrong in the workplace and doing
what’s right.
 Unethical practices are creating problems to
businessman and business units.
 Business ethics are developed by the passage
of time and custom.
 If a custom is adopted and accepted by
businessman and public, that custom will
become an ethic.
 It is applicable to every type of business.
 It means the behaviour of a businessman while
conducting a business, by observing morality in
his business activities.
 According to Wheeler,
“Business Ethics is an art and science for
maintaining harmonious relationship with
society, its various groups and institutions as
well as recognizing the moral responsibility for
the rightness and wrongness of business
conduct.
 According to Rogene A. Buchholz,
“Business Ethics refers to right or wrong
behaviour in business decisions.
 Business Ethics or Ethical Standards are the
principles, practices and philosophies that
guide the business people.
 It can be said to begin where the law ends.

 It is primarily concerned with those issues that
are not covered by law, or where there is no
definite consensus on whether something is
right or wrong.
6. Importance of  Good business ethics promote good business.
Business Ethics  It helps to understand why power and influence
of business in society is increasing, what are its
implications and how this issues is to be
addressed.
 It provides a major contribution to our societies
like:
 producing the products
 providing services
 providing employment
 paying taxes, etc.
 It helps to create mutual trust and confidence in
relationships by helping us understand various
causes and consequences of business
malpractices.
 It provides means to appreciate and
understand the shareholders demand more
clearly through which they are able to meet
ethical expectations more effectively.
 It helps to improve ethical decision making by
providing managers with appropriate
knowledge and tools.
 It helps the business to prosper by following
good ethical standards.
 It provides us with the ability to assess the
benefits and problems associated with different
ways of managing ethics.
 Good ethical standards helps the business to
face challenges.
7. Characteristics  They are the principles, which govern and

of Business guide business people to perform business
Ethics functions and in that sense, it is a discipline.
 It is both a science and an art.
 It continuously test the rules and moral
standards.
 It is dynamic in nature.
 It is based on theological principles like human
welfare, good behaviour etc.
 It is based on reality and social customs
prevailing in business environment.
 It studies activities, decisions and behaviour
that are related to human beings.
 It has a universal application because business
exists all over the world.
 Many ethical principles develop personal
dignity.
 It keeps harmony between different roles of
businessman and every citizen, customer,
owner and investors.
8. Principles of  Various principles are developed by Cantt, J.S.
Business Ethics Nill, Herbett Spencer, Plato, Thomas Garret,
Woodrad, Wilson etc.
 Not to do any evil: Doing evil to oneself or to
another, either as a means or an end, is
unethical.
 Co-operation with others: Business should
help others only if, other deserves help.
 Equivalent price: As per Wilson,
“People are entitled to get goods equivalent to
value of money one pays”.
 Human dignity: Man should not be treated as
a factor of production. Human dignity should be
maintained.
 Sacredness of means and ends: Means and

techniques adopted to serve the business ends
must be sacred and pure. Thus, good end
should not be attained with wrong means even
if beneficial to society.
 Principle of proportionality: One should
make a proper judgement before doing
anything so that others do not suffer from any
loss or risk of evil.
 Publicity: As per W. Wilson,
“Anything that is being done or to be done
should be brought to the knowledge of
everyone”. This way no unethical act can be
done.
 Universal value: Business should be
conducted on the basis of universal values.
 Non co-operation in evils: Business should
not co-operate with anyone in any evil acts.
 Non violence: If businessman hurts the
interest or rights of the society or exploits its
consumers by overlooking their interests, it is
equivalent to violence and unethical act.
9. Elements of  Key elements:
Business Ethics (1) Formal code of conduct
(2) Ethics committee
(3) Ethical communication
(4) An ethic office with ethical officers
(5) Ethics Training Programme
(6) A disciplinary system
(7) Establishing an ombuds person
(8) Monitoring.
10. Ethics vs Morals Generally, ethics and morals are used as

synonyms. There is nothing wrong in such a usage,
for after all, the meaning of all words depend on
their common usage. However, in formal study, we
need to understand the meaning of the terms in a
qualified way so as to make our subject of study
precise and well defined.
11. Value-free Ethics It would seem that business is an ethically neutral
or value-free activity. In other words, the only value
business is concerned with is the monetary value.
It is not in the interest of business to mix ethical
values. An ancient Arabic wisdom states, ‘Live
together like brothers and do business like
strangers.’ Business should be kept free from other
social relationships and obligations. The only
successful relationship that exists in business is
that of a vendor and a customer.
It is also said that ‘for the merchant, even honesty
is a financial speculation.’ Indeed, for a
businessman every factor in the business is
measured in terms of money. The volatility that we
see in the stock market is a clear example of the
speculative nature of business, which is directly
proportional to the prevailing attitude of the people.
12. Concept of The concept of ‘value-free’ business ethics appears

Value-free Ethics to be quite appealing to businessmen. It as though
it may be pursued devoid of all rules within a social
vacuum. The concept of value-free ethics found
application in economics in a rather ironical fashion.
Ludwig von Mises, known as the father of the
Austrian School of Economics, proposed the pure
theory of economics, stating that economic
concepts are a priori, that is, they are not
dependent on experience, but are purely virtual

concepts. The concept of choice, for instance, is a
pure concept. It is immaterial whether one chooses
water or wine, but the concept in itself is free of
such particular elements. Hence, choice is
value-free (wertfrei). Applied to ethics, it would
mean that we should be able to study the principles
of this discipline, such as goodness, truth, justice,
honour, etc. in their pure form.
13. Ethics as a We have established that social evolution has
Principle developed definite principles of civic behaviour,
which have attained the status of principles. By
principle, we understand that something proceeds
and depends on it for its cause. For instance, when
one kicks a football, force is the principle that
propels it into motion and the ball remains in motion
till the force lasts. In other words, the physical world
functions strictly according to the laws of physics. It
is expected that people also submit their behaviour,
both in thoughts and in actions, to these principles.
14. Business Ethics Business ethics is not a pure science but a
as Professional professional practice, and society expects
Code businessmen to abide by the principles of a civil
society, just as it expects professionals from other
areas such as medicine, bureaucracy, politics and
sports to do so. Thus, instead of a value-free
business ethics, we have a value loaded or
value-based business practice.
15. The Seven (i) Selflessness: Holders of public office should
Principles of take decisions solely in terms of the public
Public Life interest. They should not do so in order to gain
financial or other material benefits for
themselves. their family, or their friends.
(ii) Integrity: Holders of public office should not

place themselves under any financial or other
obligation to outside individuals or
organizations that might influence them in the
performance or their official duties.
(iii) Objective: In carrying out public business
including making public appointments,
awarding contracts, or recommending
individuals for rewards and benefits. holders of
public office should make choices on merit.
(iv) Accountability: Holders of public office are
accountable for their decisions and actions to
the public and must submit themselves to
whatever scrutiny is appropriate to their office.
(v) Openness: Holders of public office should be
as open as possible about all the decisions and
actions that they take. They should give
reasons for their decisions and restrict
information only when the wider public interest
clearly demands.
(vi) Honesty: Holders of public office have a duty
to declare any private interests relating to their
public duties and to take steps to resolve any
conflicts arising in a way that protects the public
interest.
(vii) Leadership: Holders of public office should
promote and support these principles by
sound leadership and prove to be an example
in whatever they perform.
16. The Relationship Ethics and Law - The Interface: Law is essentially
between Ethics an institutionalisation or codification of ethics into
and Law specific social rules, regulations and prescriptions.
Perhaps the best way of visualizing ethics and law
is in terms of two intersecting domains as depicted
Thus, in one sense, business ethics can be said to
begin where law ends. Business ethics is primarily
concerned with those issues not completely
covered by law, or where there is no definite
consensus on whether something is right or wrong.
Hence, it is often remarked, that business ethics is
about the “grey areas” of business where values
are in conflict.
17. Ethics in “Business ethics is the study of business situations,
Business activities and decisions where issues of right and
wrong are addressed”
(i) Business for Profit: It would seem that
business ethics does not come within the
confines of ethics. As Adam Smith (1779), the
father of modern economics says: ‘People of
the same trade seldom come together, even for
merriment and diversion, but the conversation
ends in a conspiracy against the public, or in
some contrivance to raise prices.’ People find
mechanisms to generate the highest possible
returns when conducting business.
(ii) Business and Ethics: No matter how hard
one tries, it is impossible to separate life from
business. For a businessman, business is life.
Mahatma Gandhi (1948) said, ‘It is difficult but
not impossible to conduct strictly honest
business. What is true is that honesty is
incompatible with amassing of large fortune.’
The business world is an important part of
society, as it is concerned with the livelihoods
of people.
(iii) Character of Business: ‘There are two fools in

every market: one asks too little, one asks too
much,’ so says a Russian proverb. Is there a
concept called balanced profit? The business
in a society reflects its character. Transparency
International, in its corruption perception index,
gives Finland, Denmark, and New Zealand the
first place with 9.4 points. India is way down at
72, with just 3.5 points on a scale of 10. We
may gloat over our cultural heritage and
religious and ethical glories of the past, but we
stand exposed before the world as a corrupt
society.
(iv) Professional Ethics: The aforementioned
discussion may be understood through the
following distinctions: ethics and business
ethics. We have studied the distinction
between normative and practical ethics and
have established that business ethics comes
under practical ethics and is applied to a
particular activity. Just as a society functions
on the social codes of conduct and a country is
governed by its constitution, a business is run
on corporate codes. In other words, there is a
professional code of conduct for any business.
18. Need for 1. Stop business malpractices: Some
Business Ethics unscrupulous businessmen do business
malpractices by indulging in unfair trade
practices like black-marketing, artificial high
pricing, adulteration, cheating in weights and
measures, selling of duplicate and harmful
products, hoarding, false claims or
representations about their products etc.
2. Improve customers’ confidence: Business

ethics are needed to improve the customers’
confidence about the quality, quantity, price,
etc. of the products. The customers have more
trust and confidence in the businessmen who
follow ethical rules. They feel that such
businessmen will not cheat them.
3. Survival of business: Business ethics are
mandatory for the survival of business. The
businessmen who do not follow it will have
short-term success, but they will fail in the long
run. This is because they can cheat a
consumer only once. After that, the consumer
will not buy goods from that businessman.
4. Safeguarding consumers’ rights: Consumer
sovereignty cannot be either ruled out or
denied. Business can survive so long it enjoys
the patronage of consumer. The consumer has
many rights such as right to health and safety,
right to be informed, right to choose, right to be
heard, right to redress, etc.
5. Protecting employees and shareholders:
Business ethics are required to protect the
interest of employees, shareholders,
competitors, dealers, suppliers, etc. It protects
them from exploitation through unfair trade
practices.
6. Develops good relations: Business ethics are
important to develop good and friendly
relations between business and society. This
will result in a regular supply of good quality
goods and services at low prices to the society.
It will also result in profits for the businesses
thereby resulting in growth of economy.
7. Creates good image: Business ethics create

a good image for the business and
businessmen. If the businessmen follow all
ethical rules, then they will be fully accepted
and not criticised by the society.
8. Smooth functioning: If the business follows
all the business ethics, then the employees,
shareholders, consumers, dealers and
suppliers will all be happy. So they will give full
cooperation to the business.
9. Consumer movement: Business ethics are
gaining importance because of the growth of
the consumer movement. Gone are the days
when the consumer can be taken for ride by
the unscrupulous business by their false
propoganda and false claims, unfair trade
practices.
10. Consumer satisfaction: Today, the consumer
is the king of the market. Any business simply
cannot survive without the consumers.
Therefore, the main aim or objective of
business is consumer satisfaction.
11. Importance of labour: Labour, i.e. employees
or workers play a very crucial role in the
success of a business. Therefore, business
must use business ethics while dealing with the
employees. The business must give them
proper wages and salaries and provide them
with better working conditions.
12. Healthy competition: The business must use
business ethics while dealing with the
competitors. They must have healthy
competition with the competitors. Healthy
competition brings about efficiency, break
compliancy and leads to optimal utilisation of
scarce resources, hence is always welcome.
SHORT NOTES
2009 - Dec [5] (b) Write notes on the following :

(i) Enlightened-egoism
(ii) Ethics in compliance (5 marks each)
Answer :
(i) Enlightened – egoism
This model takes into account harms, benefits and rights. Therefore
under this model an action is morally correct if it increases benefits for
the individual in a way that does not intentionally hurt other and if
these benefits are believed to counterbalance any unintentional harms
that ensue.
For example, a company provides scholarships for education to
needy students with a condition that the beneficiary is required to
compulsorily work for the company for a period of 5 years. Although
the company is providing the scholarship benefits to the needy
students but ultimately it is in the company’s self interest.
(ii) Ethics in compliance:
Compliance is about obeying and adhering to rules and authority. The
motivation for being compliant could be to do the right thing out of the
fear of being caught and punished rather than a desire to be abiding
by the law.
An ethical climate in an organization ensures that compliance with
law is supported by a desire to abide by the laws. Organizations that
value high ethics comply with the laws not only in letter but go beyond
what is stipulated or expected of them.
2010 - Dec [5] (b) Write short notes on the following :

(iii) Deontological ethics (3 marks)
(iv) Ethics in marketing. (3 marks)
Answer :
(iii) Deontological ethical theory :
The word 'deontological' is derived from the Greek word 'deno'
meaning 'duty' or ‘obligation’. Deontological theories focus on certain
fundamental duties that we have as human being, such as not
committing murder or theft.
The duties stress that rightness of an act is derived from some
feature of the action itself, with reference to its consequences.
The duties uphold by deontological theory may be classified under
three headings :
(a) Duties to God, including honoring him and praying to him.
(b) Duties to oneself includes preserving over life and sharing
happiness.
(c) Duties to other including family duties, social duties and political
duties.
(iv) Ethics in marketing :
Marketing ethics is the area of applied ethics which deals with the
moral principles behind the operation and regulation of marketing. The
ethical issues confronted in this area include :
(1) Pricing : price fixing, price discrimination, price skimming.
(2) Misleading advertisements
(3) Contents of advertisements
(4) Anti-competitive practices like manipulation of supply, exclusive
dealing arrangements, tying arrangements etc.
(5) Black markets, grey markets.
2011 - June [5] (b) Write short notes on the following :

(i) Ethics in production (3 marks)
(iii) Virtue ethics theory (3 marks)
Answer :
(i) Ethics of production:
This area of business ethics deals with the duties of a company to
ensure that products and production processes do not cause harm.
Some of the more acute dilemmas (dilemma means confusion about
wrong and right) in this area arises out of the fact that there is usually
a degree of danger in any product or production process and it is
difficult to define a degree of permissibility, about such danger.
Following points should be noted in this regard :
(1) Defective, addictive and inherently dangerous products and
(2) Ethical relations between the company and the environment
include pollution, environmental ethics, carbon emissions global
warming etc.
(3) Ethical problem arising out of new technologies for e.g.
Genetically modified food.
(4) Product testing ethics.
The most systematic approach to fostering (means developing or
promoting or encouraging) ethical behaviour is to build corporate
cultures that link ethical standards and business practices.
(iii) Please refer 2009 - Dec [7] (c) (i) on page no. 458
2012 - Dec [7] (a) Write a qualitative note on ‘ethics philosophies’.

(5 marks)
Answer:
Please refer 2010 - June [7] (a) on page no. 458

(c) Seven principles of public life (5 marks)
Answer:
Seven Principles of Public Life
The Seven Principles of Public Life were set out by Lord Nolan for the first
time in the year 1995. These principles of public life will apply to any one
who works as a public office holder, including elected and appointed to public
office either locally or nationally. These principles apply to civil service, local
government, the police, the Courts and probation of services, non
departmental public bodies, health, education, social are care services.
These principles also apply to other sector that delivers public services.
The British Government appointed a committee called as Committee on
Standards in Public Life to advise the Prime Minister on ethical standards of
public life. The Committee was established in October 1994. The term of
reference to the committee is:
• to examine current concerns about standards of conduct of all holders
of public office, including arrangements relating to financial and
commercial activities; and
• to make recommendations as to any changes in present arrangements
which might be required to ensure the highest standards of propriety in
public life.
The Committee submitted its first report in the year 1995 containing the
seven principles of public life. The said principles have been amended over
year. The seven principles of public life as amended up to and as on 2015
are as follows:
• Selflessness – Holders of public office should act solely in terms of the
public interest.
• Integrity - Holders of public office must avoid placing themselves under
any obligation to people or organizations that might try inappropriately
to influence them in their work. They should not act or take decisions in
order to gain financial or other material benefits for themselves, their
family, or their friends. They must declare and resolve any interests and
relationships.
• Objectivity - Holders of public office must act and take decisions
impartially, fairly and on merit, using the best evidence and without
discrimination or bias.
• Accountability - Holders of public office are accountable to the public
for their decisions and actions and must submit themselves to the
scrutiny necessary to ensure this.
• Openness - Holders of public office should act and take decisions in an

open and transparent manner. Information should not be withheld from
the public unless there are clear and lawful reasons for so doing.
• Honesty - Holders of public office should be truthful
• Leadership - Holders of public office should exhibit these principles in
their own behavior. They should actively promote and robustly support
the principles and be willing to challenge poor behavior wherever it
occurs.

(c) Business Ethics (5 marks)
Answer:
Meaning
Business ethics deals with morality in the business. It is a system of moral
principles and values applied to business activities. This means the business
activities should be conducted according to ethics or moral standard.
Definition
Business ethics is an art or science of maintaining harmonious relationship
with society, its various groups and institution as well as reorganizing for right
or wrong of business conduct.
Features of business ethics
• Code of conduct;
• Provide protection to social group;
• Provide basic frame work;
• Need willing acceptance;
• Education and guidance;
• Not against for profit making.
Principles
• Avoid exploitation of consumers;
• Avoid unfair trade practices;
• Fair treatment to employees.
Importance
• Improving consumer confidence
• Business become conscious of social responsibilities;
• Create good image of business;
• Goodwill;
• Profitability;
• Survival of heated competition
• Safety from legal perspectives
(c) Consumer movement and Ethics. (5 marks)
Answer:
Consumer movement
Business ethics is gaining importance because of the growth of the
consumer movement. Gone are the days when the consumer can be taken
for ride by the unscrupulous business by their false propaganda and false
claims, unfair trade practices. Today, the consumers are aware of their rights
and well informed as well as well organized. Now they are more organized
and hence cannot be cheated easily. They take actions against those
businessmen who indulge in bad business practices. They boycott poor
quality, harmful, high priced and counterfeit goods. Therefore, the only way
to survive in business is to be honest and fair. Consumer forum and
consumer associations are more active and vocal now.

(c) Improving ethical behaviour in business (5 marks)
DISTINGUISH BETWEEN
(a) (i) What is the difference between morals and ethics? (7 marks)
Answer:
First of all analysis of the key terms 'ethics' and 'morals' is to be done. The
linguistic use of the terms, they seem as if they are in the plural form, just as
‘economies' or 'polities’, but we treat them as singular. Generally, ethics and
morals are used as synonyms. There is nothing wrong in such a usage, for
after all, the meanings of all words depend on their common usage.
However, in formal study, we need to understand the meaning of the terms
in a qualified way so as to make our subject of study precise and well
defined.
Meaning:
The terms 'ethics' and 'morals' are etymologically, that is, from their very
roots or terms, different. The word moral(s) is derived from the Latin root
moralis, which implies custom. In other words, it refers to a behavior that is
accepted or rejected due to an accepted social custom. The word ethics
stems from the Greek word ethike, which attributes to a social environment,
referred to as ethos or social milieu. This latter meaning embraces much
more than mere custom. It refers to everything that is part and parcel of
society and not just what is allowed or forbidden. Morality is more concerned
with the norms, values and beliefs embedded in social processes which
define what is right or wrong for an individual or community.
Another point of difference between the two refers to their usage in ordinary
language. For instance, a lawyer defending an alleged rapist would accuse
the victim as 'morally fallen' and not as 'ethically fallen'. On the other hand,
a committee that is formed to probe the behavior of the members of
Parliament would be called 'ethics committee' not 'moral committee'. The
meaning of the word is in its usage.
Thus, both these terms have their unique characteristics and applications.
Usage:
However, the terms are intrinsically not different. Both of them refer to the
same reality of human actions, which may be characterized as morally or
ethically positive or negative as the case may be. It may be true that the
terms (ethics and morals) sound different but they refer to the same social
reality wherein a certain body of accepted norms forms a code of conduct in
society. The actions of the members are described as 'moral' or 'ethical'
depending on the linguistic nuances of the meaning in a particular case as

well as on the conventional use of the terms. It is in the use of the words in
a given context, that the meaning becomes clear.
In academic usage, however, moral behavior refers to a concrete behavior
such as showing respect to elders. Ethics, on the other hand, is used to
mean a discipline or a systematic study of moral behavior such as justice.
People's behavior in a society can be morally characterized in their day to
day actions. It is in the classroom that we analyse the ethical significance of
these actions.
These terms are generally interchanged with one and the same meaning,
that is, to determine whether some human action is right or wrong. They deal
with the application of a socially accepted code of conduct. This conduct may
be termed as either moral conduct or ethical conduct.
2009 - June [5] (a) Explain the concept of 'business ethics'. (2 marks)
Answer :
The Concept of Business Ethics:
Business ethics is a form of applied ethics where principles of ethics may be
applied to daily routine situations in any business.
In broad sense ethics in business is simply the application of moral or
ethical norms to business. The term ethics has its origin from the Greek word
“ethos”, which means character or custom the distinguishing character,
sentiment, moral nature, or guiding beliefs of a person, group, or institution.
The synonyms of ethics as per Collins Thesaurus are Conscience, moral
code, morality, moral philosophy, moral values, principles, rules of conduct,
standards.
Business ethics compromises the principles and standards that guide
behaviour in the conduct of business.
Business must balance their desire to maximize profits against the needs
of the stakeholders. Maintaining this balance often requires tradeoffs.
To address these unique aspects of business, rules articulated and

implicit, are developed to guide the business to earn profits without harming
individuals or society as a whole.
2009 - June [6] (a) “Ethics is the first line of defence against corruption,
while law enforcement is remedial and reactive. However, both fail to achieve
the desired aim in the Indian set-up.” Do you agree ? Give reasons in
support of your answer. (7 marks)
Answer :
It is absolutely correct to say that ethics is the first line of defense against
corruption. What prevents corruption in the first place is ethics. The
enforcement of law is a reaction to the occurrence of the corruption.
While the law can only laydown the do’s and don’ts and the
consequences of doing or not doing something.
The compliance to law in letter and spirit can be achieved only through
ethical practices being followed.
An act may be perfectly legal but totally unethical. Therefore, the
statement law enforcement is remedial and reactive is also true.
However, ethics is not absolute and is open to the influence of time,
place and situation. Certain unethical practice on account of the fact that is
widely prevalent is apparently justified.
The following are some of the factors that have contributed to the
prevalence of corruption in India:
(i) Cultural ethos: Putting a premium on materialism, profiteering, power
play and casual attitude for ethical values...... Myopic concern over-
riding long-term considerations and values.
(ii) Institutional failures: Procedural formalities in-built obstacles,
bureaucratic red-tapism etc.
(iii) Poor enforcement of law: delay in justice.
(iv) Erosion of values in politicians, entrepreneurs political lobbying etc.
2009 - Dec [5] (a) “Ethics in business is simply the application of moral or
ethical norms to business.” Explain and discuss the advantages of business
ethics. (5 marks)
Answer :
Business ethics is a form of applied ethics. In broad sense ethics in business
is simply the application of moral or ethical norms to business. Ethics is a set
of principles or standard to human conduct that govern the behaviour of
individuals or organization using these ethical standard , a person or a group
of person or an organizations regulate their behaviour to distinguish between
what is right and what is wrong as perceived by others.
The advantages of business ethics include :-
1. Attracting and People aspire to join organizations that have high
Retaining Talent ethical values. Companies are able to attract the best
talent and an ethical company that is dedicated to
taking care of its employees will be rewarded with
employees being equally dedicated in taking care of
the organization. Ethical organization creates an
environment that is trust worthy, making employees
willing to rely, take decisions.
2. Investor Loyalty Investors are concerned about ethics, social
responsibility and reputation of the company in which
they invest. Investors are becoming more and more
aware that an ethical climate provides a foundation
for efficiency, productivity and profits. Relationship
with any stakeholder, including investors based on
dependability trust and commitment results in
sustained loyalty.
3. Customers Customer satisfaction is a vital factor in successful
Satisfaction business strategy. Repeat purchases /orders and
enduring relationship of mutual respect is essential
for the success of the company. The name of a
company should evoke trust and respect among
customers for enduring success. This is achieved by
a company that adopts ethical practices.
2009 - Dec [7] (c) Explain briefly the following :

(i) Virtue Ethics Theory (2 marks)
Answer :
Virtue Ethics Theory is a branch of moral philosophy that emphasizes
character, rather than rules or consequences, as the key element of ethical
thinking. An example of this when a person of good standing is found
possessing a valuable article belonging to someone else it will be presumed
that the article was loaned to him or kept with him for safekeeping , whereas
if it were in the possession of a person of doubtful or dubious character it
would be presumed that he has stolen the article.
2010 - June [6] (b) “A commitment by corporate management to follow an

ethical code of conduct confers a variety of benefits”. What are these
benefits? (5 marks)
Answer :
Advantages of Business Ethics :
Adherence (means loyalty, faithfulness, observance) to a Code of Conduct
offers the following advantages :
1. Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
2. Full, fair, accurate, timely, and understandable disclosure in reports and
documents that a company files with, or submits to the commission and
in other public communications made by the company;
3. Compliance with applicable governmental laws, rules and regulations;
4. The prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code, and;
5. Accountability for adherence to the code.
2010 - June [7] (a) Elaborate the various ‘ethics philosophies’. (5 marks)
(b) “An organisation’s structure is important to the study of business ethics”.
Comment. (5 marks)
Answer :
(a) The following are some of the ethics philosophies :
1. Deontological The word ‘deontological’ is derived from the Greek
ethical theory word "Deon" meaning ‘duty’ or ‘obligation’.
Deontological theories focus on certain
fundamental duties that we have as human being,
such as not committing murder or theft.
The duties stress that rightness of an act is
derived from some feature of the action itself, with
reference to its consequences.
The duties upheld by deontological theory may
be classified under three heading :
(a) Duties to God, including honoring him and
praying to him.
(b) Duties to Oneself includes preserving ones life
and sharing happiness.
(c) Duties to others, including family duties, social
duties and political duties.
2. Teleology (Greek : telos : end, purpose) Is the philosophical
study of design and purpose. It states that
everything that exists in the universe has a
particular purpose. A teleological school of thought
is one that holds all things to be designed for or
directed toward a final result, that there is an
inherent purpose or final cause for all that exists.
3. Utilitarianism The idea that the moral worth of an action is solely
determined by its contribution to overall utility, that
is, its contribution to happiness or pleasure as
summed among all persons. It can be described
by the phrase "the greatest good for the greatest
number". For example, one may be tempted to
steal from a rich person to give to a starving
family.
4. Relativism This states that everything related to ethics is

relative in nature and should be seen with that
frame of reference. Something good to some body
may be very bad for some body else. Killing an
enemy on border is good for the nation but it is
very bad for the family of the enemy. The idea
that some elements or aspects of experience or
culture are relative to i.e., dependent on, other
elements or aspects. The term often refers to truth
relativism, which is the doctrine that there are no
absolute truths, i.e., that truth is always relative to
some particular frame of reference, such as a
language or a culture.
5. Justice The concept of moral rightness in action or
attitude, is closely linked to fairness. A conception
(means idea, notion or beginning) of justice is one
of the key features of society.
(b) An organization’s structure is important to the study of business ethics.
In a centralized organization, decision-making authority is concentrated
in the hands of top-level managers, and little authority is delegated to
lower levels.
Responsibility, both internal and external, rests with top
management.
This structure is especially suited for organizations that make high-
risk decisions and whose lower-level managers are not highly skilled in
decision making.
Because of their top-down approach and the distance between
employee and decision maker, centralized organizational structures can
lead to unethical acts.
If the centralized organization is very bureaucratic, employees may
behave according to "the letter of the law" rather than the spirit.
In a decentralized organization, decision -making authority is
delegated as far down the chain of command as possible, such
organizations have relatively few formal rules, and coordination and
control are usually informal and personal.
They focus instead on increasing the flow of information.

As a result, one of the main strengths of decentralized organizations
is their adaptability and early recognition of external change.
2011 - June [7] (c) How do good business ethics practices help in attracting
and retaining talent in the organisation and achieve customer satisfaction ?
(5 marks)
Answer :
Please refer 2009 - Dec [5] (a) on page no. 457
2011 - Dec [5] (b) Discuss the concept of ‘ethics philosophies. (4 marks)
Answer :
Please refer 2010 - June [7] (a) on page no. 458
2012 - June [5] (a) “Companies displaying a clear commitment to ethical

conduct consistently outperform companies that do not display ethical
conduct.” Discuss this statement highlighting the advantages of business
ethics. (6 marks)
(b) Discuss briefly the following:
(iii) Ethics in human resources. (3 marks)
(iv) Enlightened egoism. (3 marks)
Answer:
(a) Please refer 2009 - Dec [5] (a) on page no. 457
(b)(iii) Ethics in Human Resources:
Human Resource Management (HRM) plays a decisive role in
introducing and implementing ethics. Ethics should be a pivotal issue
for HR specialists.
The ethics of HRM covers those ethical issues arising around the
employer- employee relationship such as the rights and duties shared
between employer and employee.
The issues of ethics faced by HRM include:

1. Discrimination issues i.e. discrimination on the basis of age,
gender, race, religion, disabilities, weight etc.
2. Sexual harassment
3. Issues surrounding the representation of employees and the
democratization of the work place, trade unionization.
4. Issues affecting the privacy of the employer; whistle blowing.
5. Issues relating to the fairness of the employment contract and the
balance of power between employer and employee.
6. Occupational safety and health.
(iv) Please refer 2009 - Dec [5] (a) on page no. 457
2012 - Dec [5] (a) “The integrity pact (IP) is a tool aimed at preventing
corruption in public contracting.” Discuss. (6 marks)
(b) Discuss briefly the following:
(iv) Ethics in compliance. (3 marks)
Answer:
(a) Developed by Transparency International (TI), the Integrity Pact (IP) is
a tool aimed at preventing corruption in public contracting. It consists of
a process that includes an agreement between a government or a
government department and all bidders for a public contract.
It contains rights and obligations to the effect that neither side will;
pay, offer, demand or accept bribes, collude with competitors to obtain
the contract; or engage in such abuses while carrying out the contract.
The IP also introduces a monitoring system that provides for
independent oversight and accountability.
Answer:
(b) (iv) Please refer 2009 - Dec [5] (b) (ii) on page no. 448
2012 - Dec [6] (b) You are the Company Secretary of Innovative Products
Ltd. The Board of directors desires to know the advantages of business
ethics. Draft a note for consideration of the Board of directors. (5 marks)
Answer:
Please refer 2010 - June [6] (b) on page no. 458
2013 - June [5] (a) Bhagavad Gita teaches that “without being attached to
the fruits of activities, one should act as a matter of duty, by working without
attachment one attains the supreme.”
In the light of this statement, discuss various ethics philosophies.
(6 marks)
Answer :
Ethics Bhagavad Gita teaches the following: “That, without
Philosophies being attached to the fruits of activities, one should act
as a matter of duty, by working without attachment one
attains the Supreme. This flows from the concept of
Karma. The concept of Karma is close to the notion of
deontological ethics.
Deontological Emphasises on the relationship between duty and the
Ethics morality of human actions.
Deontology (Greek deon, “duty”, and logos,
“science”) is therefore science of duty.
In deontological ethics an action is considered
morally good because of some characteristic of the
action itself, not because the consequence of the
action is good.
When we fail to follow our duty, we are behaving
immorally.
The other ethical philosophies include:

Teleological (Derived from the Greek word ‘telos’ meaning end,
Ethics purpose) is an ethical theory that holds that the ends or
consequences of an act determine whether an act is
good or evil. Rightness of actions is determined solely
by the good consequences. It is also known as
consequential ethics.
Enlightened- (From Latin ego, “I”), in philosophy, an ethical theory
Egoism holding that the good is based on the pursuit of self-
interest. This model takes into account harms, benefits
and rights for a person’s own welfare. Under this model
an action is morally correct if it increases benefits for th
individual in a way that does not intentionally hurt
others, and if these benefits are believed to
counterbalance any unintentional harms that ensue.
Utilitarianism Is an ethic of welfare. It is the idea that the moral worth
of an action is solely determined by its contribution to
overall utility, that is, its contribution to happiness or
pleasure as summed among all persons. It can be
described by the phrase “the greatest good for the
greatest number”.
Relativism Holds that there are no absolute truths in ethics and
that what is morally right or wrong varies from person
to person or from society to society. The term often
refers to truth relativism, which is the doctrine that
there are no absolute truths, i.e., that truth is always
relative to some particular frame of reference, such as
a language or a culture.
Virtue Ethics Theory is a branch of moral philosophy that
emphasizes character, rather than rules or
consequences, as the key element of ethical thinking.
Justice Is the concept of moral rightness in action or attitude;

it is closely linked to fairness. A conception of justice is
one of the key features of society.
2013 - Dec [10] (a) “Good business ethics promotes good business”—
Explain. (4 marks)
Answer:
 In general the ethics is concerned with doing the right thing. The ethics
covers the understanding and analysis of right and wrong, good and bad
or evil.
 There is a growing realization all over the world that ethics is vitally
important for the survival and growth of any business and for the
progress of any society.
 Ethics leads to an efficient economy; ethics alone, not government or
laws, can protect society; ethics is good in itself; ethics and profits go
together in the long-run.
 An ethically responsible company is one which has developed a culture
of caring for people and for the environment; a culture which flows
downwards from the top managers and leaders.
 Adopting ethical behaviour in an organization not only increases and
enhances its goodwill but also leads to positive consequences in the
long run. Business ethics protects the interest of all stakeholders.
 Businessman who follows business ethics improves his self image, gets
self satisfaction and motivates others also to follow the same principles.
 So in the era of global economy, for a successful business one has to
follow sound ethical practices.
 Ethics are important not only in business but in all aspects of life
because it is an essential part of the foundation on which civilized
society is built.
 A business or society that lacks ethical principles is bound to fail sooner
or later.
 An organization that has a strong ethical program in place will certainly

help in reducing the burden on the employees while deciding on some
alternatives, Ethics helps employees in developing a rationale behind the
actions that they undertake in the efficient performance of their duties.
 It will certainly help in reducing unnecessary tensions and unavoidable
thoughts that an individual gets surrounded with when he is faced such
kind of problems.
 This helps him in concentrating more on his work and less on the
indecisive thoughts that come to his mind.
2013 - Dec [11] (a) “Ethics and morals are one and the same” — Comment.
(3 marks)
Answer :
The word ethics is derived from the Greek word ‘ethikos’ meaning character
is essence of behaviour while the word Moral is derived from Latin ‘mos’
which means customs.
These two words are fundamentally different and provide two very
different standards for defining what is right and what is wrong.
Character is a personal attribute while custom relates to a group of
people.
People have character while societies have customs.
Moral refers to a behaviour that is accepted or rejected due to an
accepted social custom. The word ethics embraces much more than mere
custom.
It refers to everything that is part and parcel of society and not just what
is allowed or forbidden.
Morality is more concerned with the norms, values and beliefs embedded
in social processes which define what is right or wrong for an individual or
community.
Another point of difference between the two refers to their usage in
ordinary language. For instance, a lawyer defending an alleged rapist would
accuse the victim as 'morally fallen' and not as 'ethically fallen'.
On the other hand, a committee that is formed to probe the behaviour of

the members of Parliament would be called 'ethics committee', not moral
committee.
The meaning of the world is in its usage.
Thus, both these terms have their unique characteristics and
applications.
However, both the terms refer to human actions, which may be
characterized as morally or ethically positive or negative as the case may be.
It may be true that the terms (ethics and morals) sound different but they
refer to the same social reality wherein a certain body of accepted norms
forms a code of conduct in society.
The actions of the members are described as “moral” or “ethical”
depending on the context in which the term is used.
2014 - June [10] (a) “Business Ethics is the study of business situations,
activities and decisions where issues of right and wrong are addressed”.
Explain. (4 marks)
Answer :
Business Ethics also called Corporate Ethics is a form of applied ethics or
professional ethics that examines ethical principles and moral or ethical
problems that arise in a business environment.
It applies to all aspects of business conduct and is relevant to the
conduct of individuals and the entire organisations.
Business ethics takes into account the social principles of the situations
in which business takes place.
No matter how hard one tries, it is impossible to separate life from
business. For a businessman, business is life. Mahatma Gandhi (1948) said,
‘It is difficult but not impossible to conduct strictly honest business. What is
true is that honesty is incompatible with amassing of large fortune’.
The business world is an important part of society, as it is concerned with
the livelihoods of people.
Business activity too is subjected to the code of conduct without any

exception.
People expect businessmen to possess the same rationality as any other
citizen.
Therefore, there is no separate business ethics for businessmen, as
ethics applies to all the activities of people. Consequently, we have to keep
business within the bounds of ethics.
2014 - June [11] (a) Explain the interface between Ethics and Laws.
(3 marks)
Answer :
Ethics and Law: The Interface Law is application of ethics into social and
personal life. All laws are subordinates to ethical values but all ethics may
not be covered by law.
Law has a mandatory outside force behind it while ethics has moral force
inside the person.
Law is objective while ethics is subjective. What is ethical for one person
may not be ethical for some other person whereas law has to be same for all
the persons.
Perhaps the best way of visualizing ethics and law is in terms of two
intersecting domains as depicted in the following figure:
Thus, in one sense, business ethics can be said to begin where law
ends.
Business Ethics is primarily concerned with those issues not completely
covered by law, or where there is no definite consensus on whether
something is right or wrong.
Hence, it is often remarked, that business ethics is about the “grey
areas” of business where values are in conflict.
2014 - Dec [4] (a) (i) “Ethics are desirable for every business.” Comment.
(5 marks)
(ii) Explain the concept of value free ethics. (3 marks)
Answer :
(i) Need for Business Ethics:
Business ethics is currently a very prominent business topic and the
debates and dilemmas surrounding business ethics have attracted
enormous amount of attention from different quarters of organizations
and society. Hence, it has emerged as an increasingly important area
of study. Some of the major reasons why a good understanding of
business ethics is important can be stated as follows:
Stop business Some unscrupulous businessmen do business mal

mal practices practices by indulging in unfair trade practices like
black-marketing, artificial high pricing, adulteration,
cheating in weights and measures, selling of
duplicate and harmful products, hoarding, false
claims or representations about their products etc.
These business mal practices are harmful to the
consumers. Business ethics help to stop these
business mal practices.
Improve Business ethics are needed to improve the
customers’ customers’ confidence about the quality, quantity,
confidence price, etc. of the products. The customers have
more trust and confidence in the businessmen who
follow ethical rules. They feel that such
businessmen will not cheat them.
Survival of Business ethics are mandatory for the survival of
business business. The businessman who do not follow it will
have short-term success, but they will fail in the long
run. This is because they can cheat a consumer
only once. After that, the consumer will not buy
goods from that businessman. He will also tell
others not to buy from that businessman.
Safeguarding Consumer sovereignty cannot be either ruled out or

consumers’ denied. Business can survive so long it enjoys the
rights patronage of consumer. The consumer has many
rights such as right to health and safety, right to be
informed, right to choose, right to be heard, right to
redress, etc. But many businessmen do not respect
and protect these rights. Business ethics are must to
safeguard these rights of the consumers.
Protecting Business ethics are required to protect the interest
employees of employees, shareholders, competitors, dealers,
and suppliers, etc. It protects them from exploitation
shareholders through unfair trade practices.
(ii) Value-free Ethics:

It would seem that business is an ethically neutral or value-free
activity. In other words, the only value business is concerned with is
the monetary value.
It is not in the interest of business to mix ethical values.
An ancient Arabic wisdom states, ‘Live together like brothers and
do business like strangers.’
Business should be kept free from other social relationships and
obligations.
The only successful relationship that exists in business is that of a
vendor and a customer.
It is also said that ‘for the merchant, even honesty is a financial
speculation.’
Indeed, for a businessman every factor in the business is
measured in terms of money.
The volatility that we see in the stock market is a clear example of
the speculative nature of business, which is directly proportional to the
prevailing attitude of the people.
Concept of Value-free Ethics:

Now a days, we are familiar with ‘sugar-free’ soft drinks, ‘caffeine-free’
coffee, and ‘alcohol-free’ beer.
The concept of ‘value-free’ business ethics appears to be quite
appealing to businessman.
It is as though it may be pursued devoid of all rules within a social
vacuum.
The concept of value-free ethics found application in economics in
a rather ironical fashion.
Ludwig von Mises known as the father of the Austrian School of
Economics, proposed the pure theory of economics, stating that
economic concepts are a priori, that is, they are not dependent on
experience, but are purely virtual concepts.
The concept of choice, for instance, is a pure concept.
It is immaterial whether one chooses water or wine, but the concept
in itself is free of such particular elements.
Hence, choice is value-free (wertfrei). Applied to ethics, it would
mean that we should be able to study the principles of this discipline,
such as goodness, truth, justice, honour, etc. in their pure form.
2014 - Dec [4] (b) (i) Explain Business ethics as professional ethics.
(4 marks)
Answer :
 Just as a society functions on the social codes of conduct and a country
is governed by its constitution, a business is run on corporate codes.
 In other words, there is a professional code of conduct for any business.
 These codes keep evolving as other things around evolve and develop.
 Therefore, not only should business be defined within the confines of
ethics, but it should be practiced strictly under its own professional code
of conduct.
 This distinction helps to orient the general principles of ethics and
business to a particular activity.
 The principles, however, do not change.

Ethical behaviour is particularly important to professions and to
business:
 It matters to the professions because the complexity of what they do
mean that there has to be trust by the user in what they do, or they have
no purpose.
 It matters to business because investors will not back a company that
will not report fairly and customers, increasingly, will not buy from a
business that is not acting in the wider interests of society. Deciding
what is the right thing to do can be challenging.
 We all face numerous personal, social and organisational pressures
which influence our decisions and actions.
 Sometimes it is easy to assume that compliance with legislation,
regulations and policies and procedures equates to doing the right thing.
 By its nature, a compliance approach to decision-making cannot cover
all types of situations and eventualities.
 Even when a specific circumstance is addressed by a rule, compliance
is often with the letter of the rule, not its spirit. What is needed is a
principles based approach to decision-making, which encourages
deliberation, judgment and responsibility.
 The character of a true professional remains undivided, whether at work
or at home. Our roles may change from time to time and from place to
place but the integrity of our character should be maintained.
 Business ethics, thus, professionally adheres to a code of conduct that
is in accordance with the normative principles.
 Further, it may be concretely stated that professionals bear the following
marked characteristics:
(i) competency of educational qualification,
(ii) professional skills, and
(iii) compensation (salary/ remuneration, etc.).

(a) (i) ‘The ethics of business is the ethics of responsibility. The
businessman must promise that he will not harm knowingly’. Explain.
(4 marks)
(b) (i) Explain Ethics as a principle. (4 marks)
(c) (i) What are the seven principles of Public life? Explain. (4 marks)
Answer:
(a) (i) Over a period of time, business has developed a code of conduct
that creates greatest good and least harm to its pillars of support viz.
customers, employees, shareholders and community. Apparently,
there is a contradiction between ethics and motive of profit. It is now
well accepted a fact that ethical behavior creates a positive
reputation that expands the opportunities for profit. A business is not
restricted to its various assets viz. Building, Machine, Working
Capital only but is having a vision and a role, present or prospective
to play in the society. To achieve such goal it needs to make a
number of sacrifices and take responsibilities such as:
(a) Creation of awareness within the organization how its products
and services are accepted to the consumer, the industry and the
society at large.
(b) Sacrifice a part of profit to satisfy legal or other commitment for
corporate social responsibility.
(c) An organizational culture most likely to encourage high ethical
standard of risk tolerance, control and conflict tolerance.
(d) Spend on research and other innovations for protecting
environmental needs to carry out business / industrial
operations.
(b) (i) Ethics as a Principle:
We have established that social evolution has developed definite
principles of civic behaviour, which have attained the status of
principles.
By principle, we understand that something proceeds and
depends on it for its cause.
For instance, when one kicks a football, force is the principle that
propels it into motion and the ball remains in motion till the force
lasts.
In other words, the physical world functions strictly according to
the laws of physics.
It is expected that people also submit their behavior , both in
thoughts and in actions, to these principles.
An action is valid as long as it reflects the principle, just as the
speed of the moving ball depends on the force it receives.
(c) (i) The Seven Principles of Public Life
Selflessness Holders of public office should take decisions solely in

tells of the public interest. They should not do so in
order to gain financial or other material benefits for
themselves, their family, or their friends.
Integrity Holders of public office should not place themselves
under any financial or other obligation to outside
individuals or organizations that might influence them
in the performance or their official duties.
Objectivity In carrying out public business including making public
appointments, awarding contracts, or recommending
individuals for rewards and benefits, holders of public
office should make choices on merit.
Accountability Holders of public office are accountable for their
decisions and actions to the public and must submit
themselves to whatever scrutiny is appropriate to their
office.
Openness Holders of public office should be as open as possible
about all the decisions and actions that they take. They
should give reasons for their decisions and restrict
information only when the wider public interest clearly
demands.
Honesty Holders of public office have a duty to declare any

private interests relating to their public duties and to
take steps to resolve any conflicts arising in a way that
protects the public interest.
Leadership Holders of public office should promote and support
these principles by sound leadership and prove to be
an example in whatever they perform.

(a) (i) ‘The terms ethics and morals are etymologically different’. Explain.
(3 marks)
(b) (i) State the evolution of ethics. (3 marks)
(c) (i) ‘Fairness and honesty are the pillars of success in business’.
Comment. (4 marks)
Answer:
(a) (i) Meaning:
The terms ‘ethics’ and ‘morals’ are etymologically, that is, from their
very roots or terms, different.
The word moral(s) is derived from the Latin root moralis, which
implies custom.
In other words, it refers to a behaviour that is accepted or
rejected due to an accepted social custom.
The word ethics stems from the Greek word ethikos, which
attributes to a social environment, referred to as ethos or social
milieu.
This latter meaning embraces much more than mere custom.
It refers to everything that is part and parcel of society and not
just what is allowed or forbidden.
Morality is more concerned with the norms, values and beliefs
embedded in social processes which define what is right or wrong
for an individual or community.
Another point of difference between the two refers to their usage in
ordinary language.
For instance, a lawyer defending an alleged rapist would accuse

the victim as ‘morally fallen’ and not as ‘ethically fallen’.
On the other hand, a committee that is formed to probe the
behaviour of the members of Parliament would be called ‘ethics
committee’, not ‘moral committee’.
The meaning of the word is in its usage.
Thus, both these terms have their unique characteristics and
applications.
(b) (i) Social conduct has evolved along with the evolution of society.
When your elders tell you ‘Do not cheat’, they are referring to a
social code of conduct.
Social conduct has developed in society over hundreds of years.
The codes of conduct have been passed down from generation
to generation, and there is a pattern to the evolution of such codes.
Acceptable behaviour is promoted and elevated as a social
value, and unacceptable behaviour is rejected and condemned.
In ancient India, there was no moral problem with the custom of
sati-immolating the wife on the funeral pyre or the deceased
husband.
But society has evolved humanely and has condemned the act
as unacceptable and morally reprehensible.
The laws of a country are based on the customs or moral codes of
its society.
Penalties are prescribed for bad actions, actions that contradict
the established laws.
The laws are a measure against those people who cross the
limits of the code of social conduct, and ensure that good citizens
are protected from the negative consequences of the law-breakers.
(c) (i) The success of the business depends very much on fairness and
honesty in the business.
Fairness and honesty are at the heart of the business ethics and
relate to the general values of decision makers.
At a minimum, business professionals and persons are expected

to follow all applicable laws and regulation.
Even then, they are expected not to harm customers,
employees, clients or competitors knowingly through deception,
misrepresentation, coercion or discrimination. One aspect of fairness
and honesty is related to disclosure of potential harm caused by
product use.
Another aspect of fairness relates to competition.
Although numerous laws have been passed to foster
competition and make monopolistic practices illegal, companies
sometimes gain control over markets by using questionable
practices that harm competition.
Rivals of Microsoft, for example, accused the software giants of
using unfair and monopolistic practices to maintain market
dominance with its Internet explorer browser.
These aforesaid examples show that fairness and honesty pay in the
long run; they secure the stability of the business and overall
reputation in the business world.
Therefore, we may say that fairness and honesty are the pillars
of success in the business.

(a) (i) What is ‘Business Ethics’? (7 marks)
Answer :
Business Ethics:
According to Andrew Crane “ Business Ethics is the study of business
situations, activities and decisions where issues of right and wrong are
addressed.”
Raymond C. Baumhart contend – “The ethics of business is the ethics of
responsibility. The businessman must promise that he will not harm
knowingly”.
 Thus, Business Ethics (also called Corporate Ethics) is a form of applied

ethics or professional ethics that examines ethical principles and moral
or ethical problems that arise in a business environment. It applies to all
aspects of business conduct and is relevant to the conduct of individuals
and the entire organizations.
 Business ethics concerns itself with adhering to the social principles of
the situations in which business takes place. The analysis of this
definition leads us to the following discussion.
 Thus, Business Ethics (also called Corporate Ethics) is a form of applied
ethics or professional ethics that examines ethical principles and moral
or ethical problems that arise in a business environment. It applies to all
aspects of business conduct, and is relevant to the conduct of individuals
and the entire organizations.
 It deals with morality in business environment. It involves moral judgment
based on understanding of the society. It extends beyond the legal
questions and involves moral judgment based on understanding of the
society. It extends beyond the legal questions and involves goodness
and badness of an Act.
1. Business ethics refers to the application of everyday moral or ethical
norms to business. It requires an awareness of how the products
and services of an organizations and the action of its employees,
can affect its stakeholders and society as a whole, either positively
or negatively.
2. Ethics in business oganization relates to a corporate culture of
values, leadership program and enforcement.
3. It is that set of principles or reasons which governs the conduct of
business at the individual or collective level by the application of
ethical reasoning to specific business situations and activities.

(b) (i) Explain in brief the measures to ensure ethics in the work place.
(8 marks)
Answer:
An ethical company may develop certain basic principles which will guide its
employees in dealing with ethical issues at the workplace.
A set of such principles is given below:
1. Codes of ethics A code of ethics specifies the company's rules
and conduct regarding ethical behaviour in the workplace. For
e.g., company's code may prohibit employees from
accepting gifts from suppliers and clients. Code
becomes more effective when the top management
actively supports and applies it.
2. Establish open Most ethical issues in business are ambiguous and

communication uncertain. Therefore, there is need to create work
environment in which employees feel free to discuss
ethical dilemmas. Management should explain the
purpose and contents of ethical policy. Training is
required to sensitize employees to potential ethical
issues. Necessary resources and support need to be
provided to help employees to resolve ethical
dilemmas.
3. Appoint an Ombudsman serves as a point of reference.
ombudsman Employees can go to him and discuss ethical issues
in confidence.
4. Leadership by Ethical behavior is best taught by example. A father
example who insults his parents cannot expect respect from
his children. Top management should themselves
follow ethical practices and also create an
impression that unethical behavior will not be
tolerated.
5. Integrate ethics When developing the values statement during

management strategic planning, ethical value should be preferred
with other in the workplace. When developing personnel
management policies, reflect on what ethical value, you'd like to be
practices most prominent in the organization's culture and then
design policies to produce these behaviours.
6. Group decision If ethical issues are decided in groups, diverse
making interests and perspectives can be considered. The
decision process becomes more acceptable.
7. Suggestion A suggestion box may be installed so that
system employees may report suspended unethical activities
in an anonymous manner. This will encourage
employees to report ethical violations.
8. Grievance An appropriate grievance redressal system may be
procedure created. This will help to resolve disagreements
between employees and their supervisors on ethical
issues.
9. Regularly Policies and procedures concerning ethics at the
update policies workplace need to be reviewed and updated on
and procedure regular basis.
2017 - June [7] (a) What are the standards of ethical conduct for
practitioners fixed by the ICAI? (10 marks)
Answer:
ICAI has promulgated the following standards of ethical conduct for
practitioners:
• maintain at all times independence of thought and action;
• not to express an opinion on cost / financial reports or statements
without first assessing her or his relationship with her or his client to
determine whether such Member might expect her or his opinion to be
considered independent, objective and unbiased by one who has
knowledge of all the facts; and
• when preparing cost / financial reports or statements or expressing an

opinion on cost / financial reports or statements, disclose all material
facts known to such member in order not to make such cost / financial
reports or statements misleading, acquire sufficient information to
warrant an expression of opinion and report all material misstatements
or departures from generally accepted accounting principles.
• not to disclose or use any confidential information concerning the affairs
of such Member’s employer or client unless acting in the course of his
or her duties or except when such information is required to be disclosed
in the course of any defense of himself or herself or any associate or
employee in any lawsuit or other legal proceeding or against alleged
professional misconduct by order of lawful authority or any committee of
the Society in the proper exercise of their duties but only to the extent
necessary for such purpose;
• inform his or her employer or client of any business connections or
interests of which such Member’s employer or client would reasonably
expect to be informed;
• not, in the course of exercising his or her duties on behalf of such
Member’s employer or client, hold, receive, bargain for or acquire any
fee, remuneration or benefit without such employer’s or client’s
knowledge and consent; and
• take all reasonable steps, in arranging any engagement as a consultant,
to establish a clear understanding of the scope and objectives of the
work before it is commenced and will furnish the client with an estimate
of cost, preferably before the engagement is commenced, but in any
event as soon as possible thereafter.
• conduct himself or herself toward other Members with courtesy and good
faith;
• not to accept any engagement to review the work of another member for
the same employer except with the knowledge of that member, or except
where the connection of that member with the work has been
terminated, unless the member reviews the work of others as a normal
part of his or her responsibilities;
• not to attempt to gain an advantage over other members by paying or

accepting a commission in securing management accounting work;
• not to act maliciously or in any other way which may adversely reflect on
the public or professional reputation or business of another member;
• at all times maintain the standards of competence expressed by the
Institute from time to time;
• undertake only such work as he or she is competent to perform by virtue
of his or her training and experience and will, where it would be in the
best interests of an employer or client, engage, or advise the employer
or client to engage, other specialists;
2017 - Dec [7] (a) Why business ethics is more important and immensely
needed in the present business environment? Discuss. (10 marks)
Answer:
Importance of Ethics
• Public expects business to exhibit high levels of ethical performance and
social responsibility;
• Encouraging business firms and their employees to behave ethically is
to prevent harm to society;
• Promoting ethical behavior is to protect business from abuse by
unethical employees or unethical competitors;
• High ethical performance also protects the individuals who work in
business.
Need for business ethics
The following points discuss the need and importance of business ethics-
• to stop business malpractice;
• to improve customers’ confidence;
• for the survival of business;
• to safeguard consumers’ rights;
• to protect employees and shareholders;
• to develop good relations;
• to create good image;
• for smooth functioning;

• consumer movement;
• consumer satisfaction;
• importance of labour;
• healthy competition.
2018 - June [7] (a) What are the areas in business ethics ? Write a note of
the same. (10 marks)
Answer:
Areas in business ethics:
• Corporate Social Responsibility;
• Fiduciary responsibility to stake holders;
• Industrial espionage.
Ethical behavior and corporate social responsibility can bring significant
benefits to a business.
For example, they may:
• attract customers to the firm's products, which means boosting sales and
profits
• make employees want to stay with the business, reduce labour turnover
and therefore increase productivity
• attract more employees wanting to work for the business, reduce
recruitment costs and enable the company to get the most talented
employees
• attract investors and keep the company's share price high, thereby
protecting the business from takeover.
Knowing that the company, they deal with, has stated their morals and made
a promise to work in an ethical and responsible manner allows investors'
peace of mind that their money is being used in a way that arranges with
their own moral standing. When working for a company with strong business
ethics, employees are comfortable in the knowledge that they are not by their
own action allowing unethical practices to continue. Customers are at ease
buying products or services from a company they know to source their
materials and labor in an ethical and responsible way.
A company which sets out to work within its own ethical guidelines is also
less at risk of being fined for poor behavior, and less likely to find themselves
in breach of one of a large number of laws concerning required behavior.
Reputation is one of a company's most important assets, and one of the
most difficult to rebuild should not be lost. Maintaining the promises it has
made is crucial to maintaining that reputation. Businesses not following any
kind of ethical code or carrying out their social responsibility leads to wider
consequences. Unethical behavior may damage a firm's reputation and
make it less appealing to stakeholders. This means that profits could fall as
a result. The natural world can be affected by a lack of business ethics. For
example, a business which does not show care for where it disposes its
waste products, or fails to take a long-term view when buying up land for
development, is damaging the world in which every human being lives, and
damaging the future prospects of all companies.
2018 - Dec [7] (a) Discuss the nature and relevance of Ethics to the
Business. (10 marks)

1 Write short notes on Virtue ethics theory
09 - Dec [7] (c) (i), 11 - June [5] (b) (iii) 2 Times
2 Discuss briefly the following:
Ethics in compliance.
09 - Dec [5] (b) (ii), 12 - Dec [5] (b) (iv) 2 Times
3 What is ‘Business Ethics’?
09 - June [5] (a), 16 - June [4] (a) (i) 2 Times
4 Seven principles of public life
15 - June [4] (c) (i), 17 - June [8] (c) 2 Times
21 OBJECTIVE QUESTIONS
2008 - Dec [7] (c) Choose the most appropriate answer from the given
options in respect of the following:
(ii) An insured person under the Employees' State Insurance Act, 1948 is
entitled to receive certain benefits. But the insured person is 
(a) Not entitled to receive more than one benefit for the same period
(b) Entitled to receive more than one benefit for the same period on
compassionate grounds
(c) Entitled to receive one benefit partly in cash and receive the other
benefit in kind for the same period
(d) Entitled to receive more than one benefit on proof of authorities
concerned. (1 mark)
Answer:
(a) Not entitled to receive more than one benefit for the same period
2009 - June [7] (c) Choose the most appropriate answer from the given
options in respect of the following:
(ii) The disputes relating to benefits under the Employees' State
Insurance Act, 1948 are required to be filed in 
(a) Civil Court
(b) Employees' Insurance Court
(c) Labour Court
(d) Industrial Tribunal. (1 mark)
Answer:
(b) Employees' Insurance Court
6.485
2010 - Dec [7] (b) Re-write the following sentences after filling-in the blank
spaces with appropriate word(s)/figure(s):
(i) The ESI corporation to function efficiently has been provided with two
wings namely_______ and Medical Benefit Council.
(v) The rate of contribution towards the Employees’ State Insurance Fund
is % and ________ % of employees’ wages by the
employers and employees respectively. (1 mark each)
(c) Choose the most appropriate answer from the given options in respect
of the following:
(iv) ‘Dependent’ under the Employees’ State Insurance Act, 1948 does not
mean any of the following relatives of a deceased insured person —
(a) A widowed mother
(b) A widowed grand-mother
(c) A widowed daughter-in-law
(d) A widow. (1 mark)
Answer:
(b) (i) The ESI corporation to function efficiently has been provided with two
wings namely Standing Committee and Medical Benefit council.
(v) The rate of contribution towards the Employee's State Insurance Fund
is 4.75% and 1.75% of employee's wages by the employers and
employees respectively.
Answer:
(c)(iv) (b) A widowed grand mother
2011 - June [7] (c) Write the most appropriate answer from the given options
in respect of the following:
(ii) Every factory or establishment to which the Employees’ State
Insurance Act, 1948 applies has to be registered within —
(a) 15 Days
(b) 30 Days
(c) 45 Days
(d) 60 Days.
[Chapter  21] Objective Questions O 6.487
(iv) The term ‘wages’ under the Employees’ State Insurance Act, 1948
does not include —
(a) Incentives
(b) Over-time wages
(c) Traveling allowance
(d) Any other additional remuneration. (1 mark each)
Answer:
(ii) (a) 15 days
(iv) (c) Traveling Allowance
2011 - Dec [7] (b) Re-write the following sentences after filling-in the blank
spaces with appropriate word(s)/figure(s):
(ii) All contributions paid under the Employees’ State Insurance Act, 1948
and other moneys received on behalf of the ESI Corporation shall be
paid into a fund called ___________. (1 mark)
Answer:
(ii) Employee’s State Insurance Fund
2012 - June [3] (a) Fill in the blanks:

(i) Drinking water shall be provided at suitable points which shall not be
situated within ______ metres of any washing place/urinal.
(ii) In every factory wherein more than ______ workers are ordinarily
employed, cooling drinking water during hot weather shall be provided.
(iii) No person shall spit except in the spittoons provided for in factory and
whoever spits in contravention shall be punishable with fine of
INR _____.
(iv) In every factory wherein ______ workers are ordinarily employed,
Welfare Officer as may be prescribed shall be employed.
(1 × 4 = 4 marks)
Answer :
(i) 6 [Section 18, The Factories Act, 1948]
(ii) 250 [Section 18, The Factories Act, 1948]
(iii) ` 5/- Rupees five [Section 20, The Factories Act, 1948]
(iv) 500 [Section 49, The Factories Act, 1948]
2012 - Dec [2] (h) Fill in the Blanks based on Factories Act 1948
(i) No child shall be employed or permitted to work in any factory for more
than_______ hours in a day.
(ii) No female Child shall be required or allowed to work in any factory
except between ____________AM and___________PM.
(iii) No Child shall be employed during the Night and Night means a period
of at least twelve consecutive hours which shall include the interval
between_________PM and___________AM.
(iv) No woman shall be required or allowed to work in any factory except
between the hours of_____________AM and____________PM.
(1 x 4 = 4 marks)
Answer :
(i) 4½ hours
(ii) 8 A.M. – 7 P.M.
(iii) 10 P.M. – 6 A.M.
(iv) 6 A.M. – 7 P.M. (Sec. 66)
2013 - June [2] (d) (i) A part time employee engaged on regular basis is
eligible for Bonus under Payment of Bonus Act 1965. Write only True or
False.
(ii) Whether Gratuity under Payment of Gratuity Act, 1972 is payable for
the period of lay off under the Industrial Disputes Act 1947. Write only
True or False.
(iii) Fill in the blanks:

No adult worker shall be required to allow to work in a factory
(1) for more than ___________ hours in any week.
(2) for more than __________ hours in any day.
(3) the period of work of adult workers in a factory shall be so fixed
that no period shall exceed __________ hours. (1 mark each)
Answer :
(i) This statement is true.
(ii) This statement is true.
(iii) 1. 48 hrs.
2. 9 hrs.
3. 5 hrs.
2013 - Dec [1] {C} Choose the correct answer from the given four
alternatives:
(i) Cash is withdrawn by a customer of a bank from the automatic teller
machine is an example of
(a) Express Contract
(b) Void Contract
(c) Tacit Contract
(d) Illegal Contract
(ii) Which of the following is not implied condition under The Sale of
Goods Act, 1930?
(a) Sale by description
(b) Sale by discount price
(c) Sale by sample
(d) Quality or fitness
(iii) Occupier of every factory shall provide and maintain suitable room or
rooms for the use of the children under the age of six years of women
workers where the number of such women workers exceed
(a) 20
(b) 50
(c) 30
(d) 150
(iv) Examine as to which of the following payments form part of “salary”

under the provisions of the Payment of Bonus Act, 1965.
(a) Traveling allowance
(b) Commission on sales
(c) Dearness allowance
(d) Overtime allowance
(v) Under Payment of wages Act, 1963, in any factory, in which 1200
persons are employed, wages must be paid
(a) any time
(b) before the expiry of 10th day of the following month
(c) before the close of the month
(d) before the expiry of 7th day of the following month
(vi) The Employees Provident Funds Act, 1952 is applicable to every
establishment mentioned in schedule 1 and employed
(a) 10 persons or more
(b) 100 or more persons
(c) 20 or more persons
(d) 50 or more persons
(vii) A factory employs 250 workers. All the workers including workers
above 60 years of age and below 15 years of age went on strike. The
employer
(a) can deduct fine from all the workers
(b) can not deduct fine from workers who are under the age of 15
(c) no fine can be imposed from workers who are 60 years and above
(d) can not deduct any fine from any worker
(viii) The employer’s and employee’s share of contribution of ESI fund is
(a) 1.75% and 4.75% of wages respectively
(b) 4.75% and 1.75% of wages respectively
(c) 10% and 3.75% of wages respectively
(d) 11% and 3.75% of wages respectively
(ix) A Formal notarial certificate attesting the dishonour of a bill or note is
called
(a) Noting
(b) Protest
(c) Attestation of Dishonour
(d) Endorsement
(x) Public notice is not required when there is

(a) admission of new partner
(b) retirement of any partner
(c) expulsion of any partner
(d) dissolution of the firm
(xi) A LLP shall file an annual return duly authenticated with the Registrar
within _______ of closure of a financial year under Limited Liability
Partnership Act, 2008.
(a) 30 days
(b) 45 days
(c) 60 days
(d) 90 days
(xiii) The board of directors may appoint additional directors from time to
time if so authorized by
(a) Articles of Association
(b) Memorandum of Association
(c) A resolution passed at general meeting
(d) A resolution passed at board meeting
(xvii) Business ethics are gaining importance because of
(a) smooth functioning
(b) good image
(c) the growth of consumer movement
(d) increasing profit
(xviii) Which of the following statement is correct about business ethics?
(a) Social responsibility and business ethics are considered different
concepts
(b) Making higher profits should be the main objective of a business
(c) A business may sustain only if it cares for society
(d) Companies making ethical investments may not be able to
compete
(xix) Holders of public office should take decision solely in terms of the
public interest. This principle of public life is called
(a) Integrity
(b) Accountability
(c) Honesty
(d) Selflessness (1 x 15 = 15 marks)
Answer :
(i) (c) Tacit Contract
(ii) (b) Sale by discount price
(iii) (c) 30
(iv) (c) Dearness allowance
(v) (b) Before the expiry of 10th day of the following month
(vi) (c) 20 or more persons
(vii) (b) Cannot deduct fine from workers who are under the age of 15
(viii) (b) 4.75% and 1.75% of wages respectively
(ix) (b) Protest
(x) (a) Admission on new partner
(xi) (c) 60 days
(xiii) (a) Articles of Association
(xvii) (c) The growth of consumer movement
(xviii) (c) A business may sustain only if it cares for society
(xix) (d) Selflessness
2014 - June [1] {C} Choose the correct answer from the given four
alternatives:
(i) A party who does not suffer any loss in case of breach of contract is
entitled to
(a) Statutory damages
(b) Liquidated damages
(c) Exemplary damages
(d) Nominal damages
(ii) If part of contract is illegal, then the whole contract will be
(a) Voidable
(b) Void
(c) Legal
(d) Illegal
(iii) In which of the following cases, the claim of Quantum Meruit arise
(a) when there is no breach of contract
(b) when a contract is discovered to be valid
(c) where something has been done non gratuitously
(d) where the contract is divisible
(iv) Amit tells Bharat in the presence of Chetan that Amit is agent of
Chetan. Chetan maintain silence instead of denying it. Later, if Amit
sells Chetan’s goods to Bharat, Chetan cannot dispute Bharat’s title
to the goods. This is example of
(a) sale by official receiver
(b) sale by a finder of goods
(c) sale by estoppel
(d) execution of Sale
(v) An act to dissuade the intending buyer from bidding or from raising the
price by pointing out defects in the goods or by doing some other acts
which prevent persons from forming a fair estimate of the price of the
goods is known as
(a) Knock out agreement
(b) Damping
(c) Puffers
(d) None of the above
(vi) If a minor draws, endorses, delivers or negotiates an instrument, such
instrument binds
(a) all parties to the instrument including the minor
(b) only the minor and no other parties to the instrument
(c) all parties to the instrument except the minor
(vii) In a partnership firm, the decision can be made by rule of majority
when decisions relate to
(a) policy matters
(b) ordinary routine matters
(c) financial matters
(d) buying and selling of property
(viii) Power to exempt any LLP or class of LLP for audits of accounts is with
(a) Inspector
(b) Central Government
(c) Any other regulatory authority
(ix) Every inspector appointed under the Factories Act or Payment of

Wages Act is deemed to be a
(a) Controlling Officer
(b) Labour Welfare Officer
(c) Honorary Magistrate
(d) A Public Servant
(x) No fine can be imposed on any employed person who is under the age
of
(a) 10
(b) 12
(c) 15
(d) 18
(xi) In case of employee covered under the ESI, the accident report shall
be sent in _____ to local office of the ESI to which the company is
attached.
(a) Form No. 18
(b) Form No. 18A
(c) Form No. 25
(d) Form No. 16
(xiv) Application for Director Identification Number (DIN) is to be made to
Central Govt. in Form
(a) Dir – 1
(b) Dir – 2
(c) Dir – 3
(xvii) Business ethics is based on well accepted
(a) Moral and Social Values
(b) Social Values only
(c) Moral Values only
(xviii) Out of seven principles of public life, the principle of objectivity means
(a) holders of public office should take decisions solely in terms of the
public interest.
(b) in carrying out public business including making public
appointments, holders of public office should make choices on
merit.
(c) holders of public office are accountable for their decision and
actions to the public.
(d) holders of public office should be as open as possible about all the
decisions and actions that they take.
(xix) Who is responsible for ethical behaviour?
(a) Lecturers and Supervisors
(b) The Psychologist
(c) The Participants
(d) The Psychological Community
(xx) The three C’s of business ethics are
(a) Commitment, Contribution and Consequences
(b) Compliance, Contribution and Consequences
(c) Compliance, Customs and Contribution
(d) Codes, Compliance and Contributions (1 × 16 = 16 marks)
Answer:
(i) (d) Nominal damages
(ii) (b) Void
(iii) (d) Where the contract is divisible
(iv) (c) Sale by estoppel
(v) (b) Damping
(vi) (c) all parties to the instrument except the minor
(vii) (b) Ordinary routine matters
(viii) (b) Central Government
(ix) (d) A public servant
(x) (c) 15
(xi) (d) Form No. 16
(xiv) (b) Dir – 2
(xvii) (a) Moral and Social Values
(xviii) (b) In carrying out public business including making public appoint-
ments, holders of public office should make choices on merit.
(xix) (b) The Psychologist
(xx) (b) Compliance, Contribution and Consequences.
2014 - Dec [1] Answer all questions: (Choose the correct answer from the
given four alternatives.)
(i) In social agreements usual presumption is
(a) that parties do not intend to create social relations.
(b) that parties intend to perform them.
(c) that parties do not intend to make legal and social relations.
(d) that the parties do not intend to create legal relations between
them.
(ii) In a sale of goods, the doctrine of caveat emptor will not apply when
there is
(a) usage of trade
(b) consent by fraud
(c) buyer’s error of judgment
(d) Merchantable Quality
(iii) A bill of exchange, that is drawn accepted or endorsed without
consideration is called
(a) Accommodation bill
(b) Promissory note
(c) Trade bill
(d) Bearer instrument
(v) Employee’s State Insurance Act, 1948 is applicable to all
(a) factories including factories belonging to Government and
seasonal factories.
(b) factories excluding seasonal factories.
(c) factories including factories belonging to Government and
seasonal but excluding Silk factory.
(d) factories including factories belonging to Government but
excluding seasonal factories.
(vi) A partner must give a public notice of his retirement from the firm in
order absolve himself from the liability for the acts of the other
partners done after his retirement is known as
(a) Dormant partner
(b) Ostensible partner
(c) Nominal partner
(d) partner by estoppel
(vii) A prospectus which does not have complete particulars on the price
of securities offered and the quantum of securities offered by the
company is known as
(a) Private Placement
(b) Red-herring prospectus
(c) Deemed prospectus
(d) Shelf prospectus
(ix) The crucial step in understanding business ethics is
(a) Establishing codes of ethics
(b) Learning to recognize ethical issues
(c) Having efficient operations
(d) Implementing a strategic plan (2 × 7 = 14 marks)
Answer:
(i) (d) that the parties do not intend to create legal relations between
them.
(ii) (d) Merchantable Quality
(iii) (a) Accommodation bill
(v) (d) factories including factories belonging to Government but
excluding seasonal factories.
(vi) (b) Ostensible partner
(vii) (b) Red-herring prospectus
(ix) (b) Learning to recognize ethical issues
2015 - June [1] Answer all questions (Choose the correct answer from the
given four alternatives.)
(i) An agreement which is enforceable at the option of one or more
parties thereto but not at the option of other or others is called
(a) Void contract
(b) Voidable contract
(c) Void agreement
(d) Unenforceable contract
(ii) Which of the following agency is irrevocable under The Indian Contract
Act, 1872?
(a) Agency for fixed period
(b) Agency for single transaction
(c) Agency coupled with interest

(d) Continuing agency
(iii) A sort of tacit understanding/agreement among the intending bidders
to stifle competition by not bidding against each other in an auction
sale is called as
(a) Damping
(b) Knock-out agreement
(c) Puffers
(d) By-bidders
(iv) When an instrument is drawn conditionally or for a special purpose as
a collateral security and not for the purpose of transferring property
therein, it is called
(a) Ambiguous
(b) Inchoate
(c) Escrow
(d) Inland
(v) Which Committee is constituted by the occupier to promote
cooperation between the workers and management in maintaining
proper safety and health at workplace?
(a) Safety Committee
(b) Health Committee
(c) Management Workers Consultative Committee
(d) Maintenance Committee
(vi) Under Payment of Bonus Act, 1965, in disputed cases, bonus must be
paid
(a) within 8 months from the close of the accounting year.
(b) within 1 month from the date on which the award becomes
enforceable.
(c) within 2 months from the date on which the award becomes
enforceable.
(d) within 6 months from the date of closing of the accounting year.
(vii) Businessman or industrialists take initiative to form new companies.
Their main function is to manage the company after its promotion, they
are known as
(a) Particular Promoters
(b) Occasional Promoters
(c) Professional Promoters

(d) General Promoters
(ix) The study of ethics can be divided into four operational areas namely
meta ethics, normative ethics, descriptive ethics and
(a) positive ethics
(b) physical ethics
(c) applied ethics
(d) natural ethics (2 × 8 = 16 marks)
Answer:
(i) (b) Voidable Contract
(ii) (c) Agency coupled with interest
(iii) (b) Knock-out agreement
(iv) (c) Escrow
(v) (a) Safety Committee
(vi) (b) Within 1 month from the date on which the award becomes
enforceable
(vii) (d) General Promoters
(ix) (c) applied ethics
2015 - Dec [1] Answer all questions (Choose the correct answer from the
given four alternatives):
(i) Anchal purchased a motor car from Kamal who had no title to it.
Anchal used the motor car for several months. True owner spotted
the motor car and demanded it from Anchal. In such case:
(a) Anchal is bound to hand-over the motor car to true owner.
(b) Anchal is not bound to return the motor car to true owner as he
has paid in full settlement to Kamal.
(c) Anchal shall advise true owner to approach Kamal.
(d) True owner has no right to claim either from Anchal or from
Kamal. (1 mark)
(ii) Which of the following agreement is wagering agreement under the
Indian Contract Act, 1872?
(a) Crossword competition involving application of skill and
knowledge.
(b) Contract of Insurance.
(c) A promise to pay B ` 1,000 if it rains on Monday.

(d) A agrees to pay B ` 1,000 if two straight lines should enclose a
space. (1 mark)
(iii) Under Sale of Goods Act, which of the delivery of goods is called as
delivery by attornment?
(a) Actual
(b) Symbolic
(c) Constructive
(d) Physical (1 mark)
(iv) Where the price of the goods under a contract of sale is to be fixed
by the valuation of a third party who fails to fix the valuation, but
goods are supplied to the buyer, under section 10 of the Sale of
Goods Act, 1930, the buyer is:
(a) Liable to pay the reasonable price of the goods.
(b) Liable to pay the minimum price of the goods.
(c) Not liable to pay any price until fixed by the valuer.
(d) Liable to pay the maximum retail price. (1 mark)
(v) Under Factories Act, 1948, where work of the same kind is carried
out by two or more sets of workers during different period of the day,
each of such period is called a:
(a) Relay
(b) Shift
(c) Recess
(d) Overtime (1 mark)
(vi) Under Payment of Wages Act, 1936, deduction on account of
payment to co-operative societies shall not be more than:
(a) 50% of wages
(b) 75% of wages
(c) 90% of wages
(d) 60% of wages (1 mark)
(vii) Under Employee’s State Insurance Act, in order to qualify for
sickness benefit, the insured worker is required to contribute for:
(a) 70 days in a contribution period of 6 months.
(b) 78 days in a contribution period of 3 months.
(c) 91 days in a contribution period of 3 months.
(d) 78 days in a contribution period of 6 months. (1 mark)
(viii) Ankit purchased goods worth ` 20,000 from Anuj. In lieu of cash
payment, Ankit accept a bill of exchange of ` 20,000 to be payable
after three months. This is an example of:
(a) Accommodation Bill
(b) Fictitious Bill
(c) Genuine Bill
(d) Documentary Bill (1 mark)
(ix) Under the Negotiable Instruments Act, 1881, whether acceptance of
a bill of exchange in the following situation shall be treated as
‘qualified’ acceptance where the acceptor:
(a) Undertakes to pay only ` 10,000 for a bill drawn for ` 15,000.
(b) Declares the payment to be independent of any other event.
(c) Writes, ‘Accepted, payable at ABC Bank’.
(d) Writes, ‘Accepted, payable at Delhi’. (1 mark)
(x) When a partnership firm is continued even after the expiry of fixed
term is called:
(a) Perpetual partnership
(b) Fixed partnership
(c) Contract partnership
(d) Partnership at will (1 mark)
(xi) A person who is not a partner of a Partnership Firm, but he may
liable for firm’s debt as if he was a Partner. Such a person is called:
(a) Nominal Partner
(b) Sleeping Partner
(c) Partner by estoppels
(d) Partner for profit only (1 mark)
(xvii) Business ethics are needed to create a faith about the quality,
quantity, price etc. of products. The customers have more trust and
faith in the businessmen who follow ethical rules. They feel that such
businessmen would not cheat them. Which one of the following is
appropriate for it?
(a) Safeguarding consumers’ right
(b) Improve customers’ confidence
(c) Survival of business
(d) Consumer movement (1 mark)
(xviii) Holders of public office should not place themselves under any
financial or other obligation to outside individuals or organizations
that might influence them in the performance or their official duties.
This principle of public life is called:
(a) Selflessness
(b) Honesty
(c) Objectivity
(d) Integrity (1 mark)
Answer:
(i) (a) Anchal is bound to hand-over the motor car to true owner.
(ii) (c) A promise to pay B ` 1,000 if it rains on Monday.
(iii) (c) Constructive
(iv) (a) Liable to pay the reasonable price of the goods.
(v) (b) Shift
(vi) (b) 75% of wages
(vii) (d) 78 days in a contribution period of 6 months.
(viii) (c) Genuine Bill
(ix) (a) Undertakes to pay only ` 10,000 for a bill drawn for ` 15,000.
(x) (d) Partnership at will
(xi) (c) Partner by estoppel
(xvii) (b) Improve customers’ confidence
(xviii) (d) Integrity
2016 - June [1] Answer all questions:

(a) Multiple choice questions:
(i) A contract is a combination of
(a) agreement and free consent
(b) agreement and consideration
(c) agreement and enforceability
(d) agreement and competence of parties
(ii) The provisions regarding maximum number of members in a
partnership are given in
(a) The Partnership Act
(b) The Companies Act

(c) The Societies Registration Act
(d) The Co-operative Societies Act
(iii) X and Y agree to divide the profits of a business in equal shares but
the loss if any is to be borne by X only. The partnership agreement
is
(a) void
(b) voidable
(c) lawful
(d) illegal
(iv) First aid boxes or cupboard equipped with prescribed contents and
not less than one in number must be provided and maintained in
every factory so as to be accessible during all working hours for
every
(a) 200 workers for any time
(b) 150 workers for any time
(c) 500 workers for any time
(d) 30 workers for any time
(v) XYZ Ltd. to which the Payment of Wages Act, 1936 is applicable,
fixes the wages period of 36 days. You as a Cost and Management
Accountant of the Company, how would advice the company.
(a) There is no problem in the above Act of the Company.
(b) As per Section 4(2) of the Act, no wage period can exceed 30
days. So the company would be advised accordingly.
(c) The wages period can be more than 30 days subject to approval
of appropriate Government.
(d) The company should take permission of Inspector of the factory.
(viii) When the day on which a promissory note or bill of exchange is at
maturity is a public holiday, the instrument shall be deemed to be
due on the
(a) Preceding day
(b) Next preceding business day
(c) Same day of next week
(d) 3rd day following the date holiday
(ix) In case of an employee who has not completed 15 years of age at

the beginning of the Accounting year, the minimum bonus will be
(a) ` 100 or 8.33% of salary or wages whichever is higher.
(b) ` 60 or 8.33% of salary or wages whichever is higher.
(c) ` 60 or 8.33% of salary or wages whichever is lower.
(d) 8.33% of salary or wages.
(x) Every LLP firm shall have at least _________ designated partners
who are individuals.
(a) two
(b) three
(c) four
(d) five (1 × 8 = 8 marks)
Answer:
(a) (i) (c) agreement and enforceability.
(ii) (b) The Companies Act.
(iii) (c) Lawful.
(iv) (b) 150 workers for any time.
(v) (b) As per Section 4(2) of the Act, no wage period can exceed 30
days. So the company would be advised accordingly.
(viii) (b) Next Preceding business day.
(ix) (b) ` 60 or 8.33% of salary or wages whichever is higher.
(x) (a) two.
2016 - June [1] (b) Fill in the blanks.

(i) The maximum number of parties in a contract may be ______.
(ii) The Primary role of ______ committee is to assist the board in
identifying prospective directors.
(iii) If gratuity is not paid within 30 days from the date it becomes
payable simple interest @ ______ p.a. is payable on the expiry of
the said period.
(iv) The appropriate Government may direct that the provision of
Minimum Wages Act, 1948 will not be applicable in case of wages
payable to a ______ person. (1 × 4 = 4 marks)
Answer:
(b) (i) Infinite.
(b) (ii) Nomination.
(b) (iii) 10%.
(b) (iv) Disabled.
2016 - June [1] (c) State whether the following statements are True (or)
False.
(i)All agreements are contracts but all contracts are not agreements.
(ii)In a contract of guarantee two parties are necessary.
(iii)Delivery means voluntary transfer of possession of goods from one
person to another.
(iv) Share holders and Stake holders are synonyms.
(v) Ethics and Law have the same purpose. (1 × 5 = 5 marks
Answer:
(i) False.
(ii) False.
(iii) True.
(iv) False.
(v) True.
2016 - Dec [1] Answer all questions:

(i) A contract creates
(a) jus in personam.
(b) jus in rem.
(c) only rights and no obligations.
(d) only obligations and no rights.
(ii) Provisions of EPF & Miscellaneous Provision Act, 1952 are
applicable to Cinema/Theatre employing:
(a) 10 or more persons.
(b) 20 or more persons.

(c) 5 or more persons.
(d) 15 or more persons.
(iii) In the absence of Partnership agreement, the Partner has:
(a) right to avail interest on advances paid to partnership firm.
(b) right to avail interest on advances paid to partnership firm
provided there is profit.
(c) has no right to avail interest on advances.
(d) has right to avail interest on advances even after dissolution of
the firm.
(iv) A person who is employed by the seller to raise the price by fictitious
bids. Such person is known as:
(a) Puffer
(b) By bidder
(c) Decoy Ducks
(d) All of the above.
(v) In case of banker’s refusal to honour the cheque inspite of sufficient
funds in customer’s account, the banker is:
(a) liable to compensate the drawer.
(b) not liable to compensate the drawer.
(c) criminally liable under section 138.
(d) liable to be delisted.
(vi) Dependants benefit is paid at the rate of:
(a) 60% of wages in the form of monthly payment.
(b) 75% of wages in the form of monthly payment.
(c) 80% of wages in the form of monthly payment.
(d) 90% of wages in the form of monthly payment.
(vii) Board of Directors of every listed Company shall constitute an Audit
Committee which shall consists of a minimum of:
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors
(d) 5 Directors.
(viii) The maximum limit of bonus payable to an employee is fixed by way

of percentage of salary or wages earned by the employee during the
accounting year, the percentage is:
(a) 10%
(b) 15%
(c) 20%
(d) 25%.
(ix) Who is the head of Central Information Commission?
(a) The State Information Commissioner
(b) The Chief Information Commissioner
(c) The Chief Information Officer
(d) The Chairman of Information Commission.
(x) Business Ethics also called as Corporate Ethics is a form of:
(a) Positive Ethics
(b) Applied Ethics
(c) Physical Ethics
(d) Practical Ethics. (1×10 = 10 marks)
Answer:
(i) (a) Jus in personam.
(ii) (c) 5 or more persons.
(iii) (a) Right to avail interest on Advances paid to Partnership Firm.
(iv) (d) All of the above.
(v) (a) Liable to compensate the drawer.
(vi) (d) 90% of wages in the form of monthly payment.
(vii) (b) 3 Directors.
(viii) (c) 20%.
(ix) (b) The Chief Information Commissioner.
(x) (b) Applied Ethics.
2016 - Dec [1] (b) Fill in the blanks:

(i) All wages payable under Payment of Wages Act, 1936 is required to
be paid in current coins or in ___________ or both.
(ii) No adult worker can be allowed to work more than ___________
hours in a day.
(iii) A Meeting of Board of Directors must be held at least once in every
___________ months.
(iv) Only designated partners are liable to obtain unique identification
number called as ___________.
(v) Where the paid up share capital of an One Person Company exceeds
___________ or its average annual turnover during the relevant period
exceeds ___________, it shall cease to be entitled to continue as a
One Person Company. (1×5 = 5 marks)
Answer:
(i) Currency notes.
(ii) Nine.
(iii) Three/Four
(iv) Designated Partner Identification Number (DPIN)
(v) Fifty lakh rupees, two crore rupees.
2016 - Dec [1] (c) State whether the following statements are True (or)
False:
(i) Broader definitions of Corporate Governance stress a broader level of
accountability to shareholders and other stakeholders.
(ii) According to the Payment of Wages Act, 1936 other deduction cannot
be more than 50% of wages.
(iii) Limited Liability Partnership should have a minimum paid up capital of
INR 1,00,000.
(iv) Two thirds of total directors can be given permanent appointment in
the company.
(v) There is a prescribed Performa for RTI application.
(1 x 5 = 5 marks)
Answer:
(i) True
(ii) True
(iii) False
(iv) False
(v) False.
2017 - June [1] Answer all questions.

(i) The term ‘sub-agent’ in the business of agency is defined as a
person employed by, and acting under the control of the
(a) Principal
(b) Original agent
(c) Lawyer
(d) Third person
(ii) The first endorsement of an instrument can be made by the
(a) Banker
(b) Payee
(c) Holder in due course
(d) Agent
(iii) Which of the following is not the mode of dissolution of a firm
under voluntary dissolution?
(a) Dissolution by agreement
(b) Dissolution on the happenings of certain contingencies
(c) Dissolution on becoming a partner of unsound mind
(d) Compulsory dissolution
(iv) White wash or color wash should be carried out at least once in
every period of
(a) 14 months
(b) 24 months
(c) 48 months
(d) 60 months.
(v) The term ‘family’ as defined in ESI Act, 1948 does not include
(a) a spouse
(b) a minor adopted child
(c) a dependent unmarried daughter
(d) an independent married sister
(vi) Which one of the following amounts to safety measure?
(a) Artificial humidification
(b) Ventilation
(c) Fencing of factory
(d) First aid appliances.
(vii) if a company does not have a common seal, the share certificate
shall be signed by
(a) Two Directors
(b) One Director an Company Secretary
(c) Two Directors and Company Secretary
(d) Company Secretary
(viii) In case of e-voting, notice shall be sent as attachment in
(a) PDF file
(b) Word file
(c) Excel file
(d) Access file
(ix) A Director may be elected by small shareholders upon a notice by
(a) not less than 1000 small shareholders.
(b) one tenth of the total number of shareholders.
(c) not less than 1000 small shareholders or one tenth of such
shareholders, whichever is lower.
(d) one tenth of 1000 small shareholders.
(x) Meta ethics deal with the nature of ____.
(a) external influences
(b) Moral judgement.
(c) material facts.
(d) animal rights. (1 mark each)
Answer:
(i) Original agent.
(ii) Payee.
(iii) Dissolution on becoming a partner of unsound mind.
(iv) 14 months
(v) an independent married sister
(vi) Correct Answer would be “fencing of machinery”
(vii) Two Directors or (b) One Director and Company Secretary.
(viii) PDF file.
(ix) not less than 1000 small shareholders or one tenth of such
shareholders, whichever is lower.
(x) moral judgement.
2017 - June [1] (b) Fill in the blanks:

(i) Misrepresentation must relate to some fact which is material to the
______.
(ii) The LLP shall inform the concerned Registrar within_____ of the date
of registration about the conversion and the particulars of LLP.
(iii) The term of office of a member of the standing committee, constituted
under ESI Act, be two years from the date on which his election is
_____________.
(iv) The registered office shall be opened within 15 days from the date of
_____ of the company.
(vi) A company shall send copy of each of the document such as
memorandum etc., to a member within ______ days of the request
made by him. (5 marks)
Answer:
(i) Contract
(ii) 15 days
(iii) notified
(iv) incorporation
(v) 7 days
2017 - June [1] (c) True or False:

(i) In an agreement to sale, the buyer is entitled to recover the same from
the official liquidator in case of insolvency of the seller.
(ii) The term ‘employed person’ includes the legal representatives of a
deceased employed person.
(iii) Payment of Gratuity Act, 1972 applies to every shop and
establishment employing seven or more persons.
(iv) Any misstatement in the prospectus would attract the liability on the
issuer.
(v) Continuous improvement or kaizen is a popular theme. (5 marks)
Answer:
(i) False
(ii) True
(iii) False
(iv) True
(v) True
2017 - June [1] (d) Match and Pair:

Column I Column II
1 Presentment (A) Determines acceptable conduct
in business organization
2 Form no. INC - 23 (B) Issue of global depository
receipt
3 Continuing guarantee (C) Bill of exchange
4 Business ethics (D) Shifting of registered office
within the same state
5 Section 41 of the Companies (E) Guarantee which extends to a
Act series of transactions
(5 marks)
Answer:
Column I Column II
1. Presentment (C) Bill of exchange
2. Form no. INC - 23 (D) Shifting of registered office within
the same state
3. Continuing guarantee (E) Guarantee which extends to a
series of transactions
4. Business ethics (A) Determines acceptable conduct
in business organization
5. Section 41 of the Companies (B) Issue of global depository receipt
Act
2017 - Dec [1] (a) Answer all questions:

Multiple choice questions:
(i) Which one of the following is not the discharge by operation of law?
(a) By merger
(b) By insolvency
(c) By breach of contract
(d) By the unauthorized alteration of items of a written document
(ii) Which of the following is a method of discharge form liability?
(a) By endorsement
(b) By promising
(c) By cancellation
(d) By registration
(iii) A partner may contribute to the LLP
(a) tangible of intangible property.
(b) moveable or immoveable property.
(c) money, promissory note etc.
(d) Any of the above
(iv) Gratuity is payable to an employee after he has rendered continuous

service for not less than five years on his
(a) transfer
(b) daughter’s marriage
(c) re-employment
(d) resignation
(v) Who will not be considered as an employee?
(a) Canteen workers
(b) Casual workers
(c) Partners
(d) Part time employee
(vi) “Individual pension account” means an account of subscriber,
executed by a contact setting out the terms and conditions under the
(a) Provident fund scheme
(b) National pension system
(c) Citizen welfare system
(d) Minimum wage payment scheme
(vii) Which of the following is not a category of company?
(a) Inactive company
(b) Assistant company
(c) Dormant company
(d) Producer company
(viii) Section 92 of the Companies Act, 2013 requires a company to prepare
and file annual return in form no.
(a) MGT-12
(b) INC-23
(c) MGT-7
(d) SH-10
(ix) An instrument of the proxy shall be deposited with the registered office
of the company within______ before the conduct of the meeting.
(a) 7 hours
(b) 21 hours
(c) 48 hours
(d) 60 hours
(x) A proper foundation of ethics requires a standard of _____ to which all

goals and actions can be compared to.
(a) value
(b) living
(c) life
(d) speech (1 × 10 = 10 marks)
Answer:
(i) (c) By breach of contract
(ii) (c) By cancellation
(iii) (d) Any of the above
(iv) (d) resignation
(v) (c) Partners
(vi) (b) National pension system
(vii) (b) Assistant company
(viii) (c) MGT-7
(ix) (c) 48 hours
(x) (a) value
2017 - Dec [1] (b)

Match and pair:
Column I Column II
1. Hybrid between a company (A) Existence from the time of
and a partnership incorporation to winding up
2. Perpetual succession (B) Powers of the controlling
authority
3. Red herring prospectus (C) Need for business ethics
4. Requiring the discovery and (D) A limited liability partnership
production of documents
5. Smooth functioning (E) Does not include complete
particulars of the quantum or
price of securities
(5 marks)
Answer:
(1) (d)
(2) (a)
(3) (e)
(4) (b)
(5) (c)
2017 - Dec [1] (c)

True and False:
(i) The seller of the goods is not bound to deliver them until the buyer
applies for the delivery.
(ii) The partners of a LLP may remove an auditor from office at any time
by following the procedure as laid down in the LLP agreement.
(iii) The certificate of fitness granted by the certifying surgeon shall be
valid for a period of 24 months from the date thereof.
(iv) The e-voting shall remain open for not less than 3 days and shall close
at 5.00 P.M. on the date preceding the date of general meeting.
(v) The term 'ethics' derived from French word 'ethos' which means
character. (5 marks)
Answer:
(i) True
(ii) True
(iii) False
(iv) True
(v) False
2017 - Dec [1] (d)

Fill in the blanks:
(i) Remission means_____ of a lesser performance that what is actually
due under the contract.
(ii) A promissory note or bill of exchange, in which no time for payment is

specified, and a cheque, are payable on____.
(iii) Where a person provides labour or service to another for remuneration
which is less than the minimum wage, such labour is called_____.
(iv) The monies received on application shall be kept in a separate bank
account in a ____ bank.
(v) The seven principles of_____ were set out by Lord Nolan in 1995.
(5 marks)
Answer:
(i) acceptance
(ii) demand
(iii) forced labour
(iv) schedule
(v) public life
2018 - June [1] Answer all the following questions:

(a) Choose the correct answer from the given alternatives (you may write
only the Roman numeral and the alphabet choosen for your answer):
(i) The main feature of e-contract is
(a) Cost and acceptability
(b) Purity and clarity
(c) Speed, accurate and reliable
(d) Perfection and attractive
(ii) Which of the following is not an unpaid seller’s right against the
goods ?
(a) The right of retention
(b) The right of stoppage in transit
(c) The right of seeking claim for damage
(d) The right of resale
(iii) Where the endorser does not want that the endorsee or any other
holder to incur any expense on his account is called
(a) Restrictive endorsement
(b) Sans frais endorsement

(c) Conditional endorsement
(d) Unwanted endorsement
(iv) The liability of the partners will continue for the acts done before the
dissolution, even after the dissolution, until
(a) Public notice is given of the dissolution
(b) Partners are getting the final payment
(c) Claim is demanded by the creditors
(d) The death of partners
(v) Every employee shall be entitled to receive bonus from his employer
in an accounting year if he has worked for not less than
(a) Ten working days
(b) Twenty working days
(c) Thirty working days
(d) Forty working days
(vi) Under Employee’s State Insurance Act, 1948, the term of the office
of the members of Medical Benefit Council shall be
(a) 2 Years
(b) 4 Years
(c) 5 Years
(d) 10 Years
(vii) Which one cannot be transacted through postal ballot ?
(a) Appointment of auditor
(b) Election of a Director
(c) Buy back of shares by a company
(d) Change in place of registered office outside the local limits of
any city, town or village
(viii) The appointment of an independent director shall be approved by
the
(a) Board meeting
(b) General meeting
(c) Registrar of Companies
(d) Central Government
(ix) The sweat equity shares shall be locked in for a period of ------ years
from the date of allotment .
(a) One
(b) Two
(c) Three
(d) Four
(x) The following is the disadvantage of business ethics:
(a) Through increasing morale and trust business can increase their
market share
(b) Publicity due to well and ethical performance
(c) Acceptance of products of the company by the public
(d) Diversity in achievements
(1×10 = 10 marks)
Answer:
(a) (i) (c)
(ii) (c)
(iii) (b)
(iv) (a)
(v) (c)
(vi) (b)
(vii) (a)
(viii) (b)
(ix) (c)
(x) (d)
2018 - June [1] (b) Match the statement in column 1with the most
appropriate statement in Column II :
Column I Column II
1 Legal Representative of the (A) Welfare measures taken in
contractor a factory.
2 Where the seller makes a false (B) Certificate of

representation and buyer relies incorporation.
on it.
3 Creches (C) Extract of the annual
return of a company.
4 MGT - 9 (D) Exception to the Doctrine
of Caveat Emptor.
5 Form No. INC - 11 (E) He who is not the Principal
Employer.
(1 × 5 = 5 marks)
Answer:
(b) 1. (e)
2. (d)
3. (a)
4. (c)
5. (b)
2018 - June [1] (c) State whether the following statements are True or False
(you may write only the Roman numeral and whether True of False without
copying the statements into the answer books):
(i) Gratuitous bailment continues even after the death of either of the
bailor or bailee.
(ii) A holder is not having right to duplicate of lost bill, before it is overdue.
(iii) Fine may be recovered from the employed person by installments
(iv) Share certificate is a negotiable instrument.
(v) The businessmen who do not follow business ethics will have short
term success, but they will fail in the long run.
(1× 5 = 5 marks)
Answer:
(c) (i) False
(ii) False
(iii) False
(iv) False
(v) True
2018 - June [1] (d) Fill in the blanks suitably (you may write only the Roman
numeral and the content filling the blanks):
(i) The liability of surety arises only when the principal debtor fails to pay
the debt to the------------.
(ii) Goods to be manufactured or produced or acquired by the seller after
making of the contract of sale is called --------- good.
(iii) If there is a dispute as to the amount of gratuity payable to the
employee, the employer shall deposit the gratuity with the -----------.
(iv) The time limit for registration of charge is ---------days from the date of
creation of charge.
(v) The ethical operation of a company is directly related to---------- in both
short and long term. (1× 5 = 5 marks)
Answer:
(d) (i) Creditor
(ii) Future
(iii) Controlling authority
(iv) 30 days
(v) Profitability
2018 - Dec [1] Answer all the following questions:

Choose the correct answer from the given alternatives (you may write only
the Roman numeral and the alphabet chosen for your answer):
(a) Multiple Choice Questions:
(i) A proposal may be revoked at any time before
(a) the communication of acceptance

(b) the payment of consideration
(c) signing the agreement
(d) execution of the proposal
(ii) Which of the following is not to be taken care while admitting a new
partner?
(a) Computation of new profit sharing ratio and sacrifice ratio
(b) Accounting treatment of goodwill
(c) Professional qualification of admitting partner
(c) Revaluation of assets and liabilities
(iii) Where goods are delivered to the buyer and he refuses to accept
them, the buyer is not bound to
(A) retain them with him
(b) look - after the goods
(c) return them to the seller
(d) store them in his godown
(iv) No child shall be allowed to work in a factory unless he has completed
his
(a) 12th year
(b) 14th year
(c) 16th year
(d) 18th year
(v) Gratuity shall be payable to an employee on the termination of his
employment after he has rendered continuous service for not less than
(a) three years
(b) five years
(c) seven years
(d) ten years
(vi) The Employees’ State Insurance Corporation is
(a) Hindu Undivided Family
(b) Local Authority
(c) Charitable Institution
(d) Body Corporate
(vii) The annual return of an OPC shall be signed by the company

secretary or where there is no company secretary, by the
(a) Senior executive of the company
(b) Auditor of the company
(c) Director of the company
(d) Advocate of the company
(viii) If there is any mis-statement in the prospectus then it would attract the
liability on
(a) The printer
(b) The issuer
(c) The publisher
(d) The proof-reader
(ix) Every company limited by shares shall keep and maintain the Register
of Members in Form No.
(a) MGT - 1
(b) MGT - 3
(c) MGT - 7
(d) MGT - 12
(x) Ethics are the set of moral principles that guide a person’s
(a) Behaviour
(b) Philosophy
(c) Religion
(d) Profession (1 × 10 = marks)
2018 - Dec [1] (b) Match and Pair:
Column I Column II
(1) Wagering contract (A) Voting through electronics
means
(2) Coercion (B) War, animal rights and capital
punishment
(3) Consensus ad-idem (C) Committing any act forbidden
by the Indian Penal Code
(4) Section 108 of Companies (D) Identity of minds

Act, 2013
(5) Applied ethics (E) Promise to pay ` 1,000 if it
rains today
(1 × 5 = 5 marks)
2018 - Dec [1] (c) State whether the following statements are True or False
(i) Goods to be manufactured or produced or acquired by the seller after
making of the contract of sale are called future goods.
(ii) The first endorsement of an instrument can be made by the Banker.
(iv) In case of e-voting, notice shall be sent as attachment in word file.
(v) Ethics is a requirement for human life. (1 × 5 = 5 marks)
2018 - Dec [1] (d) Fill in the blanks:
(i) The dishonor of the instrument may be due to Non-acceptance and
_____ .
(ii) The term of the office of the representative members of Medical
Benefit Council shall be ______ years from the date on which the
appointment is notified.
(iii) The company shall have the _____ to specify the lock-in-period for the
shares issued in pursuant of exercise such option.
(iv) A director may resign from his office by giving a notice in writing to the
____.
(v) The Seven Principles of Public Life were set out by _____ for the first
time in the year 1995. (1 × 5 = 5 marks)
Table Showing Marks of Compulsory Questions

Year 14 14 15 15 16 16 17 17 18 18
J D J D J D J D J D
Objective 16 25
Total 16 25
Important
Glossary
FOR NOTES
Important Glossary
Abridged Abridged Prospectus is usually a shorter form of the

Prospectus Prospectus and possesses all the significant features
of a Prospectus. This accompanies the application
form of public issues.
Agent An individual or firm authorized to act on behalf of
another (called the principal). The agent does not
assume any financial risk in the transaction, as a
dealer would. Agent is a person employed to do any
act for another, or to represent another in dealings
with third persons. The relationship is to be
determined not by name but by the conduct of the
parties and the purpose of their dealings. The
appointing company is called the “principal”.
Allotment of “Allotment” of shares means the act of appropriation
Shares by the Board of Directors of the company out of the
previously un-appropriated capital of a company of a
certain number of shares to persons who have made
applications for shares.
Alteration of Any increase, any consolidation and division, any
Share Capital conversion into stock or stock to shares, any sub-
division or cancellation of shares is known as
alteration of share capital.
Alteration The state of being altered; a change made in the
form or nature of a thing; changed condition. In
Companies Law the memorandum and articles
sometime requires alterations.
6.527
Amalgamation Amalgamation is a legal process by which two or

more companies are joined together to form a new
entity or one or more companies are to be absorbed
or blended with another and as a consequence the
amalgamating company loses its existence and its
shareholders become the shareholders of new
company or the amalgamated company.
Articles of Articles of Association which contains the rules and
Association regulations relating to the internal management of a
company.
Beneficial The individual who enjoys the benefits of owning a
Owner security or property, regardless of whose name the
title is in.
Bonds A bond is an instrument of indebtedness of the bond
issuer to the holders. It is a debt security, under
which the issuer owes the holders a debt and,
depending on the terms of the bond, is obliged to pay
them interest (the coupon) and/or to repay the
principal at a later date, termed the maturity. Interest
is usually payable at fixed intervals (semiannual,
annual, sometimes monthly). Very often the bond is
negotiable, i.e. the ownership of the instrument can
be transferred in the secondary market.
Bonus Share When a company is prosperous and accumulates
large distributable profits, it converts these
accumulated profits into capital and divides the
capital among the existing members in proportion to
their entitlements. Members do not have to pay any
amount for such shares. A company may, if its
Articles provide, capitalize its profits by issuing fully-
paid bonus shares.
Important Glossary O 6.529
Buyback of The repurchase of shares by a company in order to

Shares reduce the number of shares on the market.
Companies will buy back shares either to increase
the value of shares still available (reducing supply), or
to eliminate any threats by shareholders who may be
looking for a controlling stake.
Call on Share A call is a demand, by the company in pursuance of
a Board resolution and in accordance with the articles
of the company, upon its shareholders to pay the
whole or part of the balance still due on each class of
shares allotted or held by them made at any time
during the life of the company.
Capital Profits Those profits which arise otherwise than in the
normal course of the business and earned out of
capital transactions.
Certificate of A certificate issued by the Registrar of Companies of
Incorporation a state indicating that a company’s memorandum of
association and articles of association have been
accepted for filing and that the company is
incorporated.
Cessation of A person ceases to be a member of a company when
Membership his name is removed from its register of members.
Charge A charge is a security given for securing loans or
debentures by way of a mortgage on the assets of
the company. As mentioned earlier, the power of the
company to borrow includes the power to give
security also.
Chartered A company created by the grant of a charter by the
Companies Crown is called a Chartered Company and is
regulated by that Charter.
Circular When any issue which requires a decision of the

Resolution Board crops up, a meeting of Directors is called for.
Sometimes a required quorum may not be there or
the Directors may not be able to meet for some
reason. If an urgent decision is required, the issue is
circulated and the decision of the Directors is taken
by circulation of the issue requiring decision. The
resolution passed by the Directors on issue thus
circulated is called circular decision. The circulation
may be through e-mail.
Company Seal An embossing press used to indicate the official
signature of a company.
Compounding of It means to settle by mutual agreement or to condone
Offence a liability or offence in exchange for money; to forbear
from prosecuting; to forbear prosecution of offence
for a consideration.
Conclusive Preponderant evidence that may not be disputed and
Evidence must be accepted by a Court as a definitive proof of
a fact.
Corporation An organization formed under state law for the
purpose of carrying on a business enterprise is such
a manner as to make the enterprise distinct from its
owners.
Creditor Creditor means one to whom a debt is owed; One
who gives credit for money or goods.
Crystallization A floating charge attaches to the company’s property

of Floating generally and remains dormant till it crystallizes or
Charge becomes fixed. The company has a right to carry on
its business with the help of assets having a floating
charge till the happening of some event which
determines this right.
Deadlock A situation in which no progress can be made or
reached an impasse on the negotiations.
Debenture A formal debt agreement. It refers to both the
agreement and the document that verifies it. It is
usually issued by companies and is generally
supported by security over some property of the
debtor. If the debtor defaults, the creditor can take
and sell the property. Debentures are often
transferable, so the creditor can sell it and there are
markets on formal stock exchanges that deal in types
of debenture. It is sometimes referred to as
debenture stock. A mortgage is a type of debenture
but one that is always secured, usually against land.
Delegatus Non Delegate further cannot delegate.
potest delegate
Demateriali- The move from physical certificates to electronic book
zation keeping. The share certificates are being removed
and retired from circulation in exchange for electronic
recording.
Democracy Democracy means the rule of people, by people and
for people.
Depreciation Normal wear and tear in capital goods.
Diminution of Diminution of capital is the cancellation of the

Capital unsubscribed part of the issued capital. It can be
affected by an ordinary resolution provided articles of
the company authorise to do so. It does not need any
confirmation of Court.
Dividend Part of profit divisible among shareholders.
Dividend It is an order by the company to its banker to pay the
Warrant amount specified therein to the shareholder whose
name is written therein.
Dividend The shareholders may desire that their dividends be
Mandate credited directly to their bank account. The request
will be made in a form duly filled and sent to the
company. This is known as ‘Dividend Mandate’.
Divisible Profit ‘Divisible profits’ means the profits which the law
allows the company to distribute to the shareholders
by way of dividend.
DPIN Designated Partner Identification Number
E-filing The process of using a computer program to transmit
information electronically to another party. This allows
the user to complete and submit the information in a
timely fashion. The electronic filing system prevents
the user from making small mistakes by alerting them
if something does not register correctly.
Ejusdem It means “of the same kind”, and used to interpret
Generis loosely written statutes. Where a law lists specific
classes of persons or things and then refers to them
in general, the general statements only apply to the
same kind of persons or things specifically listed.
Electronic Device or technology associated with or employing

low voltage current and solid state integrated circuits
or components, usually for transmission and/or
processing of analog or digital data.
Estoppel The principle that precludes a person from asserting
something contrary to what is implied by a previous
action or statement of that.
Forfeiture of A company may if authorised by its articles, forfeit
Shares shares for non-payment of calls and the same will not
require confirmation of the Court.
Fungibility A good or asset’s interchangeability with other
individual goods/assets of the same type. Assets
possessing this property simplify the exchange/ trade
process, as interchangeability assumes that everyone
values all goods of that class as the same.
Garnishee An individual who holds money or property that
belongs to a debtor subject to an attachment
proceeding by a creditor.
Government A Government Company as any company in which
Company not less than fifty one per cent of the paid-up share
capital is held by the Central Government or by any
State Government or Governments or partly by the
Central Government and partly by one or more State
Governments.
Incorporate It refers to the legal act of creating a company.
Indoor It operates to protect outsiders against the company.
Management It protects innocent parties who are doing business
with the Company and are not in a position to know
if some internal rule has not been complied with.
Insolvent Insolvency is the inability of a debtor to pay their

debt. If a person is unable to pay his debt, he is said
to be insolvent.
Inter alia Inclusive.
Intra vires Within the powers
Investment An investment company is a company, the principal
Company business of which consists in acquiring, holding and
dealing in shares and securities.
Ipso facto By that very fact or act.
Irregular An allotment is irregular if it is made without
Allotment complying with the conditions precedent to a regular
allotment.
Joint Members If more than one person apply for shares in a
company and shares are allotted to them, each one
of such applicant becomes a member.
Liability A person or business deemed liable is subject to a
legal obligation.
Lien on Shares A lien is the right to retain possession of a thing until
a claim is satisfied. In the case of a company lien on
a share means that the member would not be
permitted to transfer his shares unless he pays his
debt to the company.
Limited Liability Usually refers to limited companies where the
owners’ liability to pay the debts of the company is
limited to the value of their shares.
Limited Liability Limited Liability Partnership combines the

Partnership advantages of both the companies and partnership
into a single form of organization; this is an important
difference from that of a unlimited partnership.
Listing A document which a company signs when being
Agreement listed on the Stock Exchange, in which it promises to
abide by stock exchange regulations.
LLPA Limited Liability Partnership Agreement
Locus Standi It is the term for the ability of a party to demonstrate
to the court sufficient connection to participate in the
case.
Mala Fide With or in bad faith
Memorandum of The Memorandum of Association is the constitution
Association of a company. It is a document, which amongst other
things, defines the area within which the company
can act. It is, therefore, required to state the object for
which the company has been formed, the business
that it would undertake, the liability, the capital which
it shall be allowed to raise, the nature of liability of its
members, the name of the State where the registered
office of the company shall be located.
Mens rea Guilty mind
Merger The fusion or absorption of one company by another.
It may also be understood as an arrangement,
whereby the assets of two (or more) companies get
transferred to or come under the control of one
company.
Minor Person below the age of majority.
Misconduct Misconduct is a legal term, it means a wrongful,

improper or unlawful conduct motivated by
premeditated or intentional purpose or by obstinate
indifference to the consequences of one’s acts.
Mortgage A mortgage is the transfer of an interest in specific
immoveable property for the purpose of securing the
payment of money advanced or to be advanced by
way of loan, an existing or future debt or the
performance of an agreement which may give rise to
pecuniary liability.
Nominee Person who acts as a non-executive director on the
Director board of directors of a firm, on behalf of another
person or firm such as an bank, investor, or lender.
Offence a violation or breach of a law, custom, rule, etc.
Pari passu Side by side
Partnership When two or more persons join together to carry on
a business.
Perpetual An incorporated company never dies except when it
Succession is wound up as per law. A company, being a separate
legal person is unaffected by death or departure of
any member and remains the same entity, despite
total change in the membership.
Postal Ballot Postal voting describes the method of voting in an
election whereby ballot papers are distributed or
returned by post to electors, in contrast to electors
voting in person at a polling station or electronically
via an electronic voting system.
Power of A written document in which one person (the

Attorney principal) appoints another person to act as an agent
on his or her behalf, thus conferring authority on the
agent to perform certain acts or functions on behalf of
the principal.
Preliminary When the company is being formed, the promoters,
Contract purporting to act on behalf of the company, enter into
contracts for the purchase of property, or for securing
the services of managers or other experts. Such
contracts are obviously made before the
incorporation of the company.
P r e l i m i n a r y The expenses incurred at the time of incorporation of
Expenses a company.
Prima Facie In common parlance the term prima facie is used to
describe the apparent nature of something upon
initial observation.
Producer A producer company is a body corporate having
Company objects or activities specified in Section 581B and
which is registered as such under the provisions of
the Act.
Prospectus Any document inviting deposits from the public or
inviting offers from the public for the subscription or
purchase of any share in, or debentures of a body
corporate.
Provisional In the case of a public company, contracts made after
Contract incorporation but before the grant of certificate of
commencement of business are provisional.
Public Company The company which is not the private company.
Quorum Quorum is the minimum number of persons required

to be present to validly transact any business in a
meeting.
Red Herring Red-herring prospectus means a prospectus which
Prospectus does not have complete particulars on the price of
the securities offered and the quantum of securities
offered and is being issued during book building
process.
Redemption of Where a company issues shares on terms stating
shares that they can be bought back by the company. Not all
shares can be redeemed, only those stated to be
redeemable when they were issued. The payment for
the shares must generally come from reserves of
profit so that the capital of the company is preserved.
Reduction of Reduction of capital means reduction of issued,
Capital subscribed and paid-up capital of the company. The
share capital of a company may be reduced if the
articles of the company authorize so. If there is no
such clause in the articles, the articles must be
amended by a special resolution for giving the power
of reducing the share capital.
Registered The companies which are incorporated under the
Companies Companies Act, 2013 by getting themselves
registered with ROC fall under this category.
Rematerializa- This is the reverse of dematerialization, in
tion rematerialization the share certificates are being
moved from electronic book keeping to physical
certificate.
Remuneration It is a reward for the efforts in employment.
Repatriation Capital flow from a foreign country to the country of

origin. This usually refers to returning returns on a
foreign investment in case of a corporation, or
transferring foreign earnings home in case of an
individual.
Rights Issue Rights issue is an issue of capital to be offered to the
existing shareholders of the company through a letter
of offer.
Rule of To protect the company against outsiders. The rule of
Constructive constructive notice is confined to the external position
Notice of the company and, therefore, it follows that there is
no notice as to how the company’s internal machinery
is handled by its officers.
Share Warrant A share warrant is a bearer document of title to the
specified shares.
Share Certificate A share certificate is a certificate issued to the
members by the company under its common seal
specifying the number of shares held by him and the
amount paid on each share.
Share Capital Funds raised by issuing shares in return for cash or
other considerations. The amount of share capital a
company can change over time because each time a
business sells new shares to the public in exchange
for cash, the amount of share capital will increase.
Share capital can be composed of both common and
preferred shares.
Shelf When a financial institution wants financing from the

Prospectus Central Government in India, it must provide a shelf
prospectus to the Registrar of Companies. A shelf
prospectus contains one or more issues of the
securities listed in the prospectus. Shelf prospectus
is issued during first issue and with respect to further
issues information memorandum is being filed with
respect to variations.
Sine qua non It refers to an indispensable and essential action,
condition, or ingredient.
Split Certificate A split certificate means a separate certificate
claimed by a shareholder for a portion of his holding.
Stamp duty The tax placed on legal documents usually in the
transfer of assets or property. The transfer of
documents in locations where this law exists, is only
legally enforceable once they are stamped, which
shows the amount of tax paid.
Statement in If a public company does not want to raise money
lieu of through issue of a prospectus to the public for
prospectus subscription of the shares, this statement is required
to be issued.
Statutory These are constituted by special Act of Parliament or
Companies State Legislature. The provisions of the Companies
Act, 2013 do not apply to them. Examples of these
types of companies are Reserve Bank of India, Life
Insurance Corporation of India, etc.
Stock Stock is always fully paid-up. These are the

consolidated value of share capital. They comes into
existence after conversion of shares into stock and
on conversion of shares into stock, the provisions of
the Act governing the shares shall cease to apply to
the share capital as it is converted into stock.
Suo Moto on its own motion.
Surrender of Surrender of shares means the surrender to the
Shares company on the part of the registered holder of
shares already issued.
Sweat Equity Sweat equity shares mean equity shares issued by a
Share company to its employees or directors at a discount
or for consideration, other than cash for providing
know-how or making available right in the nature of
intellectual property rights or value additions, by
whatever name called.
Transmission of It refers to those cases where a person acquires an
Shares interest in shares by operation of any provision of
law, such as by right of inheritance or succession or
by reason of the insolvency or lunacy of the
shareholder or by purchase in a Court-sale.
Trustee An individual or organization which holds or manages
and invests assets for the benefit of another. The
trustee is legally obliged to make all trust-related
decisions with the beneficiary’s interests in mind, and
may be liable for damages in the event of not doing
so. Trustees may be entitled to a payment for their
services, if specified in the trust deed. In the specific
case of the bond market, a trustee administers a
bond issue for a borrower, and ensures that the
issuer meets all the terms and conditions associated
with the borrowing.
Ultra Vires Beyond the powers

Unanimous in complete agreement
Vetting Broadly, vetting is a process of examination and
evaluation.
Withheld Price It means part of the price due and payable for goods
supplied by any member to the Producer Company,
and as withheld by the Producer Company for
payment on a subsequent date.
IMPORTANT HIGHLIGHTS OF COMPANIES
(AMENDMENT) Act, 2017
The Companies (Amendment) Bill, 2017 is passed by Lok Sabha and Rajya
Sabha on 27th July 2017 and 19th December, 2017 respectively. It shall come
into force on getting the President’s assent.
The amendments under the Companies (Amendment) Bill, 2017, are broadly
aimed at:
• addressing difficulties in implementation owing to stringent compliance
requirements;
• facilitating ease of doing business in order to promote growth with
employment;
• harmonisation with accounting standards, the Securities and Exchange
Board of India Act, 1992 and the regulations made thereunder, and the
Reserve Bank of India Act, 1934 and the regulations made thereunder;
• rectifying omissions and inconsistencies in the Act.
Highlights of Companies (Amendment) Bill, 2017 are given hereunder:
A. Name Reservation Approval
S. Sec. Existing Provision Amendments as Revised Provision Explanation
No. No. per Companies
(Amendment) Bill,
2017
1 Se c. Section 4(5)(i)- In Section 4 of the Revised Section The period for
4(5) ‘Upon receipt of an principal Act, in sub- 4(5)(i)- reservation of name
application under Section (5), for “Upon receipt of an is substituted from
sub-section (4), the clause (i), the application under ‘sixty days from the
Registrar may, on following shall be sub-section (4), the date of the
the basis of substituted, namely:- Registrar may, on application’ to
information and “(i) Upon receipt of the basis of ‘twenty days from
documents furnis- an application under information and the date of approval
hed along with the sub-section (4), the documents furnished or such other period
application, reserve Registrar may, on along with the as may be
the name for a the basis of application, reserve prescribed’.
period of sixty days information and the name for a There were concerns
from the date of the documents furnished period of twenty that the period of
application.’ along with the days from the date sixty days for
application, reserve of approval or such reservation of name
the name for a other period as may should be from date
period of twenty be prescribed: of approval and not
6.543
days from the date Provided that in from the date of

of approval or such case of an applica- application. This con-
other period as may tion for reservation cern is addressed
be prescribed: of name or for however, conside-
Provided that in change of its name ring the fact that a
case of an by an existing changed process for
application for company, the Regis- centralised proce-
reservation of name trar may reserve the ssing of name
or for change of its name for a period of reservation/approval
name by an existing sixty days from the has already been
company, the date of approval.” implemented; the
Registrar may period of name reser-
reserve the name for vation is proposed to
a period of sixty be reduced to twenty
days from the date days from sixty
of approval.” days. The specified
period for name
reservation would be
taken from the date
of approval and not
from the date of
application.
A provision for
existing companies
is also provided. In
case of an applica-
tion for reservation
of name or for
change of its name
by an existing com-
pany, the Registrar
may reserve the
name for a period of
sixty days from the
date of approval.
B. Registered Office of Company

(Amendment) Bill,
2017
2 Sec . Section 12(1)- In Section 12 of the Revised Section Section 12(1) re-
12(1) ‘A company shall, on principal Act,— 12(1)- quired that a
&(4) a n d f r o m t h e In sub-section (1), “A company shall, company shall, on
fifteenth day of its for the words "on within thirty days of and from the
incorporation and at and from the its incorporation and fifteenth day of its
all times thereafter, fifteenth day of its at all times incorporation, and at
have a registered incorporation", the thereafter, have a all times thereafter,
Important Highlights of Companies (Amendment) Act,....  6.545
office capable of words " within thirty registered office have a registered
receiving and days of its capable of receiving office. This does not
acknowledging all incorporation" shall and acknowledging allow a company to
communications and be substituted; all communications have its registered
notices as may be and notices as may office immediately
addressed to it.’ be addressed to it.” on incorporation, or
Section 12(4)- In sub-section (4), Revised Section earlier than the
‘Notice of every for the words "within 12(4)- fifteenth day of its
ch a n g e of the fifteen days", the “Notice of every incorporation,
situation of the words "within thirty chan g e o f the whereas a company
registered office, days" shall be situation of the could have its office
verified in the substituted. registered office, from the day of its
manner prescribed, verified in the incorporation. The
after the date of manner prescribed, a m e n d m e n t
incorporation of the after the date of provides for a
company, shall be incorporation of the company to have its
given to the company, shall be registered office
Registrar within given to the within 30 days of its
fifteen days of the Registrar within incorporation.
change, who shall thirty days of the The time period for
record the same.’ change, who shall giving notice of
record the same.” change of situation
of registered office is
increased from 15
days to 30 days.
There were
difficulties in filing
the prescribed form
for change of the
registered office of a
company with the
Registrar.
The concern was
that the period of
fifteen days is too
short as certain
d o c u me n t s l i k e
lease deeds, rent
agreements and
other related
documents are
required to be
submitted besides
various approvals
that may have to be
o b t a i n e d .
Accordingly to
address the
concerns, the period
is increased to thirty
days.
C. Effect of number of members falling below the minimum requirement
S. Sec. Existing Amendments as per Revised Provision Explanation
No. No. Provision Companies
(Amendment) Bill,
2017
3 Sec . After Section 3 of the Section 3A- Section 3(1) of the Act
3A principal Act, the “3A. If at any time the provides for the
following section shall number of members of minimum number of
be inserted, namely:— a company is reduced, persons required for
“3A. If at any time the in the case of a public formation of a
number of members of company, below seven, company.
a company is reduced, in the case of a private A new Section 3A has
in the case of a public company, below two, been inserted which
company, below seven, and the company prescribes that if at any
in the case of a private carries on business for time the number of
company, below two, more than six months members of a company
and the company while the number of is reduced below the
carries on business for members is so reduced, minimum prescribed
more than six months every person who is a and the company
while the number of member of the carries on business for
members is so reduced, company during the more than six months
every person who is a time that it so carries on while the number of
member of the business after those six members is so reduced,
company during the months and is then every person who
time that it so carries on cognisant of the fact is a member of the
business after those six that it is carrying on company during that
months and is business with less than time, shall be severally
cognisant of the fact seven members or two liable for the payment of
that it is carrying on members, as the case the whole debts of the
business with less than may be, shall be company contracted
seven members or two severally liable for the during that time, and
members, as the case payment of the whole may be severally sued.
may be, shall be debts of the company
severally liable for the contracted during that
payment of the whole time, and may be
debts of the company severally sued
contracted during that therefore.”
time, and may be
severally sued
therefore.”
D. Deposit Insurance
S. Sec. Existing Provision Amendments as per Revised Explanation
No. No. Companies Provision
(Amendment) Bill,
2017
4 Sec. Section 73(2)(d)- In Section 73 of the The requirement to have
73 ‘(d) providing such principal Act, in sub- deposit insurance is
deposit insurance in section (2),— omitted.
such manner and to clause (d) shall be Considering the fact that
such extent as may omitted; none of the insurance
be prescribed.’ companies are offering
insurance products for
covering company
deposit default risks, the
requirement to have
deposit insurance is
omitted.
E. Financial Statements
(Amendment) Bill,
2017
5 Sec. Section 129(3)- In Section 129 of the Revised Section While preparing the
129 ‘Where a company principal Act, for 129(3)- consolidated finan-
(3) has one or more sub-section (3), the "Where a company cial statements, the
subsidiaries, it shall, following sub-section has one or more main concern was
in addition to shall be substituted, subsidiaries or whether to include
financial statements namely:— a s s o c i a t e associate companies
provided under sub- "(3) Where a companies, it shall, or not. After the
section (2), prepare company has one or in addition to ame n d me nt the
a consolidated more subsidiaries or financial statements concern gets
financial statement a s s o c i a t e provided under sub- addressed as the
of the company and companies, it shall, in section (2), prepare term “associate
of all the subsidiaries addition to financial a consolidated companies” is
in the same form statements provided financial statement inserted in addition
and manner as that under sub-section of the company and to the subsidiaries.
of its own which (2), prepare a of all the subsidia- The consolidated
shall also be laid consolidated ries and associate financial statement
before the annual financial statement companies in the of the company, its
general meeting of of the company and same form and subsidiaries and
the company along of all the manner as that of its associates should
with the laying of its subsidiaries and own and in accor- be in accordance
financial statement associate companies dance with with the applicable
under sub-section in the same form applicable accounting accounting standards.

(2): and manner as that standards, which Clarification is prop-
Provided that the of its own and in shall also be laid osed to be added by
company shall also accordance with app- before the annual stating separate
attach along with its licable accounting general meeting of standalone financial
financial statement, standards, which the company along s tatements a n d
a separate state- shall also be laid with the laying of its Consolidated Finan-
ment containing the before the annual financial statement cial Statements of all
salient features of the general meeting of under sub-section subsidiaries and
financial statement the company along (2): associate companies
of its subsidiary or with the laying of its Provided that the as per applicable
subsidiaries in such financial statement company shall also Accounting Stand-
form as may be under sub-section attach along with its ards and laying both
prescribed: (2): financial statement, before the Annual
Provided further that Provided that the a separate statement General Meeting.
the Central Govern- company shall also containing the salient
ment may provide attach along with its features of the New requirement for
for the consolidation financial statement, financial statement of listed company to
of accounts of a separate statement its subsidiary or place on its website,
companies in such containing the salient subsidiaries and separate audited
manner as may be features of the associate company accounts of its each
prescribed. financial statement or companies in such subsidiary is
of its subsidiary or form as may be proposed.
subsidiaries and prescribed: In respect of foreign
associate company Provided further that subsidiary if audit of
or companies in the Central Govern- accounts is not
such form as may ment may provide prescribed as per
be prescribed: for the consolidation law of the country,
Provided further that of accounts of then unaudited
the Central Govern- companies in such accounts is to be
ment may provide manner as may be placed before AGM
for the consolidation prescribed." and considered for
of accounts of consolidation.
companies in such
manner as may be
prescribed.”
F. Reopening of Accounts of Companies
S. Sec. Existing Amendments as per Revised Provision Explanation
No. No. Provision Companies
(Amendment) Bill,
2017
6 Sec. In Section 130 of the Section 130(3)- Re-opening of books
130 principal Act,— No order shall be made of accounts is limited
(3) after sub-section (2), the under sub-section (1) in to earlier 8 financial
following sub-section respect of re-opening of years immediately
shall be inserted, books of account relating preceding the current

namely:— to a period earlier than financial year.
“(3) No order shall be eight financial years A company shall not
made under sub-section immediately preceding reopen its books of
(1) in respect of the current financial accounts and not
re-opening of books of year: recast its financial
account relating to a Provided that where a statements unless an
period earlier than eight direction has been application is made by
financial years immedia- issued by the Central the Central Govern-
tely preceding the Government under the ment, Income Tax
current financial year: proviso to sub-section Authority, SEBI and
Provided that where a (5) of Section 128 for any other regulatory
direction has been keeping of books of authority
issued by the Central account for a period
Government under the longer than eight years,
proviso to sub-section the books of account
(5) of Section 128 for may be ordered to be
keeping of books of re-opened within such
account for a period longer period.
longer than eight years,
the books of account
may be ordered to be
re-opened within such
longer period.”
G. Financial Statement, Board’s Report. etc.
(Amendment) Bill,
2017
7 Sec. Section 134(1)- In Section 134 of the Revised Section (a) Chief Executive
134 ‘The financial state- principal Act,— 134(1)- Officer whether appo-
(1), ment, including cons- For sub-section (1), “The financial state- inted as director or
(3) olidated financial the following sub- ment, including con- not shall sign the
statement, if any, section shall be solidated financial financial statement.
shall be approved by substituted, namely: statement, if any, Before amendment,
the Board of "(1) The financial shall be approved by provisions of Section
Directors before statement, including the Board of 134 required that,
they are signed on consolidated financial Directors before amongst others, the
behalf of the Board statement, if any, they are signed on financial statement
at least by the shall be approved by behalf of the Board shall be signed by
chairperson of the the Board of by the chairperson the Chief Executive
company where he Directors before of the company Officer, if he is a
is authorised by the they are signed on where he is director in the
Board or by two behalf of the Board authorised by the company. The amen-
directors out of by the chairperson Board or by two dment provides that
which one shall be of the company directors out of the Chief Executive
managing director where he is which one shall be Officer shall sign the
and the Chief authorised by the managing director, if financial statements
Executive Officer, if Board or by two any, and the Chief irrespective of the
he is a director in directors out of Executive Officer, fact whether he is a
the company, the which one shall be the Chief Financial director or not
C hi e f F i n a n c i a l managing director, if Officer and the because Chief
Officer and the any, and the Chief company secretary Executive Officer is
company secretary Executive Officer, of the company, a Key Managerial
of the company, the Chief Financial wherever they are Personnel, and is
wherever they are Officer and the appointed, or in the responsible for the
appointed, or in the company secretary case of One Person overall management
case of a One of the company, Company, only by of the company.
Person Company, wherever they are one director, for Further, since the
only by one director, appointed, or in the submission to the appointment of a
for submission to the case of One Person auditor for his report managing director is
auditor for his report Company, only by thereon.” not mandatory for all
thereon.’ one director, for Revised Section companies, it is
Section 134(3)(a)- submission to the 134(3)(a)- proposed to insert
‘(a) the extract of the auditor for his report “(a) the web the words “if any”,
annual return as thereon." address, if any, after the words
provided under In sub-section (3), where annual return “managing director”.
sub-section (3) of (i) for clause (a), referred to in [Section 134]
Section 92.’ the following clause sub-section (3) of (b) The Requirement
Section 134(3)(p)- shall be substituted, Section 92 has been of having extract of
‘(p) in case of a namely:— placed;” Annual return (Form
listed company and "(a) the web Revised Section MGT-9) has been
every other public address, if any, 134(3)(p)- done away with by
company having where annual return “(p) in case of a placing the copy of
such paid-up share referred to in listed company and annual return on
capital as may be sub-section (3) of every other public website of the
prescribed, a state- Section 92 has been company having company (if any)
ment indicating the placed;" such paid-up share and the web address/
manner in which (ii) in clause (p), for capital as may be link disclosed in the
formal annual the words "annual prescribed, a Board’s Report.
evaluation has been evaluation has been statement indicating Alignment of provi-
made by the Board made by the Board the manner in which sions of sections
of its own perfor- of its own perfor- formal annual 134 (3)(p), 178(2)
mance and that of mance and that of evaluation of the and schedule IV with
its committees and its committees and performance of the respect to perfor-
individual directors.’ individual directors", Board, its Comm- mance evaluation of
Section 134(3)(q)- the words "annual ittees and of directors.
‘(q) such other evaluation of the individual directors Sections 134(3)(p)
matters as may be performance of the has been made.” provides for perfor-
prescribed.’ B o a r d , i t s Proviso to Revised mance evaluation by
Committees and of Section 134(3)- the Board. Section

individual directors “Provided that where 178 (2) provides that
has been made" disclosures referred the Nomination &
shall be substituted; to in this sub-section Remuneration Com-
(iii) after clause (q), have been included mittee shall carry out
the following provisos in the financial evaluation of every
shall be inserted, statements, such director’s perfor-
namely:— disclosures shall be mance. Schedule IV
"Provided that where referred to instead of provides that: a) the
disclosures referred being repeated in independent
to in this sub-section the Board's report: directors shall review
have been included Provided further that the performance of
in the financial where the policy no n - i n d e p e n dent
statements, such referred to in clause directors, the Board
disclosures shall be (e) or clause (o) is as a whole and the
referred to instead of made available on Chairperson of the
being repeated in company's website, Company; b) the
the Board's report: if any, it shall be performance evalua-
Provided further that sufficient compliance tion of independent
where the policy of the requirements directors shall be
referred to in clause under such clauses done by the entire
(e) or clause (o) is if the salient features board of directors,
made available on of the policy and any excluding the
company's website, change therein are director being
if any, it shall be specified in brief in evaluated.
sufficient compliance the Board's report With this amend-
of the requirements and the web- ment, the provisions
under such clauses address is indicated of the sections are
if the salient features therein at which the harmonised. Amend-
of the policy and any complete policy is ment in sub section
change therein are available.” (2) of Section 178
specified in brief in Section 134(3A)- provide that the
the Board's report “(3A) The Central Nomination & Remu-
and the web- Government may neration Committee
address is indicated prescribe an shall specify the
therein at which the abridged Board's manner for effective
complete policy is report, for the evaluation of perfor-
available." purpose of mance of Board, its
After sub-section (3), compliance with this committees and
the following sub- section by a One individual directors
section shall be Person Company or to be carried out
inserted, namely: small company.” either by the Board,
"(3A) The Central by the Nomination
Government may and Remuneration
prescribe an abridged Committee or by an
Board's report, for independent external
the purpose of agency and review
compliance with this its implementation

section by a One and compliance.
Person Company or (c) The Central Gov-
small company." ernment is empow-
ered to prescribe an
abridged Board’s
Report for One
Person Company
and Small Company.
H. Corporate Social Responsibility

(Amendment) Bill,
2017
8 Se c. Section 135(1)- In Section 135 of the Revised Section The provisions
135 ‘Every company principal Act,— 135(1)- relating to Corporate
having net worth of In sub-section (1),- “Every company Social Responsibility
rupees five hundred (a) for the words having net worth of are amended to bring
crore or more, or "any financial year", rupees five hundred more clarity in the
turnover of rupees the words" the imme- crore or more, or existing provisions.
one thousand crore diately preceding turnover of rupees (i) Section 135 is
or more or a net financial year" shall one thousand crore applicable to comp-
profit of rupees five be substituted; or more or a net anies which falls
crore or more during profit of rupees five within the threshold
any financial year (b) the following crore or more during of the specified net
shall constitute a proviso shall be the immediately worth or turnover or
Corporate Social inserted, namely: preceding financial net profit and are
Responsibility Com- "Provided that where year shall constitute required to consti-
mittee of the Board a company is not a Corporate Social tute the CSR
consisting of three required to appoint Responsibility Com- Committee in any
or more directors, an independent mittee of the Board financial year. The
out of which at least director under sub- consisting of three words “any financial
one director shall be section (4) of or more directors, year” are replaced
an independent Section 149, it shall out of which at least by the words ‘imme-
director.’ have in its Corporate one director shall be diately preceding
Section 135(3)(a)- Social Responsibility an independent financial year’.
‘(a) formulate and Com- mittee two or director. Amendment to Sec-
recommend to the more directors." Provided that where tion 135 of the Act
Board, a Corporate In sub-section (3), a company is not allows composition
Social Responsibility in clause (a), required to appoint of CSR committee
Policy which shall for the words and an independent with two or more
indicate the activities figures "as specified director under sub- directors in case the
to be undertaken by in Schedule VII", the section (4) of company is not
the company as words and figures Section 149, it shall required to appoint
specified in Schedule "in areas or subject, have in its Corporate Independent Director
VII.’ specified in Schedule Social Responsibility under section 149(4).
Expla nation to VII" shall be substi- Com- mittee two or Rule 5(1) of CSR
Section 135(5)- tuted; more directors.” Policy Rules, 2014,
‘For the purposes of In sub-section (5), Revised Section permits unlisted
this section “average for the Explanation, 135(3)(a)- companies to have
net profit” shall be the following Explan- “(a) formulate and the Committee
calculated in accor- a t i o n shal l b e recommend to the without Independent
dance with the substituted, namely: Board, a Corporate Directors, where
provisions of section “Explanation.—For Social Responsibility they are not required
198.’ the purposes of this Policy which shall to appoint Indepen-
section "net profit" indicate the activities dent Directors.
shall not include to be undertaken by Likewise this rule
such sums as may the company in provides for some
be prescribed, and areas or subject, relaxation for private
shall be calculated specified in Sche- c o mp a n i e s a n d
in accordance with dule VII.” foreign companies.
the provisions of Revised Explana- So, in case of
Section 198.” tion to Section companies where
135(5) Independent
“For the purposes of Directors are not
this section "net required to be
profit" shall not appointed as per
include such sums Rule 5(1), it was not
as may be prescri- clear as to how
bed, and shall be many minimum direc-
calculated in accor- tors are required in
dance with the CSR Committee.
provisions of Section With the amend-
198.” ment, it is clarified
that in case of such
companies, the CSR
Committee may be
formed with two or
more Directors.
(ii) The Companies
(Amendment) Bill,
2017 seeks to
modify sub-section
(3) of the section to
refer to areas or
subjects as provided
in Schedule VII
within which CSR

activities could be
taken up by an
eligible company.
Schedule VII indica-
tes the broad areas
of activities for
spending as CSR.
Accordingly, for
liberal interpretation
and to bring more
clarity, instead of
providing that CSR
policy has to
indicate the activities
to be undertaken by
the company as
specified in Schedule
VII, it should indicate
the activities to be
undertaken in areas
or subjects speci-
fied in Schedule VII.
(iii) CSR Rules
define the term, ‘net
profit’. The Rules
also provide for cal-
culation of net profit
for the purposes of
foreign company.
H o w e v e r ,
explanation to
Section 135(5)
provides that for the
purpose of this prov-
ision, the ‘average
net profit’ shall be
calculated in accor-
dance with Section
198.
Accordingly, there
was disharmony in
the Act and the
Rules. The High
L e v e l C S R
Committee had also
recommended in
para 4.16 of the
Report that for the
term “average net
profit” as provided in
Explanation below
Section 135(5) to be
replaced with the
words “net profit”, to
bring harmony.
Further, the manner
of calculation of ‘net
profits’ of a foreign
company, is provided
under the CSR
Rules, while referring
to Section 381. As it
is substantive issue,
it should form part of
the Act.
Accordingly, the
explanation is substi-
tuted to address
both the issues.
I. Right of Member to Copies of Audited Financial Statement
(Amendment) Bill,
2017
9 S ec. Section 136(1)- In Section 136 of the Revised Section Amendment to sub-
136 ‘Without prejudice to principal Act,— 136(1)- section (1) of
(1) the provisions of (i) in sub-section “A copy of the Section 136 to
Section 101, a copy (1),: financial statements, provide that copies
of the financial state- a. the words and including consoli- of audited financial
ments, including con- figures "Without dated financial s t a t ements and
solidated financial prejudice to the statements, if any, other documents
statements, if any, provisions of Section auditor’s report and may be sent at
auditor’s report and 101," shall be every other docu- shorter notice if
every other omitted; ment required by ninety five percent of
document required b. in the first law to be annexed members entitled to
by l a w to be proviso, for the or attached to the vote at the meeting
annexed or attached agree for the same.
to the financial words "Provided financial statements, Section 101 of the

statements, which that", the following which are to be laid Act provides that the
are to be laid before shall be substituted, before a company in consent of members
a company in its namely:— its general meeting, holding at least
general meeting, "Provided that if the shall be sent to ninety-five percent
shall be sent to copies of the every member of the of the voting power
every member of the documents are sent company, to every be obtained to call a
company, to every less than twenty-one trustee for the general meeting at a
trustee for the days before the date debenture-holder of notice shorter than
debenture-holder of of the meeting, they any debentures twenty-one days.
any debentures s h a l l , issued by the For circulation of
issued by the notwithstanding that company, and to all annual accounts to
company, and to all fact, be deemed to persons other than members, the MCA
persons other than have been duly sent such member or had clarified by way
such member or if it is so agreed by trustee, being the of a circular dated
trustee, being the members- person so entitled, 21st July 2015 that
person so entitled, (a) holding, if the not less than the shorter notice
not less than company has a twenty-one days period would also
twenty-one days share capital, before the date of apply to the
before the date of majority in the meeting. circulation of annual
the meeting. number entitled Provided that if the accounts.
Provided that in the to vote and who copies of the It is now provided in
case of a listed represent not documents are the Amendment Bill
company, the less than ninety- sent less than itself.
provisions of this five per cent. of twenty-one days The Amendment Bill
sub-section shall be such part of the before the date of also mandates a
d e e me d t o be paid-up share the meeting, they Company having
complied with, if the capital of the s h a l l , notwit h - subsidiary/ subsidia-
copies of the company as standing that fact, ries, to provide a
documents are gives a right to be deemed to have copy of separate
made available for v o t e at the been duly sent if it audited/unaudited
inspection at its meeting; or is so agreed by financial statements
registered office (b) Having, if the members- of its subsidiary/
during working company has no (a) holding, if the subsidiaries to any
hours for a period of share capital, company has a member of the
twenty-one days not less than share capital, Company who asks
before the date of ninety-five per majority in number for it.
the meeting and a cent. of the total entitled to vote and
statement containing voting power
who represent not
the salient features exercisable at
less than ninety-
of such documents the meeting.”
five per cent. of
in the prescribed Provided further
such part of the
form or copies of the that";
paid-up share
documents, as the c. in the second
capital of the
company may deem proviso, for the
fit, is sent to every words "Provided company as gives
member of the further", the words, a right to vote at
company and to "Provided also" be the meeting; or
every trustee for the substituted; (b) having, if the

holders of any d. for the fourth company has no
debentures issued proviso, the following share capital, not
by the company not provisos shall be less than ninety-
less than twenty-one substituted, namely: five per cent. of the
days before the date 'Provided also that total voting power
of the meeting unless every listed company exercisable at the
the shareholders having a subsidiary meeting:
ask for full financial or subsidiaries shall Provided further
statements: place separate that in the case of a
Provided further that audited accounts in listed company, the
the Central Govern- respect of each of provisions of this
ment may prescribe subsidiary on its sub-section shall be
the manner of circu- website, if any: d e e med t o b e
lation of financial Provided also that a complied with, if the
statements of l i s t e d c o mp a n y copies of the docu-
companies having which has a subsi- ments are made
such net worth and diary incorporated available for inspec-
turnover as may be outside India (herein tion at its registered
prescribed: r e ferred t o a s office during working
Provided also that a "foreign subsidiary") hours for a period of
listed company shall (a) w h e r e such twenty-one days
also place its foreign subsidiary is before the date of
financial statements statutorily required the meeting and a
including consoli- to prepare consoli- statement containing
dated financial dated financial the salient features
statements, if any, statement under any of such documents
and all other law of the country of in the prescribed
documents required its incorporation, the form or copies of the
to be attached requirement of this documents, as the
thereto, on its proviso shall be met company may deem
website, which is if consolidated fit, is sent to every
maintained by or on financial statement member of the
behalf of the of such foreign company and to
company: subsidiary is placed every trustee for the
Provided also that on the website of the holders of any
e v e r y c o mp a n y listed company; debentures issued
having a subsidiary (b) w h e r e such by the company not
or subsidiaries foreign subsidiary is less than twenty-one
shall,— not required to get days before the date
(a) place separate its financial state- of the meeting
audited accounts ment audited under unless the share-
in respect of any law of the holders ask for full
each of its country of its financial statements:
subsidiary on its incorporation and Provided also that
website, if any; which does not get the Central Govern-
(b) provide a copy such financial ment may prescribe
of separate statement audited, the manner of circu-
audited financial the holding Indian lation of financial

statements in listed company may statements of comp-
respect of each place such unau- anies having such
of its subsidiary, dited financial n e t w o r th and
to any share- statement on its turnover as may be
holder of the website and where prescribed:
company who such financial Provided also that
asks for it. statement is in a a listed company
language other than shall also place its
English, a translated financial state-
copy of the financial ments including
statement in English consolidated finan-
shall also be placed cial statements, if
on the website." any, and all other
d o c u m e n t s
required to be
attached thereto,
on its website,
w h i c h i s
maintained by or
on behalf of the
company:
Provided also that
a listed company
which has a subsi-
diary incorporated
outside India
(herein referred to
as "foreign
subsidiary")
(a) where such
foreign subsidiary
is statutorily
required to prepare
consolidated finan-
cial statement
under any law of
the country of its
incorporation, the
requirement of this
proviso shall be
met if consolidated
financial statement
of such foreign
subsidiary is
placed on the
website of the
listed company;
(b) where such
foreign subsidiary
is not required to
get its financial
statement audited
under any law of
the country of its
incorporation and
which does not get
such financial
statement audited,
the holding Indian
listed company
may place such
unaudited financial
statement on its
website and where
such financial
statement is in a
language other
than English, a
translated copy of
the financial state-
ment in English
s h al l a l s o b e
placed on the
website.”
J. Ratification of Auditors
S. Sec. Existing Provision Amendments as Revised Explanation
No. No. per Companies Provision
(Amendment) Bill,
2017
10 Se c. First Proviso to In Section 139 of the The first proviso to Section
139 Section 139(1)- principal Act, in 139(1) requires that the matter
‘Provided that the sub-section (1), the relating to appointment of
company shall place first proviso shall be auditor be placed for
the matter relating to omitted. ratification by the members in
such appointment each AGM.
for ratification by The requirement related to
members at every annual ratification of
annual general appointment of auditors by
meeting.’ members is omitted.
Provision of ratification was
defeating the objective of
giving five year term to the

auditors. Further there was no
clarity in case the
shareholders choose not to
ratify the auditor’s appointment
as per Section 139 (1).
Further, in case the
shareholders take decision not
to ratify any appointment
during the period of five-years,
as this would be similar to
removal of the auditor and
provisions of Section 140(1)
should come into play.
Whereas, explanation to Rule
3 of Companies (Audit and
Auditors) Rules, 2014,
provides for such a situation
and requires that the Board
shall appoint another individual
or firm as the auditor (s) after
following the procedure laid
down in this behalf under the
Act.
Accordingly, this is an
inconsistency in these two
provisions, wherein removal
would require a special
resolution and approval of the
Central Government while
removal through
non-ratification would need
only a Board resolution.
Accordingly, to remove the
inconsistency, the omission of
the provisions with respect to
ratification is provided.
Amendments to Facilitate Ease of Doing Business

A. ‘Self Declaration’ to replace ‘Affidavit’
11. Sec. Section 7(1)(c)- In Section 7 of the Revised Section With reference to
7- ‘(c) an affidavit from principal Act, in 7(1)(c)- incorporation of a
each of t h e sub-section (1), in “(c) a declaration c o m p a n y ,
subscribers to the item (c), for the from each of the ‘affidavit’ has
memorandum and words "an affidavit", subscribers to the been replaced by

from persons named the words "a memorandum and “self declaration”
as the first directors, if declaration" shall be from persons named from the first
any, in the articles that substituted. as the first directors, if subscribers to
he is not convicted of any, in the articles that memorandum and
any offence in he is not convicted of first directors.
connection with the any offence in This will ease the
promotion, formation connection with the additional docu-
or management of any promotion, formation mentary burden
company, or that he or management of any and avoid delay in
has not been found company, or that he the incorporation
guilty of any fraud or has not been found process.
misfeasance or of any guilty of any fraud or
breach of duty to any misfeasance or of any
company under this breach of duty to any
Act or any previous company under this
company law during Act or any previous
the preceding five company law during
years and that all the the preceding five
documents filed with years and that all the
the Registrar for documents filed with
registration of the the Registrar for
compa n y c o n tain registration of the
information that is comp a n y c ontain
correct and complete information that is
and true to the best of correct and complete
his knowledge and and true to the best of
belief.’ his knowledge and
belief.”
B. Disclosures under Board’s Report
(Amendment) Bill,
2017
12 S e c . Section 92(1)- In Section 92 of the Revised Section With a view to
92 ‘Every company principal Act,— 92(1)- facilitate ease of
(1)- shall prepare a (i) in sub-section “Every company doing business and
return (hereinafter (1),— shall prepare a for reducing the
referred to as the (a) clause (c) shall return (hereinafter burden of One
annual return) in the be omitted; referred to as the Person Company and
prescribed form (b)in clause (j), the annual return) in the Small Company, the
c o n t a i n i n g t h e words "indicating prescribed form Central Government
particulars as they their names, addre- containing the parti- is empowered to
stood on the close of sses, countries of culars as they stood prescribe an abridged
the financial year incorporation, regis- on the close of the form o f A n nual
regarding— tration and percen- financial year regar- Return.
(a) its registered tage of shareholding ding: Indebtedness omi-
office, principal held by them" shall (a) its registered tted.
business activities, be omitted; office, principal Mandatory to place
particulars of its (c) after the proviso, business activities, the entire annual
holding, subsidiary the following proviso particulars of its return on website and
and associate shall be inserted, holding, subsidiary by providing its link in
companies; namely:— and associate Board’s Report.
(b) its shares, "Provided further companies; Likely to reduce
debentures and that the Central (b) its shares, certain unproductive
other securities and Government may debentures and efforts.
shareholding pattern; prescribe abridged other securities and Preparation of annual
(c) its indebtedness; form of annual return shareholding pattern; return well before
(d) its members and for One Person (c) its members and approval of accounts
debenture-holders Company, small debenture-holders & holding of annual
along with changes company and such along with changes general meeting is
therein since the other class or clas- therein since the mandatory
close of the previous ses of companies as close of the previous Provision needs to be
financial year; may be prescribed.” financial year; prescribed for
(e) its promoters, (d) its promoters, companies not having
directors, key mana- directors, key website.
gerial personnel managerial perso- A mandatory requi-
along with changes nnel along with rement for Chief
therein since the changes therein Executive Officer to
close of the previous since the close of sign the Financial
financial year; the previous finan- Statement even if he
(f) meetings of cial year; is not director in the
members or a class (e) meetings of Company.
thereof, Board and members or a class
its various commit- thereof, Board and
tees along with its various commit-
attendance details; tees along with
(g) remuneration of attendance details;
directors and key (f) remuneration of
managerial perso- directors and key
nnel; managerial per-
(h) penalty or sonnel;
punishment imposed (g) penalty or
on the company, its punishment imposed
directors or officers on the company, its
and details of comp- directors or officers
ounding of offences and details of compo-
and appeals made unding of offences
against such penalty and appeals made

or punishment; against such penalty
(i) matters relating to or punishment;
certification of comp- (h) matters relating
liances, disclosures to certification of
as may be compliances, disclo-
prescribed; sures as may be
(j) details, as may be prescribed;
prescribed, in (i) details, as may be
respect of shares prescribed, in respect
held by or on behalf of shares held by or
of the Foreign Instit- on behalf of the
utional Investors Foreign Institutional
indicating their Investors; and
names, addresses, (j) such other
countries of incor- matters as may be
poration, registration prescribed,
and percentage of and signed by a
shareholding held by director and the
them; and company secretary,
(k) such other or where there is no
matters as may be company secretary,
prescribed, b y a company
and signed by a secretary in practice:
director and the Provided that in
company secretary, relation to One
or where there is no Person Company,
company secretary, small company and
such other class or
by a c o mp any
classes of compa-
secretary in practice: nies as may be
Provided that in prescribed, the
relation to One annual return shall
Person Company be signed by the
and small company, company secretary,
the annual return or where there is no
shall be signed by company secretary,
by the director of the
the company
company.
secretary, or where Provided further
there is no company that the Central
secretary, by the Government may
director of the prescribe abridged
company.’ form of annual
return for One
Person Company,
small company and

such other class or
classes of
companies as may
be prescribed.”
13 Sec . Section 92(3)- In Section 92 of the Revised Section The requirement to file
92(3) ‘An extract of principal Act,— 92(3)- extract of Annual
the annual For sub-section (3), the "Every company Return is omitted.
return in such following sub-section shall place a copy Section 92(3) mandated
form as may be shall be substituted, of the annual the filing of an extract of
prescribed shall namely:— return on the the annual return as a
form part of the "(3) Every company shall website of the part of the Board’s
Board's report.’ place a copy of the company, if any, report.
annual return on the and the web-link Most of the information
website of the company, of such annual in the extract is also
if any, and the web-link return shall be required to be specified
of such annual return disclosed in the in financial statement or
shall be disclosed in the Board's report." is available on the
Board's report." website of the company
leading to duplication of
i n f o r ma t i o n b e i n g
reported to the
shareholders.
Accordingly, this
requirement is omitted.
It is also provided that
web address/weblink of
the information may be
provided in the Board’s
Report.
In case the disclosures
as required under
Section 134 (3) are
appearing elsewhere in
financial statement,
instead of repeating the
same, it is provided that
reference of such
disclosure may be
given. This will reduce
the burden of
companies in preparing
bulky Board’s Report
and the amount of
paper work.
Similarly, it is also
provided that the
policies of companies if
u p load e d o n t h e
websites, instead of
providing the complete
policy, only its salient
features and web
address/weblink be
given.
C. General Meetings
S. Sec. Existing Amendments as per Revised Explanation
No. No. Provision Companies Provision
(Amendment) Bill,
2017
14 Sec. Section 100(1)- In Section 100 of the Proviso to The wholly owned
100 ‘The Board may, principal Act, in Section 100(1)- subsidiary of a company
(1) whenever it sub-section (1), the “Provided that an incorporated outside
deems fit, call an following proviso shall extraordinary India is now allowed to
extraordinary be inserted, namely:— general meeting hold its extra ordinary
general meeting “Provided that an of the company, general meeting outside
of the company.’ extraordinary general other than of the India.
meeting of the wholly owned Being a substantive
company, other than subsidiary of a provision, the expla-
of the wholly owned company incor- nation to Rule 18(3) be
subsidiary of a porated outside deleted and an
company incorporated India, shall be explanation be incor-
outside India, shall be held at a place porated at the end of
held at a place within within India.” Section 100 mandating
India.” that EGM shall be held
only in India, as well as
provide for exemptions
to wholly owned
subsidiaries of com-
panies incorporated
outside India.
Proposal to allow the
unlisted company to hold
its AGM anywhere in
India if consented by all
members in writing or in
electronic mode.
Likely to save the time
and energy of many
companies.
For holding of EGM a

proviso is proposed to be
added to restrict the
companies to hold EGM
at any place in India.
WOS of companies
incorporated outside
India can hold EGM at
any place in the world.
15 S ec. Section 110(1)- In Section 110 of Proviso to The items required to

110 ‘ N o t w i t h s t a n d i n g the principal Act, in Section 110(1)- be passed mandatorily
(1) anything contained in sub-section (1), the “Provided that any by postal ballot may
this Act, a company: following proviso item of business now be transacted at a
(a) shall, in respect of shall be inserted, required to be general meeting where
such items of namely: transacted by the facility of electronic
business as the "Provided that any means of postal voting is provided by
Central Government item of business ballot under clause the company.
may, by notification, required to be (a), may be The mandatory
declare to be transacted by transacted at a requirement of a
transacted only by means of postal general meeting by postal ballot was no
means of postal ballot under clause a company which longer relevant for
ballot; and (a), may be is required to companies which are
(b) may, in respect of transacted at a provide the facility required to conduct
any item of business, general meeting by to members to vote voting using electronic
other than ordinary a company which by electronic means, as this mode
business and any is required to means under equally provides for
business in respect provide the facility Section 108, in the that no shareholder is
of which directors or to members to vote manner provided in deprived of his right to
auditors have a right by electronic means that section.” vote on resolutions in
to be heard at any under section 108, case he cannot attend
meeting, transact by in the manner t h e A GM/ge n e r a l
means of postal provided in that meeting.
ballot, section." The impact would be-
in such manner as • Enable maximum
may be prescribed, shareholders to
instead of transacting participate in the
such business at a me e t i n g a n d
general meeting.’ discussions and
then vote elect-
ronically
• Saving the cost
of conducting
postal ballot &
general meeting.
16 Sec . Section 160(1)- In Section 160 of Proviso to Section The requirement of

160 ‘A person who is the principal Act, in 160(1)- deposit of rupees one
not a retiring sub-section (1), the “Provided that lakh with respect to
director in terms of following proviso requirements of nomination of directors
Section 152 shall, shall be inserted, deposit of amount shall not be applicable
subject to the namely:— shall not apply in in case of appointment
provisions of this "Provided that case of appointment of independent
Act, be eligible for requirements of of an independent directors or directors
appointment to the deposit of amount director or a director nominated by nomin-
office of a director shall not apply in recommended by ation and re-muner-
at any general case of appointment the Nomination and ation committee. The
meeting, if he, or of an independent Remuneration Co- exemptions/modificati
s o m e me mb e r director or a director mmittee, if any, ons have already been
intending to pro- recommended by constituted under notified for wholly
pose him as a the Nomination and sub-section (1) of owned Government
director, has, not Remuneration Section 178 or a companies, Section 8
less than fourteen Committee, if any, director recommen- companies and Nidhis.
days before the constituted under ded by the Board of The requirements
meeting, left at the sub-section (1) of Directors of the under Section 160
registered office of section 178 or a Company, in the need to be complied
the company, a director recom- case of a company with for reappointment
notice in writing mended by the not required to of Independent
under his hand Board of Directors constitute Nomi- Directors, which is
signifying his of the Company, in nation and Re- unreasonable as such
candidature as a the case of a muneration Com- appointments will be
director or, as the company not re- mittee.” recommended by the
case may be, the quired to constitute Board. Similar is the
intention of such Nomination and case for other persons
member to Remuneration Com- recommended by the
propose him as a mittee." Nomination and
candidate for that Remuneration Comm-
office, along with ittee, as also by the
the deposit of one Board, to be
lakh rupees or considered for appo-
such higher intment. Accordingly,
amount as may be in case of appointment
prescribed which of Independent
shall be refunded Directors and Direc-
to such person or, tors recommended by
as the case may the Nomination and
be, to the member, Remuneration Com-
if t he person mittee, the re-
pro posed gets quirements of Section
elected as a 160 has been
director or gets dispensed with.
more than
twenty-five per
cent. of total valid
votes cast either
on show of hands
or on poll on such
resolution.’
D. Disclosures to Registrar
(Amendment) Bill,
2017
17 Se c. Section 93- Section 93 of the Section 93 has been omitted
93 ‘Every listed company principal Act shall which requires every listed
shall file a return in the be omitted. company to file a return with
prescribed form with the Registrar with respect to
the Registrar with change in number of shares
respect to change in held by promoters and top
the number of shares ten shareholders of such
held by promoters and company.
top ten shareholders This information is also
of such company, required to be filed with
within fifteen days of Stock Exchanges/SEBI, it
such change.’ would lead to duplication of
reporting. This was leading
to an increase in the amount
of filings being made under
the Act.
18 Se c. First Proviso to In Section 94 of the Revis e d F i r st The requirement of
94(1) Section 94(1)- principal Act,— Proviso to filing with Register a
Provided that such In sub-section (1), in Section 94(1)- copy of special
registers or copies of the first proviso, the Provided that such resolution in
return may also be words "and the registers or copies advance in respect
kept at any other place Registrar has been of return may also of members
in India in which more given a copy of the be kept at any approval for keeping
than one-tenth of the proposed special other place in India register/returns at
t o t a l n u mbe r o f resolution in in which more than any other place in
members entered in advance" shall be one-tenth of the India then registered
the register of omitted total number of office under Section
members reside, if members entered 94 has been
approved by a special in the register of omitted.
resolution passed at a members reside, if Filing of advance
general meeting of the approved by a copy of proposed
company and the special resolution special resolution

Registrar has been passed at a did not serve any
given a copy of the general meeting of purpose, particularly
proposed special the company: because the special
resolution in advance: resolution was in
any case to be filed
as per the
requirements of
Section 117(3)(a).
E. Participation through video-conferencing
S. Sec. Existing Provision Amendments as per Revised Explanation
No. No. Companies Provision
(Amendment) Bill,
2017
19 Sec . Section 173(2)- In Section 173 of the Second Proviso The directors are
173 ‘The participation of principal Act, in to Section allowe d to
(2) directors in a sub-section (2), after 173(2)- participate on
meeting of the the first proviso, the “Provided further certain items which
Board may be either following proviso shall that where there were restricted at
in person or through be inserted, namely:— is quorum in a Board meetings
video conferencing "Provided further that meeting through through video
or other audio visual where there is quorum physical presence conferencing or
means, as may be in a meeting through of directors, any other audio visual
prescribed, which physical presence of other director - means if there is
are capable of directors, any other may participate quorum through
recording and director may participate through video physical presence of
recognising the through video conferencing or directors.
participation of the conferencing or other other audio visual Rule 4 of the
directors and of re- audio visual means in means in such C o m p a n i e s
cording and storing such meeting on any meeting on any (Meetings of Board
the proceedings of matter specified under matter specified and its Powers)
such meetings the first proviso." under the first Rules, 2014
along with date and proviso.” specifies matters
time: which shall not be
Provided that the dealt with in any
Central Government meeting held
may, by notification, through video
specify such matters conferencing or
which shall not be other audio-visual
dealt with in a means. This
meeting through requirement
video conferencing completely banned
or other audio visual parti c i p a t i o n in
means.’ these specified
matters of the Board
meetings through
video conferencing,
which unnecessarily
restricts wider
participation even if
the necessary
quorum as specified
in Section 174 is
physically present.
Accordingly,
flexibility is provided
to allow participation
of Directors through
video conferencing,
subject to such
participation not
being counted for
the purpose of
quorum.
The difference
between holding of
meeting through VC
and participation of
directors in a
meeting through VC
is clearly identified
through this
proposal.
In respect of
part i c i p ation of
director through
Video Conferencing
(VC) in a Board
meeting considering
the specified
business, clarity is
proposed to be
provided that if the
physical quorum is
present, then the
other directors may
participate through
VC.
This will provide
relief to non resident
directors to
participate in the
d i scus s i o n a n d
voting on important
matters like
approval of financial
statements etc.
without traveling to
the place of
meeting.
HARMONISATION
A. Disclosures in the Prospectus
(Amendment)
Bill, 2017
20 Se c. Section 26(1)- In section 26 of the Revised Section Disclosures in
26 ‘Every prospectus issued by or principal Act, in 26(1)- the prospectus
on behalf of a public company sub - section (1),– ‘ Eve r y p r o s - required under
either with reference to its (i) after the words pectus issued by the Companies
formation or subsequently, or "signed and or on behalf of a Act, 2013 and
by or on behalf of any person shall", the public company the Securities
who is or has been engaged or following shall either with and Exchange
interested in the formation of a be inserted, reference to its Board of India
public company, shall be dated namely:— f o r ma t i o n o r Act, 1992 and
and signed and shall—. "state such subsequently, or the Regulations
(a) state the following information and by or on behalf ma d e t h e r e
information, namely:— set out such of any person under are
(i) names and addresses reports on who is or has aligned by
of the registered office financial infor- been engaged or omitting the
of the company, mation as may interested in the information,
company secretary, be specified by formation of a reports and
Chief Financial the Securities public company, declarations
Officer, auditors, legal and Exchange shall be dated required in the
advisers, bankers, Board in and signed and Companies Act,
trustees, if any, consultation shall- 2013. After the
underwriters and such with the Central (a) state such amendment,
other persons as may Government: information the information
be prescribed; Provided that and set out and reports
(ii) dates of the opening until the Sec- such reports required may
and closing of the urities and Ex- on financial be specified by
issue, and declaration change Board information the Securities
about the issue of specifies the as may be and Exchange
allotment letters and information and specified by Board of India
refunds within the reports on the Secu- in consultation
prescribed time; financial infor- rities and with the Central
(iii) a statement by the mation under Exchange Government.
Board of Directors this sub- sec- Board in

about the separate tion, the regu- consultation
bank account where lations made with the
all monies received by the Secu- Central Gov-
out of the issue are to rities and Ex- ernment:
be transferred and change Board Provided that
disclosure of details of under the until the
all monies including Securities and Securities
utilised and unutilised Exchange and Excha-
monies out of the Board of India nge Board
previous issue in the Act, 1992, in specifies the
prescribed manner; respect of such information
(iv) details about financial infor- and reports
underwriting of the mation or on financial
issue; reports on information
(v) consent of the financial infor- under this
directors, auditors, mation shall sub-section,
bankers to the issue, apply." the regu-
expert's opinion, if (ii) the clauses (a), lations made
any, and of such other (b) and (d) b y t h e
persons, as may be shall be Securities
prescribed; omitted. and Excha-
(vi) the authority for the nge Board
issue and the details under the
of the resolution Securities
passed therefore; and Excha-
(vii) procedure and time nge Board of
schedule for allotment India Act,
and issue of 1992, in
securities; respect of
(viii) capital structure of the such finan-
company in the cial info-
prescribed manner; rmation or
(ix) main objects of public reports on
offer, terms of the financial
present issue and information
such other particulars shall apply.
as may be prescribed; (b) m a k e a
(x) main objects and declaration
present business of about the
the company and its compliance
location, schedule of of the pro-
implementation of the visions of
project; this Act and
(xi) particulars relating a statement
to— to the effect
(A) management per- that nothing

ception of risk in the pros-
factors specific to pectus is
the project; contrary to
(B) gestation period the provi-
of the project; sions of this
(C) extent of pro- Act, the
gress made in Securities
the project; Contracts
(D) deadlines for (Regulation)
completion of the Act, 1956
project; and (42 of 1956)
(E) any litigation or and the
legal action Securities
pending or taken and Ex-
by a Government c h a n g e
Department or a Board of
statutory body India Act,
during the last 1992 (15 of
five years imme- 1992) and
diately pre-ceding the rules and
the year of the regulations
issue of pros- made there
pectus against under; and
the promoter of
the company;
(xii) minimum subscription,
amount payable by
way of premium, issue
of shares otherwise
than on cash;
(xiii) details of directors
including their
appointments and
remuneration, and
such particulars of the
nature and extent of
their interests in the
company as may be
prescribed; and
(xiv) disclosures in such
manner as may be
prescribed about
sources of promoter's
contribution;
(b) set out the following

reports for the purposes of
the financial information,
namely:—
(i) reports by the auditors
of the company with
respect to its profits
and losses and assets
and liabilities and
such other matters as
may be prescribed;
(ii) reports relating to
profits and losses for
each of the five
financial years
immediately prece-
ding the financial year
of the issue of
prospectus including
such reports of its
subsidiaries and in
such manner as may
be prescribed:
Provided that in case
of a company with
respect to which a
period of five years
has not elapsed from
the date of incor-
poration, the
prospectus shall set
out in such manner as
may be prescribed,
the reports relating to
profits and losses for
each of the financial
years immediately
preceding the
financial year of the
issue of prospectus
including such reports
of its subsidiaries;
(iii) reports made in the
prescribed manner by
the auditors upon the
profits and losses of
the business of the

company for each of
the five financial years
immediately prece-
ding issue and assets
and liabilities of its
business on the last
date to which the
accounts of the
business were made
up, being a date not
more than one
hundred and eighty
days before the issue
of the prospectus:
Provided that in case
of a company with
respect to which a
period of five years
has not elapsed from
the date of incor-
poration, the pros-
pectus shall set out in
the prescribed
manner, the reports
made by the auditors
upon the profits and
losses of the business
of the company for all
financial years from
the date of its
incorporation, and
assets and liabilities
of its business on the
last date before the
issue of prospectus;
and
(iv) reports about the
business or tran-
saction to which the
proceeds of the
securities are to be
applied directly or
indirectly.
(c) make a declaration about

the compliance of the
provisions of this Act and a
statement to the effect that
nothing in the prospectus
i s c o n t r ary t o t h e
provisions of this Act, the
Securit i e s C o n t r acts
(Regulation) Act, 1956 (42
of 1956) and the Securities
and Exchange Board of
India Act, 1992 (15 of
1992) and the rules and
regulations made
thereunder; and
(d) state such other matters and
set out such other reports,
as may be prescribed.’
21 Sec. Section 194 and 195 of the principal Act shall be omitted.
194 Since SEBI Regulations are comprehensive and cover the provisions, sections relating
& to prohibition on forward dealings in securities of company and insider trading of
195 securities by director or key managerial personnel are deleted.
B. Rationalising Penal Provisions

Penalties:
The Act aims to provide for a regime of offences and penalties which is commensurate to the gravity
of the offence.
Quantum of penalty is being levied taking into consideration the size of company, nature of business,
injury to public interest, nature and gravity of default, repetition of default, etc.
• The penal provisions for procedural and technical defaults are rationalised and liabilities are
reduced.
• The Act seeks to amend Sections 76A, 132, 140, 147 and 180 etc. to reduce the quantum of fine
in a move towards rationalising the severe penalties provided under the Act.
• Two new sections with respect to factors for determining the level of punishment and for lesser
penalties for one person companies and small companies are inserted.
• Penal provisions for small companies and one person companies are reduced.
• Section 76A provides for penal provisions with regard to defaulting company with respect to
repayment of the amount of deposit and the interest due.
Amendment Act relaxes the minimum penalty of a company by linking this with the amount of
deposits accepted, accordingly, the minimum fine is as rupees one crore or twice the amount of
deposit accepted by the company, whichever is lower. Further every officer of the company who is
in default shall be punishable with imprisonment which may extend to seven years and with fine
which shall not be less than twenty-five lakh rupees. Maximum penalty remains unchanged.
• In case of professional or other misconduct on the part of the auditor, the NFRA has the power
to make an order for imposing penalty, for individual auditors and for firm of auditors.
Other Important Provisions

(Amendment) Bill,
2017
22 Sec. Section 153 In Section 153 of the Proviso to Section The Central
153 ‘Every individual principal Act, the 153- Government is now
intending to be following proviso “Provided that the empowered to
appointed as shall be inserted, Central Government recognise any other
director of a com- namely: may prescribe any universally accepted
pany shall make an “Provided that the identification number identification number
application for Central Government which shall be as an identification
allotment of Director may prescribe any treated as Director document similar to
Identification Num- identification number Identification director identification
ber to the Central which shall be Number for the number.
Government in such treated as Director purposes of this Act
form and manner Identification and in case any
and along with such Number for the individual holds or
fees as may be purposes of this Act acquires such
prescribed.’ and in case any identification num-
individual holds or ber, the requirement
acquires such of this section shall
identification num- not apply or apply in
ber, the requirement such manner as
of this section shall may be prescribed.”
not apply or apply in
such manner as
may be prescribed.”
23 Sec. For section 185 of the principal Act, the following section shall be To address the
185 substituted, namely:— difficulties being
“185.(1) No company shall, directly or indirectly, advance any faced in genuine
loan, including any loan represented by a book debt to, or give transactions due to
any guarantee or provide any security in connection with any loan the complete em-
taken by,— bargo on providing
(a) any director of company, or of a company which is its holding loans to subsidiaries
company or any partner or relative of any such director; or with common
(b) any firm in which any such director or relative is a partner. directors, the com-
(2) A company may advance any loan including any loan panies are permitted
represented by a book debt, or give any guarantee or provide any to give loans to
security in connection with any loan taken by any person in whom entities in which
any of the director of the company is interested, subject to the directors are
condition that— i n t erested after
(a) a special resolution is passed by the company in general passing special
meeting: resolution and
Provided that the explanatory statement to the notice for the adhering to
relevant general meeting shall disclose the full particulars of disclosure require-
the loans given, or guarantee given or security provided and ments. This would
the purpose for which the loan or guarantee or security is give big relief to the
proposed to be utilised by the recipient of the loan or companies.
guarantee or security and any other relevant fact; and Granting of loan,
(b) the loans are utilised by the borrowing company for its guarantee or
principal business activities. security (referred as
Explanation.—For the purposes of this sub-section, the assistance) is nicely
expression "any person in whom any of the director of the categorized as
company is interested" means— prohibited, condi-
(a) any private company of which any such director is a tional and exempted.
director or member; The prohibition is
(b) any body corporate at a general meeting of which not less proposed to be
than twenty-five per cent. of the total voting power may be made applicable for
exercised or controlled by any such director, or by two or assistance to
more such directors, together; or director or his
(c) any body corporate, the Board of directors, managing partner or relative or
director or manager, whereof is accustomed to act in a firm in which such
accordance with the directions or instructions of the director or relative is
Board, or of any director or directors, of the lending a partner or to
company. holding company of
(3) Nothing contained in sub-sections (1) and (2) shall apply to— the company.
(a) the giving of any loan to a managing or whole-time director— The conditi onal
(i) as a part of the conditions of service extended by the assistance is
company to all its employees; or possible to any
(ii) pursuant to any scheme approved by the members by a person in whom the
special resolution; or director is interested
(b) a company which in the ordinary course of its business (other than prohi-
provides loans or gives guarantees or securities for the due bited categories).
repayment of any loan and in respect of such loans an Company has to
interest is charged at a rate not less than the rate of prevailing pass a special
yield of one year, three year, five year or ten year resolution &
Government security closest to the tenor of the loan; or explanatory state-
(c) any loan made by a holding company to its wholly owned ment to the notice
subsidiary company or any guarantee given or security should disclose all
provided by a holding company in respect of any loan made the facts &
to its wholly owned subsidiary company; or particulars.
(d) any guarantee given or security provided by a holding If the borrower is a
company in respect of loan made by any bank or financial Company then loan
institution to its subsidiary company: should be utilized for
Provided that the loans made under clauses (c) and (d) are its principal business
utilised by the subsidiary company for its principal business activity.
activities. The exempted
(4) If any loan is advanced or a guarantee or security is given or categories are loan
provided or utilised in contravention of the provisions of this to MD/ WTD as a
section,- part of service
condition or scheme
(i) the company shall be punishable with fine which shall not and loans by
be less than five lakh rupees but which may extend to companies in their
twenty-five lakh rupees, ordinary course of
(ii) every officer of the company who is in default shall be business by
punishable with imprisonment for a term which may charging interest as
extend to six months or with fine which shall not be less per tenure and loan,
than five lakh rupees but which may extend to twenty-five guarantee or
lakh rupees; and security by holding
(iii) the director or the other person to whom any loan is company to its WOS
advanced or guarantee or security is given or provided in and guarantee or
connection with any loan taken by him or the other security by holding
person, shall be punishable with imprisonment which may company to its
extend to six months or with fine which shall not be less subsidiary company
than five lakh rupees but which may extend to twenty-five with a condition to
lakh rupees, or with both.” use it for its principal
activity.
In the list of offenses
under this section
specific offence of
contravention in
utilization of loan is
proposed to be
added.
A. Significant beneficial owner

(Amendment) Bill,
2017
24 Sec. Section 89(6) - In Section 89 of the Revised Section Definition of the term
89 ‘Where a n y principal Act, 89(7)- beneficial interest in
declaration under (i) In sub-section ‘If a company, shares, is linked with
this section is made (6), the words required to file a the right or
to a company, the and figures, return under entitlement of a
company shall make “within t h e sub-section (6), fails person to exercise
a note of such time specified to do so before the rights attached to
declaration in the under section expiry of the time shares or to
register concerned 403” shall be specified therein, the participate or
and shall file, within omitted; company and every receive the dividend
thirty days from the (ii) In sub-section officer of the or other distributions
date of receipt of (7), for the company who is in relating to shares.
declaration by it, a words and default shall be The Bill seeks to
return in the figures, “under punishable with fine amend section 89 of
prescribed form with the first which shall not be the Act to explain
the Registrar in proviso to less than five the term "beneficial
respect of such sub-section (1) hundred rupees but interest in a share”

declaration with of Section which may extend to Beneficial interest in
such fees or 403”, the word one thousand a share includes,
additional fees as “therein”, shall rupees and where directly or indirectly,
may be prescribed, be substituted; the failure is a through any
within the time (iii) a f t e r sub- continuing one, with contract, arrang-
specified under section (9), the a further fine which ement or otherwise,
Section 403.’ following sub- may extend to one the right or
Section 89(7) - section shall thousand rupees for entitlement of a
‘If a company, be inserted, every day after the person alone or
required to file a namely:— first during which the together with any
return under "(10) For the failure continues.’ other person to—
sub-section (6), fails purposes of this Revised Section (i) exercise or
to do so before the section and section 89(10)- cause to be
expiry of the time 90, beneficial “For the purposes of exercised any
specified under the interest in a share this section and or all of the
first proviso to includes, directly or Section 90, rights attac-
sub-section (1) of indirectly, through beneficial interest in hed to such
Section 403, the any contract, a share includes, share; or
company and every a rrangement o r directly or indirectly, r e c e i v e or
officer of the otherwise, the right through any participate in
company who is in or entitlement of a contract, arrange- any dividend
default shall be person alone or ment or otherwise, or other
punishable with fine together with any the right or distribution in
which shall not be other person to— entitlement of a resp e c t o f
less than five (i) exercise or person alone or such share.
hundred rupees but cause to be together with any (ii) Section 89 of
which may extend to exercised any other person to— the Comp-
one thousand or all of the (i) exercise or an i e s A ct,
rupees and where rights attached cause to be 2013 deals
the failure is a to such share; exercised any with the
continuing one, with or or all of the concept of
a further fine which (ii) receiv e or rights attached beneficial
may extend to one participate in to such share; interest in a
thousand rupees for any dividend or share which
every day after the or other (ii) r e c e i v e or obligates
first during which the distribution in participate in every person
failure continues.’ respect of any dividend acquiring/hol
such share." or other ding bene-
distribution in ficial interest
respect of in a share as
such share." well as the
legal owner to
make a decl-
aration to the
company in
r espe c t o f
such ben-
eficial inte-
rest. In view
of the abse-
nce of a
definition of
beneficial
interest in a
share in a
company, the
term has
been defined.
Complex structures
and chains of
corporate vehicles
are used to hide the
real owner behind
the transactions
made using these
structures. Realising
this, obligation on a
company to collect
information on
beneficial ownership
and to maintain a
separate register on
beneficial ownership
is required under the
section.
25 Sec . For Section 90 of the principal Act, the following section shall be A declaration is
90 substituted, namely: required to be given
“90. (1) Every individual, who acting alone or together, or through to the company by
one or more persons or trust, including a trust and persons the person who is a
resident outside India, holds beneficial interests, of not less than significant beneficial
twenty-five per cent. or such other percentage as may be owner. “Significant
prescribed, in shares of a company or the right to exercise, or the beneficial owner”
actual exercising of significant influence or control as defined in includes every
clause (27) of Section 2, over the company (herein referred to as individual, who
"significant beneficial owner"), shall make a declaration to the acting alone or
company, specifying the nature of his interest and other together, or through
particulars, in such manner and within such period of acquisition one or more persons
of the beneficial interest or rights and any change thereof, as may or trust, including a
be prescribed: trust and persons
Provided that the Central Government may prescribe a class or resident outside
classes of persons who shall not be required to make declaration India, holds bene-
under this sub-section. ficial interests, of not
(2) Every company shall maintain a register of the interest less than twenty-five
declared by individuals under sub-section (1) and changes per cent or such
therein which shall include the name of individual, his date of percentage as may
birth, address, details of ownership in the company and such be prescribed in
other details as may be prescribed. shares of a company
(3) The register maintained under sub-section (2) shall be open or the right to
to inspection by any member of the company on payment of such exercise, or the
fees as may be prescribed. actual exercising of
(4) Every company shall file a return of significant beneficial significant influence
owners of the company and changes therein with the Registrar or control under
containing names, addresses and other details as may be clause (27) of
prescribed within such time, in such form and manner as may be Section 2 over the
prescribed. company.
(5) A company shall give notice, in the prescribed manner, to any • New terminology
person (whether or not a member of the company) whom the of significant
company knows or has reasonable cause to believe— beneficial own-
(a) to be a significant beneficial owner of the company; ership, in line
(b) to be having knowledge of the identity of a significant with the inter-
beneficial owner or another person likely to have such national gover-
knowledge; or nance standards
(c) to have been a significant beneficial owner of the company at and OECD prin-
any time during the three years immediately preceding the cipals.
date on which the notice is issued, and who is not registered • Would be
as a significant beneficial owner with the company as applicable to
required under this section. each and every
(6) The information required by the notice under sub-section (5) company
shall be given by the concerned person within a period not • Every individual
exceeding thirty days of the date of the notice. shareholder
(7)The company shall,— holding bene-
(a) where that person fails to give the company the information ficial interest
required by the notice within the time specified therein; or either alone or
(b) where the information given is not satisfactory, apply to the together or
Tribunal within a period of fifteen days of the expiry of the through one or
period specified in the notice, for an order directing that the more persons or
shares in question be subject to restrictions with regard to trust including
transfer of interest, suspension of all rights attached to the non residents of
shares and such other matters as may be prescribed. not less than
(8) On any application made under sub-section (7), the Tribunal 25% in the
may, after giving an opportunity of being heard to the parties shares of the
concerned, make such order restricting the rights attached with Company or the
the shares within a period of sixty days of receipt of application right to exercise,
or such other period as may be prescribed. or actual exer-
cising of signi-
(9) The company or the person aggrieved by the order of the ficant influence
Tribunal may make an application to the Tribunal for relaxation or or control over
lifting of the restrictions placed under sub-section (8). the company is
(10) If any person fails to make a declaration as required under required to make
sub-section (1), he shall be punishable with fine which shall not a declaration
be less than one lakh rupees but which may extend to ten lakh about influence
rupees and where the failure is a continuing one, with a further and his nature of
fine which may extend to one thousand rupees for every day after interest etc
the first during which the failure continues. • Company has to
(11) If a company, required to maintain register under sub-section register such
(2) and file the information under sub-section (4), fails to do so or individuals as
denies inspection as provided therein, the company and every Significant Bene-
officer of the company who is in default shall be punishable with ficial Owners.
fine which shall not be less than ten lakh rupees but which may • Company to file
extend to fifty lakh rupees and where the failure is a continuing periodic return.
one, with a further fine which may extend to one thousand rupees • Power has also
for every day after the first during which the failure continues. given to the
(12) If any person wilfully furnishes any false or incorrect company to
information or suppresses any material information of which he enquire into the
is aware in the declaration made under this section, he shall be significant bene-
liable to action under Section 447.” ficial ownership
by giving a
notice to an
individual.
• Upon non
compliance of
provisions of this
section, tribunal
on application by
Company can
pass an order for
placing restri-
ctions on rights
attached to such
shares.
B. Re-opening of Accounts
(Amendment) Bill,
2017
26 S ec. Proviso to Section In Section 130 of the Revised Proviso to In the interest of the
130 130(1)- principal Act,— Section 130(1)– principle of natural
‘Provided that the In sub-section (1), in Provided that the justice, other
court or the Tribunal, the proviso,— court or the Tribunal, concerned parties,
as the case may be, (a) after the words as the case may be, like a company or
shall give notice to "regulatory shall give notice to the Auditor

the Central Gover- body or autho- the Central Gover- /Chartered Acco-
nment, the Income rities concer- nment, the Income untant of the
-tax authorities, the ned", the words -tax authorities, the company should
Securities and "or any other Securities and also be given an
Exchange Board or person concer- Exchange Board or opportunity to
any other statutory ned" shall be any other statutory present their point of
regulatory body or inserted; regulatory body or view. Accordingly, in
authority concerned (b) after the words authority concerned the provision relating
and shall take into "the body or or any other person to re-opening of
consideration the authority con- concerned and shall accounts, before
representations, if cerned", the take into consi- passing an order,
any, made by that words "or the deration the repre- the Tribunal is now
Government or the other person sentations, if any, required to serve a
authorities, Secu- concerned" made by that notice to ‘any other
rities and Exchange shall be inser- Government or the person concerned’
Board or the body or ted;’ (ii) after authorities, Secu- also, who may
authority concerned sub-section (2), rities and Exchange submit their
before passing any the following Board or the body or concerns in the form
order under this sub-section authority concerned of representations,
section.’ shall be inser- or the other person before passing of
Section 130(2)- ted, namely:— concerned before order for re-opening
Without prejudice to "(3) No order shall passing any order of accounts by Court
the provisions be made under under this section.” or Tribunal.
contained in this Act sub-section (1) in Section 130(3)-
the accounts so r esp e c t o f r e - “(3) No order shall
revised or re-cast opening of books of be made under
under sub-section account relating to a sub-section (1) in
(1) shall be final. period earlier than r e s p e c t o f r e-
eight financial years opening of books of
immediately prece- account relating to a
ding the current period earlier than
financial year: eight financial years
Provided that where immediately prece-
a direction has been ding the current
issued by the financial year:
Central Government Provided that where
under the proviso to a direction has been
sub-section (5) of issued by the
Section 128 for Central Government
keeping of books of under the proviso to
account for a period sub-section (5) of
longer than eight Section 128 for
years, the books of keeping of books of
account may be account for a period

ordered to be longer than eight
re-opened within years, the books of
such longer period." account may be
ordered to be
re-opened within
such longer period.”
C. Managerial Remuneration
(Amendment) Bill,
2017
27 Sec. First Proviso to In Section 197 of the Revised First The Companies
197 Section 197(1) - principal Act,— Proviso to Section (Amendment) Bill,
(1) ‘Provided that the In sub-section (1),— 197(1)- 2017 seeks amend-
company in general (i) in the first “Provided that the ment to Section 197.
meeting may, with proviso, the company in general The requirement of
the approval of the words "with meeting may, with approval of the
Central Government, the approval of the approval of the Central Government
authorise the the Central Central Government, for Managerial Rem-
payment of remun- Government," authorise the pay- uneration, above the
eration exceeding shall be ment of remune- prescribed limits are
eleven per cent. of omitted ration exceeding replaced by app-
the net profits of the (ii) in the second eleven per cent. of roval through special
company, subject to proviso, after the net profits of the resolution by share-
the provisions of the words company, subject to holders in general
Schedule V.’ "general mee- the provisions of meeting.
Second Proviso to ting,", the Schedule V:” No CG approval for
Section 197(1)- words "by a Revised Second public companies for
‘Provided further special reso- Proviso to Section payment of
that, except with the lution," shall 197(1)- remuneration to
approval of the be inserted; “Provided further managing director
company in general (iii) after the se- that, except with the even exceeding
meeting. cond proviso, approval of the 11% of net profits
(i) the remuner- the following company in general Approval of the
ation payable proviso shall meeting by a special central government
to any one be inserted, resolution,— would be needed
managing namely:— (i) the remuner- only for variance to
d i r ect o r ; o r "Provided also that, ation payable the conditions
whole-time where any term loan to any one specified in part I of
director or of any bank or public managing Schedule V for the
manager shall financial institution is director; or appointment of MD/
not exceed five subsisting or the whole-time WTD;
per cent. of the company has defa- director or For payment of

net profits of ulted in payment of manager shall remuneration
the company dues to non- not exceed five exceeding limits or
and if there is convertible deben- per cent. of the for waiver of
more than one ture holders or any net profits of recovery of excess
such director other secured the company remuneration, prior
remuneration creditor, the prior and if there is approval of banks,
shall not approval of the bank more than one financial institutions,
exceed ten per or public financial such director non convert ible
cent. of the net institution concerned remuneration debenture holders or
profits to all or the non- con- shall not secured creditors is
such directors vertible debenture exceed ten per proposed.
and manager holders or other cent. of the net D i r e c tor shoul d
taken together; secured creditor, as profits to all repay the excess
(ii) the remun- the case may be, such directors remuneration to the
eration payable shall be obtained by and manager Company within a
to directors the company before taken together; maximum period to
who are neither obtaining t h e (ii) the remune- 2 years.
managing approval in the ration payable Duty casted on
directors nor general meeting." to directors auditors- Report
whole-time who are neit- payment of remu-
directors shall her managing neration in con-
not exceed,— directors nor formity with the
(A) one per whole-time provisions of the Act
cent. of the directors shall and disclose any
net profits not exceed,— excess remuneration
of the (A) one per
company, cent. of
if there is a the net
managing profits of
or whole- the com-
time dire- pany, if
ctor or there is a
manager; managing
(B) three per or whole-
cent. of the time direc-
net profits tor or ma-
in any nager;
o t h e r (B) three per
case.’ cent. of
the net
profits in
any other
case.
Third Proviso to
Section 197(1)-
“Provided also that,
where the company
has defaulted in
payment of dues to
any bank or public
financial institution
or non-convertible
debenture holders or
any other secured
creditor, the prior
approval of the bank
or public financial
institution concerned
or the non
-convertible deben-
ture holders or other
secured creditor, as
the case may be,
shall be obtained by
the company before
obtaining the app-
roval in the general
meeting.”
D. Foreign Company
(Amendment) Bill,
2017
28 Sec. Section 379- Section 379 of the Revised Section Foreign companies
379 ‘Where not less than principal Act shall be 379- having incidental
fifty per cent. of the renumbered as sub- “(1) Sections 380 to transactions through
paid-up share section (2) thereof 386 (both inclusive) electronic mode are
capital, whether and before sub- and Sections 392 exempted from
equity or preference section (2) as so and 393 shall apply registering and
or partly equity and renumbered, the to all foreign com- compliance regime
partly preference, of following sub- panies: under the Act.
a foreign company is section shall be Provided that the As provided under
held by one or more inserted, namely:— Central Government Section 591(1) of the
citizens of India or "(1) Sections 380 to may, by Order Companies Act,
by one or more 386 (both inclusive) published in the 1956, it is proposed

companies or bodies and sections 392 Official Gazette, to clearly provide
corporate incor- and 393 shall apply exempt any class of that the remaining
porated in India, or to all foreign com- foreign companies, body corporate as
by one or more panies: specified in the covered within the
citizens of India and Provided that the Order, from any of definition of foreign
one or more comp- Central Government the provisions of co mp a ny would
anies or bodies cor- may, by Order Sections 380 to 386 need to comply with
porate incorporated published in the and Sections 392 the provisions of
in India, whether Official Gazette, and 393 and a copy Chapter XXII, as
singly or in the exempt any class of of every such order applicable.
aggregate, such foreign companies, shall, as soon as Clarity is proposed
company shall specified in the may be after it is to be provided about
comply with the Order, from any of made, be laid before applicability of the
provisions of this the provisions of both Houses of Act to Foreign
Chapter and such Sections 380 to 386 Parliament. Companies.
other provisions of and Sections 392 (2) Where not less Due to disconnect
this Act as may be and 393 and a copy than fifty per cent. of between the
prescr i b e d with of every such order the paid-up share definition of foreign
regard to the shall, as soon as capital, whether company Sec 2(42)
business carried on may be after it is equity or preference and Sec 379, there
by it in India as if it made, be laid before or partly equity and is confusion about
were a company both Houses of partly preference, of applicability of the
incorporated in Parliament." a foreign company is Act to the Branch,
India.’ held by one or more Liaison or Project
citizens of India or Offices established
by one or more by foreign company
companies or bodies in India.
corporate incor- By proposed inser-
porated in India, or tion, it will be
by one or more confirmed that all
citizens of India and such offices in India
one or more needs registration.
companies or bodies Applicability of CSR
corporate incor- provisions is
porated in India, proposed to be
whether singly or in added in Foreign
the aggregate, such Companies chapter.
company shall
comply with the
provisions of this
Chapter and such
other provisions of
this Act as may be
prescribed w i t h
regard to the
business carried on
by it in India as if it
were a company
i n c o r p o r at e d i n
India.”
E. Filing Fees
(Amendment) Bill,
2017
29 Sec. Provisos Section In Section 403 of the Revised Provisos to Presently, the
403 403(1)- principal Act,— Section 403(1)- objective to ensure
‘Provided that any In sub-section (1), “Provided that where enhancing the filings
document, fact or for the first and any document, fact by providing for
information may be second provisos, the or information condonation of
submitted, filed, following provisos required to be delay, payment of
registered or recor- shall be substituted, submitted, filed, higher fees is not
ded, after the time namely:— registered or recor- really helping, so in
specified in relevant “Provided that where ded, as the case order to make the
provision for such any document, fact may be, under compliance requir-
submission, filing, or information req- Section 92 to 137 is ement less onerous
registering or recor- uired to be not submitted, filed, with the reasonable
ding, within a period submitted, filed, registered or recor- time period for all
of two hundred and registered or recorded, as the case companies and to
seventy days from ded, as the case may be, within the avoid strict pen-
the date by which it may be, under period provided in alties, Section 403 is
should have been Section 92 to 137 is t h o s e s ections , being amended.
submitted, filed, not submitted, filed, without prejudice to 3 more provisos
registered or recor- registered or recor- any other legal proposed to be
ded, as the case ded, as the case action or liability added;
may be, on payment may be, within the under this Act, it 270 days shelter
of such additional period provided in may be submitted, proposed to be
fee as may be t h ose sect i o n s , filed, registered or removed;
prescribed. without prejudice to recorded, as the Delayed filing fees
Provided further that any other legal case may be, after likely to vary
any such document, action or liability expiry of the period depending on
fact or information under this Act, it so provided in those number of defaults
may, without prej- may be submitted, sections, on pay- and nature of form to
udice to any other filed, registered or ment of such be filed;
legal action or recorded, as the additional fee as Additional filing fees
liability under the case may be, after may be prescribed, structure proposed
Act, be also expiry of the period which shall not be to be brought in line
submitted, filed, so provided in those less than one with the LLP;
registered or recor- sections, on hundred rupees per FS & Annual Return
ded, after the first payment of such day and different can be filed with
time specified in first additional fee as amounts may be delayed filing fees of
proviso on payment may be prescribed, prescribed for ` 100 per day (after
of fee and additional which shall not be different classes of prescribed 30/60
fee specified under less than one companies: days) , d i f f erent
this section.’ hundred rupees per Provided further that amount may be
day and different where the docu- specified for
amounts may be ment, fact or infor- different classes of
prescribed for diff- mation, as the case companies;
erent classes of may be, in cases For other forms –
companies: other than referred additional fees will
Provided further that to in the first proviso, be prescribed,
where the docu- is not submitted, different amount
ment, fact or filed, registered or may be specified for
information, as the recorded, as the different classes of
case may be, in case may be, within companies.
cases other than the period provided In case of sub-
referred to in the first in the relevant sequent 2 or more
proviso, is not section, it may, defaults in sub-
submitted, filed, without prejudice to mission of forms,
registered or any other legal higher fees may be
recorded, as the action or liability prescribed
case may be, within under this Act, be
the period provided submitted, filed,
in the relevant registered or
section, it may, recorded as the
without prejudice to case may be, on
any other legal payment of such
action or liability additional fee as
under this Act, be may be prescribed
submitted, filed, and different fees
registered or may be prescribed
recorded as the for different classes
case may be, on of companies:
payment of such Provided also that
additional fee as where there is
may be prescribed default on two or
and different fees more occasions in
may be prescribed submitting, filing,
for different classes registering or
of companies: recording of the
Provided also that document, fact or

where there is information, it may,
default on two or without prejudice to
more occasions in any other legal
submitting, filing, action or liability
registering or under this Act, be
recording of the submitted, filed,
document, fact or registered or
information, it may, recorded, as the
without prejudice to case may be, on
any other legal payment of a higher
action or liability additional fee, as
under this Act, be may be prescribed
submitted, filed, and which shall not
registered or be lesser than twice
recorded, as the the additional fee
case may be, on provided under the
payment of a higher first or the second
additional fee, as proviso as appli-
may be prescribed cable.”
and which shall not
be lesser than twice
the additional fee
provided under the
first or the second
proviso as appli-
cable.”
F. Private Placement
30 Sec. For Section 42 of the principal Act, the following section shall The Private Placement
42. be substituted, namely:— process is simplified by
“1. A company may, subject to the provisions of this section, doing away with sep-
make a private placement of securities. arate offer letter details
2. A private placement shall be made only to a select group to be kept by company
of persons who have been identified by the Board (herein and reducing number of
referred to as "identified persons"), whose number shall filings to Registrar.
not exceed fifty or such higher number as may be In order to ensure that
prescribed [excluding the qualified institutional buyers and investor gets adequate
employees of the company being offered securities under information about the
a scheme of employees stock option in terms of provisions company which is
of clause (b) of subsection (1) of section 62], in a financial making private pla-
year subject to such conditions as may be prescribed. ement, the disclosures
3. A company making private placement shall issue private made under Exp-
placement offer and application in such form and manner lanatory Statement
as may be prescribed to identified persons, whose names referred to in Rule

and addresses are recorded by the company in such 13(2)(d) of Companies
manner as may be prescribed: (Share Capital and
Provided that the private placement offer and application Debenture) Rules,
shall not carry any right of renunciation. 2014, embodied in the
Explanation I.— "private placement" means any offer or Private Placement App-
invitation to subscribe or issue of securities to a select group lication Form.
of persons by a company (other than by way of public offer) There would be ease in
through private placement offer-cum-application, which the private placement
satisfies the conditions specified in this section. offer related doc-me-
Explanation II.— "qualified institutional buyer" means the ntation to enable quick
qualified institutional buyer as defined in the Securities and access to funds.
Exchange Board of India (Issue of Capital and Disclosure Change in definition of
Requirements) Regulations, 2009, as amended from time to private placement is
time, made under the Securities and Exchange Board of India proposed to cover all
Act, 1992. securities offer and
Explanation III.— If a company, listed or unlisted, makes an invitations other than
offer to allot or invites subscription, or allots, or enters into an right.
agreement to allot, securities to more than the prescribed There is condensed
number of persons, whether the payment for the securities format of private
has been received or not or whether the company intends to placement offer letter
list its securities or not on any recognised stock exchange in and application form
or outside India, the same shall be deemed to be an offer to likely to be introduced
the public and shall accordingly be governed by the provisions The Companies would
of Part I of this Chapter. be allowed to make
4. Every identified person willing to subscribe to the private offer of multiple security
placement issue shall apply in the private placement and i n s t r u m e n t s
application issued to such person alongwith subscription simultaneously.
money paid either by cheque or demand draft or other Restriction on utilization
banking channel and not by cash: of subscription money
Provided that a company shall not utilise monies raised before making actual
through private placement unless allotment is made and allotment and
the return of allotment is filed with the Registrar in additionally before filing
accordance with sub-section (8). the allotment return to
5. No fresh offer or invitation under this section shall be the registrar. Since
made unless the allotments with respect to any offer or contract is concluding
invitation made earlier have been completed or that offer on allotment and return
or invitation has been withdrawn or abandoned by the filing is just a post
company: conclusion compliance,
Provided that, subject to the maximum number of identified there may be difficulty
persons under sub-section (2), a company may, at any in compliance.
time, make more than one issue of securities to such class The penalty provisions
of identified persons as may be prescribed. for raising of capital are
pro-posed to be
6. A company making an offer or invitation under this section rationalized by linking it

shall allot its securities within sixty days from the date of to the amount involved
receipt of the application money for such securities and if in the issue ( twice the
the company is not able to allot the securities within that amount involved or 2
period, it shall repay the application money to the crores whichever is
subscribers within fifteen days from the expiry of sixty days lower).
and if the company fails to repay the application money Period for filing return of
within the aforesaid period, it shall be liable to repay that return of allotment is
money with interest at the rate of twelve per cent. per pro-posed to be
annum from the expiry of the sixtieth day: reduced to 15 days.
Provided that monies received on application under this
section shall be kept in a separate bank account in a
scheduled bank and shall not be utilised for any purpose
other than—
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is
unable to allot securities.
7. No company issuing securities under this section shall
release any public advertisements or utilise any media,
marketing or distribution channels or agents to inform the
public at large about such an issue.
8. A company making any allotment of securities under this
section, shall file with the Registrar a return of allotment
within fifteen days from the date of the allotment in such
manner as may be prescribed, including a complete list of
all allottees, with their full names, addresses, number of
securities allotted and such other relevant information as
may be prescribed.
9. If a company defaults in filing the return of allotment within
the period prescribed under sub-section (8), the company,
its promoters and directors shall be liable to a penalty for
each default of one thousand rupees for each day during
which such default continues but not exceeding twenty-five
lakh rupees.
10. Subject to sub-section (11), if a company makes an
offer or accepts monies in contravention of this section,
the company, its promoters and directors shall be liable for
a penalty which may extend to the amount raised through
the private placement or two crore rupees, whichever is
lower, and the company shall also refund all monies with
interest as specified in sub-section (6) to subscribers
within a period of thirty days of the order imposing the
penalty.
11. Notwithstanding anything contained in sub-section (9) and

sub-section (10), any private placement issue not made in
compliance of the provisions of the sub-section (2) shall be
deemed to be a public offer and all the provisions of this
Act and the Securities Contracts (Regulation) Act, 1956
and Securities and Exchange Board of India Act, 1992
shall be applicable.”
G. Definitions
31 Se c. Associate company In Section 2 of the Revised Exp- The Bill substitutes the
2(6) E x p l a n a t i o n t o Companies Act, lanation to explanation of the term
Section 2(6)- 2013 in clause (6), Section 2(6)- ‘significant influence’
‘Explanation— For for the Explanation, “Explanation.—For under the definition of
the purposes of this the following Ex- the purpose of this an associate company
clause, “significant planation shall be clause— in Section 2(6) to
influence" means substituted, na- (a) the expression mean control of atleast
control of at least mely:— "significant in- 20% of the voting
twenty per cent of 'Explanation.— For fluence" means power or control or pa-
total share capital, or the purpose of this control of at rticipation in business
of business decisions clause— least twenty decision under an
under an agreement.’ (a) the expression per cent. of agreement. Currently
"significant in- tot al voting the Act provides for
fluence" means power, or cont- control of at least 20%
control of at rol of or partic- total share capital.
least twenty ipation in bu- The Impact would be -
per cent. of siness de- • Total voting power
total vot ing cisions under defined in 2(89) to
power, or co- an agreement; be referred
ntrol of or par- (b) the expression • Control through
ticipation in "joint venture" total voting power
business de- means a joint only & not just by
cisions under a r r a n g e me n t holding capital
an agreement; whereby the • Agreement is ess-
(b) the expression parties that ential element to
"joint venture" have joint co- establish control
means a joint ntrol of the arr- through par-
a r r a n g e me n t angement have ticipation
whereby the rights to the net
parties that assets of the
have joint arr-an-gement.”
control of the
arrangement
have rights to the • Term JV clarified –
net assets of the covers all partner
arrangement.' of JV
• Definition crucial in
view of con-
olidation of ac-
counts, RPT, dis-
closures pro-
visions etc.
32 Sec . Section 2(28)- In Section 2 of the Revised Section Change in definition of
2(28) "cost accountant" Companies Act, 2(28)- ‘cost accountant’ is
means a cost 2013 for clause "Cost Accountant" proposed.
accountant as (28), the following means a cost
defined in clause (b) clause shall be a c c o u n tant a s
of sub-section (1) of substituted, na- defined in clause
section 2 of the Cost mely:— (b) of sub-section
and Works Acc- “(28) "Cost Ac- (1) of Section 2 of
untants Act, 1959 (23 countant" means a the Cost and
of 1959); cost accountant as Works Accountants
defined in clause Act, 1959 and who
(b) of sub-section holds a valid
(1) of Section 2 of certificate of pra-
the Cost and ctice under
Works Accountants sub-section (1) of
Act, 1959 and who section 6 of that
holds a valid cer- Act;
tificate of practice
under sub-section
(1) of Section 6 of
that Act;”
33 Sec. Section 2(30)- In Section 2 in Proviso to Under the definition of
2(30) "Debenture" includes clause (30), the Section 2(30)- the term “debenture”, it
debenture stock, following proviso “Provided that— is proposed to exclude
bonds or any other shall be inserted, (a) the instruments instruments referred to
instrument of a namely:— referred to in in Chapter III-D of the
company evidencing "Provided that— Chapter III-D of Reserve Bank of India
a debt, whether con- (a) the instruments the Reserve Act 1934 and such
tituting a charge on referred to in Bank of India other instruments pre-
the assets of the co- Chapter III-D of Act, 1934; and scribed by the Cen-tral
mpany or not. the Reserve (b) su c h o t h er Government in con-
Bank of India instrument, as sultation with the RBI.
Act, 1934; and may be pre-
(b) s uch other scribed by the
instrument, as Central Gov
may be pre- rnment in cons-
cribed by the ultation with
Central Gov- Reserve Bank
rnment in con of India, issued
ultation with by a company,

Reserve Bank shall not be treated
of India, issued as debenture.”
by a company,
shall not be treated
as debenture."
34 Sec. Financial year In Section 2 in Rev i s e d F irst It is proposed that
2(41) First Proviso to clause (41), in the Proviso to associate company of
Section 2(41)- first proviso, after Section 2(41)- a company inco-
‘Provided that on an the word "sub- “Provided that on rporated outside India
application made by sidiary", the words an app l i c a t ion can also apply to the
a company or body "or ass-ociate made by a comp- Tribunal for a different
corporate, which is a company" shall be any or body corpo- financial year.
holding company or a inserted. rate, which is a
subsidiary of a holding company
company incoporated or a subsidiary or
outside India and is a ssociate co -
required to follow a mpany of a com-
different financial pany incorporated
year for consolidation outside India and
of its accounts out- is required to follow
side India, the Trib- a different financial
unal may, if it is year for cons-
satisfied, allow any lidation of its acc-
period as its financial ounts outside
year, whether or not India, the Tribunal
that period is a year.’ may, if it is sa-
tisfied, allow any
p e r i o d a s its
financial year,
whether or not that
period is a year.”
35 Sec. "Holding company", In Section 2 in Explanation to It is proposed that for
2(46) in relation to one or clause (46), the Section 2(46)- the purpose of
more other comp- following E x p - “Explanation.—For definition of the term
anies, means a lanation shall be the purposes of ‘holding company’, the
company of which inserted, namely:— this clause, the expression "company"
such companies are “Explanation.—For expression "co- will include any body
sub s i d i a r y c o m- the purposes of mpany" includes corporate.
panies. this clause, the anybody corp - The Impact would be-
expression "co- orate;” • Under current pro-
mpany" in-cludes isions body
any body co- corporate is not
rporate;” covered as
“holding”
• LLP could also be

covered as
holding?
• Status of its
holding body corp-
orate whether
public or private
needs to be
checked to ensure
subsidiary status
• Stricter comp-
liances for deemed
public subsidiaries
• All such com-anies
will automatically
be out of the de-
finition of Small
Company.
• The strategies for
consolidation,
RPT, disclosures,
Inter-corporate
loans needs to be
reviewed
36 Sec. Section 2(49)- In Section 2, Definition of the term
2(49) “interested director” clause (49) shall is proposed to be
means a director who be omitted; omitted.
is in any way, wh-
ether by himself or
through any of his
relatives or firm, body
corporate or other
association of
individuals in which
he or any of his
relatives is a partner,
director or a member,
intere s t ed in a
contract or arr-
ngement, or pro-
posed contract or
arrangement, entered
into or to be entered
into by or on behalf of
a company;
37 Sec. Section 2(51)- In Section 2 in Revised Section Under the definition

2(49) “Key managerial clause (51),— 2(51)- of the term “Key Man-
personnel” in (a) in sub-clause “Key managerial agerial Perso-nnel”,
relation to a (iv), the word personnel" in relation the following is pro-
company, means— "and" shall be to a company, posed to be included:
(i) the Chief Ex- omitted; means— “such other officer
ecutive Officer (b) for sub-clause (i) the Chief Exe- not more than one
o r t h e (v), the following cutive Officer or level below the dire-
managing sub-clauses the managing ctors who is in whole
director or the shall be substi- director or the time employment and
manager; tuted, namely:— manager; designated as KMP
(ii) the company “(v) s u c h other (ii) the company se- by the Board”
secretary; officer, not cretary;
(iii) the whole-time more than one (iii) the whole-time
director; level below the director;
(iv) t h e Chief directors who is (iv) t h e Chief
Financial in whole-time Financial Officer;
Officer; and e mp l o yme n t , (v) s u c h other
such other officer designated as officer, not
as may be pre- key managerial more than one
cribed. personnel by level below the
the Board; and directors who is
(vi) such other offi- in whole-time
cer as may be employment,
prescribed;” designated as
key managerial
personnel by
the Board; and
(vi) s u c h other
officer as may
be prescribed;”
38 S ec. Section 2(57)- balance of profit and account and debit The Impact would be-
2(57) “Net worth” means loss account," shall or credit balance of • Anomaly plugged
t h e a g g r e g a t e be substituted. profit and loss • Net worth refe-
value of the account, after rred in id-entifying
paid-up share deducting the eligibility of co for
capital and all aggregate value of ac-cep-ting public
reserves created the accumulated de-posit, CSR ap-
out of the profits losses, deferred ex- plicability, Cost
and securities pre- penditure and misce- audit applicability,
mium account, llaneous exp-enditure restrictions on
after deducting the not written off, as per board power
aggregate value of the audited balance (180).
the accumulated sheet, but does not
losses deferred include reserves
expenditure and created out of reval-

miscellaneous uation of assets,
expenditure not write-back of dep-
written off, as per reciation and
the audited bala- amalgamation.
nce sheet, but
does not include
reserves created
out of revaluation
of assets, write
back of depre-
ciation and am-
algamation.
39 Sec . Clause (a) of In Section 2 in Revised Clause (a) To bring more clarity,
2(71) Section 2(71)- clause (71), in of Section 2(71)- the word ‘and’ is
‘(a) is not a private sub-clause (a), after “(a) is not a private proposed between
company;’ the word "comp- company; and” the two items (a) and
any;", the word (b).
"and" shall be ins-
erted;
40 S ec. Clause (A) of In Section 2 in Revised Clause (A) It is proposed that the
2(71) P r o v i s o to clause (72), in the of Proviso to Central Government
Section 2(72)- proviso, in clause Section 2(72)- may notify other
‘(A) it has been (A), after the words “(A) it has been institution which has
establi s hed or “State Act”, the established or been established or
constituted by or words “other than constituted by or constituted by or
under any Central this Act or the under any Central or under any Central or
or State Act; or’ previous company State Act other than State Act other than
law” shall be ins- this Act or the pre- the Companies Act,
erted;’ vious company law; 2013 or previous
or” Company Law after
consultation with the
RBI as “public fin-
ancial institution”
41 Sec . Section 2(76)(viii)- In Section 2 in Revised Section The Bill expands the
2(71) ‘(viii) any company clause (76), for 2(76)(viii)- prevailing definition
(viii) which is— sub-clause (viii), the “(viii) any body to include “an inves-
(A) a holding, following sub-clause corporate which is— ting company or the
subsidiary or shall be substituted, A. a holding, sub- venture of a
an associate namely:— sidiary or an company” in Section
company of “(viii) any body associate comp- 2(76).
such compa- corporate which is— any of such The impact would be:
ny; or A. a holding, sub- company; • Linked with the
sidiary or an concept of ven-
associate com- ture capital & PE
(B) a subsidiary pany of such B. a subsidiary of a • Investment in
of a holding company; holding company assets, shares,
company to B. a subsidiary of a to which it is also land, JV, HR,
which it is holding comp- a subsidiary; or technology likely

also a sub- any to which it is C. an investing com- to get covered.
sidiary.’ a l s o a pany or the venturer • Explanation says
subsidiary; or of the company; BC investment
C. an investing co- Explanation.— For resulting in form-
mpany or the the purpose of this ation of associate
venturer of the clause, “the investing rela-tionship. –
company; company or the While Definition
Explanation.— For venturer of a com- of Associate res-
the purpose of this pany” means a body tricts only to
clause, “the inv- corporate who-se Companies
esting company or investment in the
the venturer of a company would res-
company” means a ult in the company
b o d y corpo r a t e becoming an ass-
whose investment in ociate company of
the company would the body corporate.”
result in the
company becoming
an associate com-
pany of the body
corporate.”
42 Se c. Section 2(85)- In Section 2 in Revised Section It is proposed to
2(71) “Small company” clause (85)— 2(85)- increase the
means a company, (a) in sub-clause (i), “Small Company maximum paid-up
other than a public for the words means a company, share capital amount
company,— "five crore other than a public which can be
(i) paid-up share rupees", the company,— prescribed for the
capital of which words "ten crore (i) paid-up share p u r p o s e o f
does not rupees" shall be capital of which determining a com-
exceed fifty substituted; does not exceed pany as a small
lakh rupees or (b) in sub-clause fifty lakh rupees company from five
such higher (ii),— or such higher crore rupees to ten
amount as may (A) for the words amount as may crore rupees and
be prescribed "as per its last be prescribed prescribed turnover
which shall not profit and loss which shall not be amount from twenty
be more than account", the more than ten crore rupees to one
five crore words "as per crore rupees; hundred crore
rupees; and profit and loss and rupees.
(ii) turnover of account for the (ii) turnover of which Further turnover
which as per its immediately as per profit and should be as per
last profit and preceding fin- loss account for pr o f i t a nd loss
loss account ancial year" the immediately account for the
does not shall be preceding immediately pre-
exceed two substituted; financial year ceding financial year
crore rupees or (B) for the words does not exceed and not as per its last
such higher "twenty crore two crore rupees financial year.

amount as may rupees", the or such higher
be prescribed words "one amount as may
which shall not hundred crore be prescribed
be more than rupees" shall which shall not be
twenty crore be substituted; more than one
rupees. hundred crore
rupees.”
43 Sec . C l a u s e (ii) to In Section 2 in Revised Clause Bill provides that in
2(87) Section 2(87)- clause (87), in (ii) to Section S e cti o n 2 ( 8 7 ) , a
‘(ii) exercises or sub-clause (ii), for 2(87)- subsidiary company or
controls more than the words “total “(ii) exercises or subsidiary – in relation
one-half of the total share capital”, the controls more to any other company
share capital either words “total voting than one-half of (the holding company)
at its own or power” shall be the total voting – means a company
together with one or substituted. power either at where the holding
more of its sub- its own or toge- company controls the
sidiary comp-anies.’ ther with one or composition of the
more of its Board of Directors or
subsidiary comp- exercises or controls
anies.” more than one-half of
the total voting power
either on its own or
together with one or
more of its subsidiary
companies. Currently,
the 2013 Act provides
for the exercise or
control of more than
half of the total share
capital.
The Impact would be
• Replacement of
share capital par-
ameter to “total
voting power” –
narrowed down the
applicability
• Bodies corporates
c a r rying voting
capital or board of
directors in their
constitution can
only be subsidiaries
– LLP ruled out
44 Sec. Section 2(91)- In Section 2 for Revised Section The definition of
2(91) "turnover" means clause (91), the 2(91)- turnover is proposed to
the aggregate value following clause “turnover means be substituted.
of the realisation of shall be substituted, the gross amount The Impact would be
amount made from namely:— of r e v e n u e • Value realization of
the sale, supply or “(91) "turnover" recognised in the sales etc replaced
distribution of goods means the gross profit and loss with revenue rec-
or on account of amount of revenue account from the ognized in p & l
services rendered, recognised in the sale, supply, or account
or both, by the profit and loss distribution of • Turnover concept
company during a account from the goods or on referred in small
financial year; sale, supply, or dis- account of ser- company , c ert-
tribution of goods or vices ren-dered, ification of AR,
on a c c o u n t of or both, by a Secretarial Audit,
services rendered, company du-ring Applicability of Cost
or both, by a co- a financial year; Audit, CSR, Woman
mpany during a fin- Director etc.
ancial year;”
H. Fraud
(Amendment) Bill,
2017
45 S ec. Section 447- In Section 447 of the Revised Section Frauds involving an
447 ‘Without prejudice to principal Act,— 447- amount less than ` 10
any liability including (i) after the words “ W i t h o u t lakhs or one percent of
repayment of any "guilty of fraud", prejudice to any the turnover of the
debt under this Act the words liability including company, whichever is
or any other law for "involving an repayment of any less and does not
the time being in amount of at debt under this involve public interest,
force, any person least ten lakh Act or any other shall be punishable with
who is found to be rupees or one law for the time imprisonment or fine or
guilty of fraud, shall percent. of the being in force, both. The existing
be punishable with turnover of the any person who provision has a
imprisonment for a company, whic- is found to be potential of being
term which shall not hever is lower" guilty of fraud misused and may also
be less than six shall be inserted; involving an have a negative impact
months but which (ii) after the proviso, amount of at on attracting profe-
may extend to ten the following least ten lakh ssionals in the post of
years and shall also proviso shall be rupees or one directors etc. and,
be liable to fine i n s e r t e d , percent. of the therefore, recommends
which shall not be namely:— turnover of the that only frauds, which
less than the “Provided further company, whic- involve at least an
amount involved in that where the fraud hever is lower, amount of rupees ten
the fraud, but which involves an amount s h a l l b e lakh or one percent of
may extend to three less than ten lakh punishable with the turnover of the
times the amount rupees or one per imprisonment for company, whichever is
involved in the fraud. cent. of the turnover a term which lower, may be
Provided that where of the company, shall not be less punishable under
the fraud in question whichever is lower, than six months Section 447 (and
involves public and does not involve but which may non-compoundable).
interest, the term of public interest, any extend to ten Frauds below the limits,
imprisonment shall person guilty of such years and shall which do not involve
not be less than f raud shall be also be liable to public interest, may be
three years.’ punishable with fine which shall given a differential trea-
imprisonment for a not be less than tment and com-
term which may the amount poundable since the
extend to five years involved in the cost of prosecution may
or with fine which fraud, but which exceed the quan-tum
may extend to may extend to involved.
twenty lakh rupees three times the
or with both.” amount involved
in the fraud.
Provided that
where the fraud
in question in-
volves public
interest, the term
of imprisonment
shall not be less
than three years.
Provided further
that where the
fraud involves
an amount less
than ten lakh
rupees or one
per cent. of the
turnover of the
company, wh-
ichever is lower,
and does not
involve public
interest, any
person guilty of
such fraud shall
be punishable
with imprison-
ment for a term
which may
extend to five
years or with
fine which may
extend to tw-
enty lakh
rupees or with
both.”
I. Deposits Repayment Reserve Account

(Amendment) Bill,
2017
46 S ec. Section 73(2)(c)- In Section 73 of the Revised Section • Maintenance of
73 (c) depositing such principal Act, in 73(2)(c)- Deposit Repayment
sum which shall sub-section (2),— (c) d e p o s i t i n g Reserve for Public
not be less than (i) for clause (c), such sum Deposits is proposed
fifteen per cent the following which shall to be changed to
of the amount of clause shall be not be less 20% of the amounts
its deposits substituted, na- than fifteen maturing during the
maturing during mely:— per cent of next year in place of
a financial year (c) depositing, on or the amount of 15%. This will strike
and the financial before the 30th its deposits the perfect balance
year next day of April each maturing between security and
following, and year, such sum during a liquidity and will
kept in a which shall not financial year reduce the cost of
scheduled bank be less than and the borrowings.
in a separate twenty per cent. financial year • Condition of deposit
bank account to of the amount of next follo- insurance for public
be called as its deposits w i n g, and deposits is proposed
d e p o s i t maturing during kept in a to be removed
repayment re- the following scheduled permanently.
serve account.’ financial year bank in a • In case of defaulting
Section 73(2)(d)- and kept in a separate co.-Permanent ban
(d) providing such scheduled bank bank account from raising deposits
d e p o s i t in a separate to be called to be reduced to a
insurance in bank account to as deposit period of 5 years
such manner be called deposit repayment from the date of
and to such repayment res- reserve acc- making default good.
extent as may erve acc-ount;" ount.” • The penalty
be prescribed.’ (ii) clause (d) shall Revised Section prescribed for depo-
S e c t i o n be omitted; 73(2)(e)- sit relating to defaults
73(2)(e)- (iii) in clause (e), for “(e) certifying that is proposed to be
(e) certifying that the words "such the company has revised to a
the company deposits;", the not committed maximum figure of
h a s n o t following shall any default in the twice the amount of
committed any be substituted, repayment of deposits accepted.
default in the namely:— deposits acc-
repayment of “such deposits and epted either
d e p o s i t s where a default had before or after
accepted either occurred, the co- the comm-enc-
before or after mpany made good ement of this Act

the comm- the default and a or payment of
encement of this period of five years interest on such
Act or payment had lapsed since the deposits and
of interest on date of making good where a default
such deposits.’ the default;” had occurred,
the company
made good the
default and a
period of five
years had lapse-
d since the date
of making good
the default;”
J. Selection of members of the Tribunal

47 The Constitution of Selection Committee are aligned with Supreme Court directions. The
members of tribunal and Appellate Tribunal shall be appointed on recommendation of selection
committee. In case of equality of votes in a meeting of selection committee, the chairperson
shall have a casting vote.
DISCLAIMER: The information given in this document has been made on

the basis of the provisions stated in the Companies (Amendment) Bill, 2017
and Companies Act, 2013. It is based on the analysis and interpretation of
applicable laws as on date. Under no circumstances whatsoever, the ICSI
shall be responsible for any loss, claim, liability, damage(s) resulting from the
use, omission or inability to use the information provided in the document.
The Companies (Amendment)
Ordinance, 2018
S. Amendment/ Particulars
No. Substitution
Insertion of
New Section
1. Amendment of In Section 2 of the Companies Act, 2013
Section 2. (hereinafter referred to as the principal Act), in
clause (41),-
(a) for the first proviso, the following provisos shall
be substituted, namely:
“Provided that where a company or body
corporate, which is a holding company or a
subsidiary or associate company of a company
incorporated outside India and is required to
follow a different financial year for
consolidation of its accounts outside India, the
Central Government may, on an application
made by that company or body corporate in
such form and manner as may be prescribed,
allow any period as its financial year, whether
or not that period is a year:
Provided further that any application pending
before the Tribunal as on the date of
commencement of the Companies
(Amendment) Ordinance, 2018, shall be
disposed of by the Tribunal in accordance with
the provisions applicable to it before such
commencement”;
6.606
The Companies (Amendment) Ordinance, 2018 O 6.607
(b) in the second proviso, for the words “Provided

further that”, the words “Provided also that”
shall be substituted.
2. Insertion of new 1. After Section 10 of the principal Act, the
Section 10A following section shall be inserted, namely:
Commence- “10A.(1) A company incorporated after the
ment of commencement of the Companies
business etc. (Amendment) Ordinance, 2018 and having a
share capital shall not commence any
business or exercise any borrowing powers
unless -
(a) a declaration is filed by a director within a
period of one hundred and eighty days of
the date of incorporation of the company in
such form and verified in such manner as
may be prescribed, with the Registrar that
every subscriber to the memorandum has
paid the value of the shares agreed to be
taken by him on the date of making of
such declaration; and
(b) the company has filed with the Registrar a
verification of its registered office as
provided in sub-section (2) of Section 12.
2. If any default is made in complying with the
requirements of this section, the company shall
be liable to a penalty of fifty thousand rupees
and every officer who is in default shall be
liable to a penalty of one thousand rupees for
each day during which such default continues
but not exceeding an amount of one lakh
rupees.
3. Where no declaration has been filed with the

Registrar under clause (a) of sub-Section (1)
within a period of one hundred and eighty days
of the date of incorporation of the company
and the Registrar has reasonable cause to
believe that the company is not carrying on any
business or operations, he may, without
prejudice to the provisions of sub-Section (2),
initiate action for the removal of the name of
the company from the register of companies
under Chapter XVIII.
3. Amendment of In Section 12 of the Principal Act, after
Section 12 sub-Section (8), the following sub-section shall be
inserted, namely:
“(9) If the Registrar has reasonable cause to
believe that the company is not carrying on any
business or operations, he may cause a physical
verification of the registered office of the company
in such manner as may be prescribed and if any
default is found to be made in complying with the
requirements of sub-Section (1), he may without
prejudice to the provisions of sub-Section (8),
initiate action for the removal of the name of the
company from the register of companies under
Chapter XVIII”.
4. Amendment of In Section 14 of the Principal Act,-
Section 14 (i) in sub-Section (1), for the second proviso,
the following provisos shall be substituted,
namely:
“Provided further that any alteration having
the effect of conversion of a public company
into a private company shall not be valid
unless it is approved by an order of the

Central Government on an application made
in such form and manner as may be
prescribed:
Provided also that any application pending
before the Tribunal, as on the date of
(Amendment) Ordinance, 2018, shall be
disposed of by the Tribunal in accordance
with the provisions applicable to it before
such commencement.”;
(ii) in sub-Section (2), for the word “Tribunal”,
the words “Central Government” shall be
substituted.
5. Amendment of In Section 53 of the Principal Act, for
substituted, namely:
“(3) Where any company fails to comply with the
provisions of this section, such company and every
officer who is in default shall be liable to a penalty
which may extend to an amount equal to the
amount raised through the issue of shares at a
discount or five lakh rupees, whichever is less, and
the company shall also be liable to refund all
monies received with interest at the rate of twelve
per cent. per annum from the date of issue of such
shares to the persons to whom such shares have
been issued.”
“(2) Where any company fails to comply with the

provisions of sub-Section (1), such company and
every officer who is in default shall be liable to a
penalty of one thousand rupees for each day
during which such default continues, or five lakh
rupees whichever is less.”
7. Amendment of In Section 77 of the Principal Act, in
Section 77 sub-section (1), for the first and second provisos,
the following provisos shall be substituted, namely:
“Provided that the Registrar may, on an
application by the company, allow such registration
to be made-
(a) in case of charges created before the
(Amendment) Ordinance, 2018, within a period
of three hundred days of such creation; or
(b) in case of charges created on or after the
(Amendment) Ordinance, 2018, within a
period of sixty days of such creation, on
payment of such additional fees as may be
prescribed:
Provided further that if the registration is not made
within the period specified-
(a) in clause (a) to the first proviso, the
registration of the charge shall be made within
six months from the date of commencement of
the Companies (Amendment) Ordinance,
2018, on payment of such additional fees as
may be prescribed and different fees may be
prescribed for different classes of companies;
(b) in clause (b) to the first proviso, the Registrar

may, on an application, allow such registration
to be made within a further period of sixty days
after payment of such advalorem fees as may
be prescribed.”.
8. Amendment of Section 86 of the Principal Act shall be
Section 86 numbered as sub--Section (1) thereof and after
sub-Section (1) as so numbered, the following
sub-section shall be inserted, namely:
“(2) If any person wilfully furnishes any false or
incorrect information or knowingly suppresses any
material information, required to be registered in
accordance with the provisions of Section 77, he
shall be liable for action under Section 447.”
9. Substitution of For Section 87 of the Principal Act, the following
new section for section shall be substituted, namely:
Section 87. Rectification by Central Government in Register of
charges.
“The Central Government on being satisfied that -
(a) the omission to give intimation to the Registrar
of the payment or satisfaction of a charge,
within the time required under this Chapter; or
(b) the omission or misstatement of any particulars
with respect to any such charge or modification
or with respect to any memorandum of
satisfaction or other entry made in pursuance
of Section 82 or 83,was accidental or due to
inadvertence or some other sufficient cause or
it is not of a nature to prejudice the position of
creditors or shareholders of the company, it
may, on the application of the company or any
person interested and on such terms and
conditions as the Central Government deems

just and expedient, direct that the time for the
giving of intimation of payment or satisfaction
shall be extended or, as the case may require,
that the omission or misstatement shall be
rectified.”
Section 90 (i) for sub-Section (9), the following
sub-section shall be substituted, namely:
“(9) The company or the person aggrieved
by the order of the Tribunal may make an
application to the Tribunal for relaxation or
lifting of the restrictions placed under
sub-Section (8), within a period of one year
from the date of such order:
Provided that if no such application has been
filed within a period of one year from the
date of the order under sub-Section (8), such
shares shall be transferred to the authority
constituted under sub-Section (5) of
Section 125, in such manner as may be
prescribed;
(ii) in sub-Section (10),-
(a) after the word “punishable”, the words
“with imprisonment for a term which may
extend to one year or” shall be inserted;
(b) after the words “ten lakh rupees”, the
words “or with both” shall be inserted.
“(5) If any company fails to file its annual return

under sub-Section (4), before the expiry of the
period specified therein, such company and its
every officer who is in default shall be liable to a
penalty of fifty thousand rupees and in case of
continuing failure, with further penalty of one
hundred rupees for each day during which such
failure continues, subject to a maximum of five lakh
rupees.”
“(5) Without prejudice to the provisions of
sub-Section (4), if any default is made in
complying with the provisions of this section, every
promoter, director, manager or other key
managerial personnel of the company who is in
default shall be liable to a penalty of fifty thousand
rupees or five times the amount of benefit accruing
to the promoter, director, manager or other key
managerial personnel or any of his relatives,
whichever is higher.”
Section 105 sub-Section (3), for the words “punishable with
fine which may extend to five thousand rupees”,
the words “liable to a penalty of five thousand
rupees” shall be substituted.
“(2) If any company fails to file the resolution or the
agreement under sub-Section (1) before the
expiry of the period specified therein, such

company shall be liable to a penalty of one lakh
rupees and in case of continuing failure, with
further penalty of five hundred rupees for each day
after the first during which such failure continues,
subject to a maximum of twenty-five lakh rupees
and every officer of the company who is in default
including liquidator of the company, if any, shall be
liable to a penalty of fifty thousand rupees and in
case of continuing failure, with further penalty of
five hundred rupees for each day after the first
during which such failure continues, subject to a
maximum of five lakh rupees.”
“(3) If the company fails to file the report under
sub-Section (2) before the expiry of the period
specified therein, such company shall be liable to
a penalty of one lakh rupees and in case of
continuing failure, with further penalty of five
hundred rupees for each day after the first during
which such failure continues, subject to a maximum
of five lakh rupees and every officer of the
company who is in default shall be liable to a
penalty which shall not be less than twenty-five
thousand rupees and in case of continuing failure,
with further penalty of five hundred rupees for each
day after the first during which such failure
continues, subject to a maximum of one lakh
rupees.”
16. Amendment of In Section 137 of the principal Act, in

Section 137 sub-Section (3),-
(a) for the words “punishable with fine”, the words
“liable to a penalty” shall be substituted;
(b) for the words “punishable with imprisonment
for a term which may extend to six months or
with fine which shall not be less than one lakh
rupees but which may extend to five lakh
rupees or with both”, the words “shall be liable
to a penalty of one lakh rupees and in case of
hundred rupees for each day after the first
during which such failure continues, subject to
a maximum of five lakh rupees” shall be
substituted.
“(3) If the auditor does not comply with the
provisions of sub-Section (2), he or it shall be
liable to a penalty of fifty thousand rupees or an
amount equal to the remuneration of the auditor,
whichever is less, and in case of continuing failure,
with further penalty of five hundred rupees for each
continues, subject to a maximum of five lakh
rupees.”
“(2) If any company fails to furnish the Director
Identification Number under sub-Section (1), such
company shall be liable to a penalty of twenty-five
thousand rupees and in case of continuing failure,
with further penalty of one hundred rupees for each

continues, subject to a maximum of one lakh
rupees, and every officer of the company who is in
default shall be liable to a penalty of not less than
twenty-five thousand rupees and in case of
hundred rupees for each day after the first during
which such failure continues, subject to a maximum
of one lakh rupees.”
19. Amendment of For Section 159 of the Principal Act, the
Section 159 following section shall be substituted, namely:
Penalty for “If any individual or director of a company makes
default of any default in complying with any of the provisions
certain of Section 152, Section 155 and Section 156,
Provision such individual or director of the company shall be
liable to a penalty which may extend to fifty
thousand rupees and where the default is a
continuing one, with a further penalty which may
extend to five hundred rupees for each day after
the first during which such default continues.”.
Section 164 sub-Section (1), after clause (h), the following
clause shall be inserted, namely:
“(i) he has not complied with the provisions of
sub-Section (1) of Section 165.”
Section 165 sub-Section (6), for the portion beginning with
“punishable with fine” and ending with
“contravention continues”, the words “liable to a
penalty of five thousand rupees for each day after
the first during which such contravention continues”

“(5) If a director of the company makes any default
in complying with the provisions of this section,
such director shall be liable to a penalty of one lakh
rupees.”

Section 197 (a) sub-Section (7) shall be omitted;
(b) for sub-Section (15), the following sub-section
shall be substituted, namely:
“(15) If any person makes any default in complying
with the provisions of this section, he shall be liable
to a penalty of one lakh rupees and where any
default has been made by a company, the
company shall be liable to a penalty of five lakh
rupees.”
“(5) If any company makes any default in
complying with the provisions of this section, such
company shall be liable to a penalty of five lakh
rupees and every director and key managerial
personnel of the company who is in default shall be
liable to a penalty of fifty thousand rupees and
where the default is a continuing one, with a further
penalty of one thousand rupees for each day after
the first during which such default continues but not
exceeding five lakh rupees.”.

Section 238 sub-Section (3), for the words “punishable with
fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh
rupees”, the words “liable to a penalty of one lakh
rupees” shall be substituted.
26. Amendment of In Section 248 of the principal Act, in
Section 248 sub-Section (1), of Section 248.
(a) in clause (c), for the word and figures
“Section 455,”, the words and figures “Section
455; or” shall be substituted;
(b) after clause (c) and before the long line, the
following clauses shall be inserted, namely:
“(d)the subscribers to the memorandum have
not paid the subscription which they had
undertaken to pay at the time of incorporation
of a company and a declaration to this effect
has not been filed within one hundred and
eighty days of its incorporation under
sub-Section (1) of Section 10A; or
(e) the company is not carrying on any
business or operations, as revealed after the
physical verification carried out under
sub-Section (9) of Section 12.”
Section 441 (a) in sub-Section (1), in clause (b), for the words
“does not exceed five lakh rupees”, the words
“does not exceed twenty-five lakh rupees” shall
be substituted;
(b) for sub-Section (6), the following sub-section
shall be substituted, namely:
“(6) Notwithstanding anything contained in the

Code of Criminal Procedure, 1973, any
offence which is punishable under this Act with
imprisonment only or with imprisonment and
also with fine shall not be compoundable.”
28. Amendment of In Section 446B of the Principal Act, for the
Section 446B portion beginning with “punishable with fine” and
ending with “specified in such sections”, the words
“liable to a penalty which shall not be more than
one half of the penalty specified in such sections”
29. Amendment of In Section 447 of the Principal Act, in the second
Section 447 proviso, for the words “twenty lakh rupees”, the
words “fifty lakh rupees” shall be substituted.
30. Amendment of In Section 454 of the Principal Act, -
Section 454 (i) for sub-Section (3), the following sub-section
shall be substituted, namely-
“(3) The adjudicating officer may, by an order-
(a) impose the penalty on the company, the
officer who is in default, or any other
person, as the case may be, stating
therein any non-compliance or default
under the relevant provisions of this Act;
and
(b) direct such company, or officer who is in
default, or any other person, as the case
may be, to rectify the default, wherever
he considers fit.”;
(ii) in sub-Section (8), -
(a) in clause (i), for the words “does not pay
the penalty imposed by the adjudicating
officer or the Regional Director”, the
words, brackets and figures “fails to

comply with the order made under
sub-Section (3) or sub-Section (7), as
the case may be,” shall be substituted;
(b) in clause (ii), for the words “does not pay
the penalty”, the words, brackets and
figures “fails to comply with the order
made under sub-Section (3) or
sub-Section (7), as the case may be,”
31. Insertion of a After Section 454 of the Principal Act, the
new Section following section shall be inserted, namely:
454A “454A. Where a company or an officer of a
Penalty for company or any other person having already been
repeated default subjected to penalty for default under any
provisions of this Act, again commits such default
within a period of three years from the date of order
imposing such penalty passed by the adjudicating
officer or the Regional Director, as the case may
be, it or he shall be liable for the second or
subsequent defaults for an amount equal to twice
the amount of penalty provided for such default
under the relevant provisions of this Act.”
June - 2018
CMA Inter Group - I
Paper - 6
Laws and Ethics
The figures in the margin on the right side indicate full marks.
This question paper has two sections.
Both the sections are to be answered subject to instructions given against
cash.
SECTION – A
1. Answer all the following questions:
(a) Choose the correct answer from the given alternatives (you may
write only the Roman numeral and the alphabet choosen for your
answer):
(i) The main feature of e-contract is
(a) Cost and acceptability
(b) Purity and clarity
(c) Speed, accurate and reliable
(d) Perfection and attractive
(ii) Which of the following is not an unpaid seller’s right against the
goods?
(a) The right of retention
(b) The right of stoppage in transit
(c) The right of seeking claim for damage
(d) The right of resale
(iii) Where the endorser does not want that the endorsee or any
other holder to incur any expense on his account is called
(a) Restrictive endorsement
(b) Sans frais endorsement
(c) Conditional endorsement
(d) Unwanted endorsement
(iv) The liability of the partners will continue for the acts done before
the dissolution, even after the dissolution, until
6.621
(a) Public notice is given of the dissolution

(b) Partners are getting the final payment
(c) Claim is demanded by the creditors
(d) The death of partners
(v) Every employee shall be entitled to receive bonus from his
employer in an accounting year if he has worked for not less
than
(a) Ten working days
(b) Twenty working days
(c) Thirty working days
(d) Forty working days
(vi) Under Employee’s State Insurance Act, 1948, the term of the
office of the members of Medical Benefit Council shall be
(a) 2 Years
(b) 4 Years
(c) 5 Years
(d) 10 Years
(vii) Which one cannot be transacted through postal ballot ?
(a) Appointment of auditor
(b) Election of a Director
(c) Buy back of shares by a company
(d) Change in place of registered office outside the local limits
of any city, town or village
(viii) The appointment of an independent director shall be approved
by the
(a) Board meeting
(b) General meeting
(c) Registrar of Companies
(d) Central Government
(ix) The sweat equity shares shall be locked in for a period of ------
years from the date of allotment .
(a) One
(b) Two
Question Paper O 6.623
(c) Three
(d) Four
(x) The following is the disadvantage of business ethics:
(a) Through increasing morale and trust business can increase
their market share
(b) Publicity due to well and ethical performance
(c) Acceptance of products of the company by the public
(d) Diversity in achievements
(1×10 = 10 marks)
(b) Match the statement in column 1with the most appropriate statement
in Column II :
Column I Column II
1 Legal Representative of the (A) Welfare measures taken
contractor in a factory.
2 Where the seller makes a (B) Certificate of
false representation and incorporation.
buyer relies on it.
3 Creches (C) Extract of the annual
return of a company.
4 MGT - 9 (D) Exception to the
Doctrine of Caveat
Emptor.
5 Form No. INC - 11 (E) He who is not the
Principal Employer.
(1 × 5 = 5 marks)
(c) State whether the following statements are True or False (you may
write only the Roman numeral and whether True of False without
copying the statements into the answer books):
(i) Gratuitous bailment continues even after the death of either of
the bailor or bailee.
(ii) A holder is not having right to duplicate of lost bill, before it is

overdue.
(iii) Fine may be recovered from the employed person by
installments
(iv) Share certificate is a negotiable instrument.
(v) The businessmen who do not follow business ethics will have
short term success, but they will fail in the long run.
(1× 5 = 5 marks)
(d) Fill in the blanks suitably (you may write only the Roman numeral
and the content filling the blanks):
(i) The liability of surety arises only when the principal debtor fails
to pay the debt to the------------.
(ii) Goods to be manufactured or produced or acquired by the seller
after making of the contract of sale is called --------- good.
(iii) If there is a dispute as to the amount of gratuity payable to the
employee, the employer shall deposit the gratuity with the -------.
(iv) The time limit for registration of charge is ---------days from the
date of creation of charge.
(v) The ethical operation of a company is directly related to----------
in both short and long term. (1× 5 = 5 marks)
SECTION - B
Answer any five questions from question numbers 2 to 8
Each question carries 15 marks.
2. (a) Mr. X, a businessman has been fighting a long drawn litigation with
Mr. Y, another businessman. To support his legal campaign Mr. X
enlists the services of Mr. Z, a legal expert, stating that an amount
of ` 10 lakhs would be paid, if Mr. Z does not take up the brief of Mr.
Y. Mr. Z agrees, but at the end of the litigation Mr. X refuses to pay.
Decide whether Mr. Z can recover the amount promised by Mr. X
under the provisions of the Indian Contract Act, 1872. (5 marks)
(b) State the circumstances when an agent is personally liable for the
contracts entered into by him on behalf of the principal ?
(10 marks)
3. (a) M/s. Tea Enterprises agreed to supply 2,200 Kgs. of Tea to M/s.
Gopal Enterprises at `1200/- per Kg. by 30th April , 2018 . On 1st
March, 2018 M/s. Tea Enterprises informs Gopal Enterprises that
they are not willing to supply the Tea as the price of Tea increased
to `1400/- per Kg. Examine the right of M/s. Gopal Enterprises.
(8 marks)
(b) Anil draws a bill of exchange payable to himself on Sushil, who
accepts the bill without consideration just to accommodate Anil. Anil
transfers the bill to Ajay for good consideration.
State the rights of Anil and Ajay. Would your answer be different if
Anil transferred the bill to Ajay after maturity ? (7 marks)
4. (a) Critically examine the duties of certified surgeon under the Factories
(b) Enumerate the Central Record Keeping Agency under Pension Fund
Regulatory and Development Act 2013? (7 marks)
5. (a) Discuss the procedure for conversion of private company into One
Person Company. (7 marks)
(b) What are the procedures of sending notice through electronic mode
under the Companies Act, 2013? (8 marks)
6. (a) Discuss the provisions of the Companies Act, 2013 regarding
disqualifications for appointment of director. (10 marks)
(b) “ Directors are agents of the company.”– Discuss. (5 marks)
7. (a) What are the areas in business ethics ? Write a note of the same.
(10 marks)
(b) Kelson Limited has two separate units at Delhi and Mumbai in India.
Every unit of the said company prepares and maintains separate
Balance Sheet and Profit and Loss Account. Delhi unit is incurring
continuous losses and hence bonus is not paid to the employees of
this unit.
Decide, under the Payment of Bonus Act, 1965 whether the

employees of the said unit can claim bonus on the ground that the
unit incurring loss is a part of one single establishment ?
(5 marks)
8. Write short notes on any three out of the following terms:
(a) Undue Influence
(b) Alteration of Share Capital
(c) Consumer movement and Ethics
(d) Manufacturing process under the Factories Act, 1948
(5 × 3 = 15 marks)
December - 2018
CMA Inter Group - I
Paper - 6
Laws and Ethics
SECTION – A
Section A contains Question No. 1. All parts of this questions are

compulsory.
1. Answer all the following questions:
Choose the correct answer from the given alternatives (you may write
only the Roman numeral and the alphabet chosen for your answer):
(a) Multiple Choice Questions:
(i) A proposal may be revoked at any time before
(a) the communication of acceptance
(b) the payment of consideration
(c) signing the agreement
(d) execution of the proposal
(ii) Which of the following is not to be taken care while admitting a
new partner?
(a) Computation of new profit sharing ratio and sacrifice ratio
(b) Accounting treatment of goodwill
(c) Professional qualification of admitting partner
(c) Revaluation of assets and liabilities
(iii) Where goods are delivered to the buyer and he refuses to accept
them, the buyer is not bound to
(A)retain them with him
(b) look - after the goods
(c) return them to the seller
(d) store them in his godown
(iv) No child shall be allowed to work in a factory unless he has

completed his
(a) 12th year
(b) 14th year
(c) 16th year
(d) 18th year
(v) Gratuity shall be payable to an employee on the termination of his
employment after he has rendered continuous service for not less
than
(a) three years
(b) five years
(c) seven years
(d) ten years
(vi) The Employees’ State Insurance Corporation is
(a) Hindu Undivided Family
(b) Local Authority
(c) Charitable Institution
(d) Body Corporate
(vii) The annual return of an OPC shall be signed by the company
secretary or where there is no company secretary, by the
(a) Senior executive of the company
(b) Auditor of the company
(c) Director of the company
(d) Advocate of the company
(viii) If there is any mis-statement in the prospectus then it would
attract the liability on
(a) The printer
(b) The issuer
(c) The publisher
(d) The proof-reader
(ix) Every company limited by shares shall keep and maintain the
Register of Members in Form No.
(a) MGT - 1
(b) MGT - 3
(c) MGT - 7
(d) MGT - 12
(x) Ethics are the set of moral principles that guide a person’s
(a) Behaviour
(b) Philosophy
(c) Religion
(d) Profession (1 × 10 = marks)
1. (b) Match and Pair:
Column I Column II
(1) Wagering contract (A) Voting through electronics
means
(2) Coercion (B) War, animal rights and capital
punishment
(3) Consensus ad-idem (C) Committing any act forbidden
by the Indian Penal Code
(4) Section 108 of Companies (D) Identity of minds
Act, 2013
(5) Applied ethics (E) Promise to pay ` 1,000 if it
rains today
(1 × 5 = 5 marks)
(c) State whether the following statements are True or False
(i) Goods to be manufactured or produced or acquired by the seller
after making of the contract of sale are called future goods.
(ii) The first endorsement of an instrument can be made by the
Banker.
(iv) In case of e-voting, notice shall be sent as attachment in word

file.
(v) Ethics is a requirement for human life. (1 × 5 = 5 marks)
(d) Fill in the blanks:
(i) The dishonor of the instrument may be due to Non-acceptance
and _____ .
(ii) The term of the office of the representative members of Medical
Benefit Council shall be ______ years from the date on which the
appointment is notified.
(iii) The company shall have the _____ to specify the lock-in-period for
the shares issued in pursuant of exercise such option.
(iv) A director may resign from his office by giving a notice in writing
to the ____.
(v) The Seven Principles of Public Life were set out by _____ for the
first time in the year 1995. (1 × 5 = 5 marks)
SECTION - B
Answer any five questions from question numbers 2 to 8.
Each question carries 15 marks.
2. (a) Explain the meaning of ‘Quasi-Contracts’. State the circumstances

which are identified as quasi-contracts by the Indian Contract Act,
1872. (10 marks)
(b) C is the wife of A. She purchased some sarees on credit from B. B
demanded the amount from A. A refused, B filed a suit against A for
the said amount. Decide in the light of provisions of the Indian
Contract Act, 1872, whether B would succeed. (5 marks)
3. (a) A limited liability partnership wants to shift its registered office from
Mumbai in the State of Maharashtra to Kolkata in the State of West
Bengal. What procedure the corporate has to follow under Limited
Liability Partnership Act, 2008? (8 marks)
(b) Rahul draws a cheque payable to ‘sell or order’. Before he could

encash the cheque, one of his creditors, Samrat approaches him for
payment. Rahul endorses the same cheque in Samrat’s favour. The
banker refuses payment to Samrat on account of insufficiency of
funds in the account. Can Rahul be made liable to penalties for
dishonor of cheque due to insufficiency of funds in the account
under section 138 of Negotiable Instruments Act, 1881? (7 marks)
4. (a) Explain the procedure for fixing and revising minimum wages under
Minimum Wages Act, 1948. (9 marks)
(b) Mention the benefits that are entitled to the insured persons under
the Employees’ State Insurance Act, 1948. (6 marks)
5. (a) What are the features of companies registered under section 8 of
the Companies Act, 2013? (7 marks)
(b) Discuss the provisions of the Companies Act, 2013 regarding issue
of bonus shares. (8 marks)
6. (a) Discuss the powers of the Board of Directors of a company as per
the Companies Act, 2013. (10 marks)
(b) Enumerate the provisions of the Companies Act, 2013 relating to
women director in a company (5 marks)
7. (a) Discuss the nature and relevance of Ethics to the Business.
(10 marks)
(b) Mr. Gill, an employee of M/s Sonabheel Tea Ltd., continued to
occupy the quarter of the company for eight months after
superannuation, company decided to forfeit the amount of gratuity
of Mr. Gill. Examine the decision taken by the company to forfeit the
amount of gratuity in the light of the Payment of Gratuity Act, 1972.
(5 marks)
8. Write short notes on any three of the following terms:
(a) E-Contracts
(b) Small Companies
(c) Improving ethical behaviour in business
(d) ‘Overtime’ under Minimum Wages Act, 1948 (5 × 3 = 15 marks)

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Laws and Ethics constitute the Paper - 6 of Inter Gr. I Examination

Prof. Arun Kumar

CS (Dr.) Himanshu Srivastava

 An Examination Trend Analysis for question paper based contents of

Mirror that reflects our preparation.

Scanner is a good approach for CWA students. It had played an important

The Scanner is very helpful because in it are given chapter-wise questions.

“Scanner” is synonym of “Success”. By using this book, a student comes to

19. Directors 5 5 3 10 15 20 15 15 88 8.8

2. Quasi, Contingent and Discharge of...

3. Indemnity and Guarantee

7. Sale of Goods Act, 1930

8. Negotiable Instruments Act, 1881

9. Indian Partnership Act, 1932

10. Limited Liability Partnership Act, 2008

11. Factories Act, 1948

12. Payment of Gratuity Act, 1972

13. Employees’ Provident Funds and ...

14. Employees’ State Insurance Act, 1948

15. Payment of Bonus Act, 1965

16. Minimum Wages Act, 1948

18. Company Types, Promotion, Formation...

20. Business Ethics

21. Objective Questions 16 25 41 4.1

For detailed analysis Login at www.scannerclasses.com

Topic Important Highlights

(iii) with a lawful object, and

5. Rules relating to  It must be capable of creating legal relations

Standing/ Continuing / Open Offer:

9. Rules of a valid  It must move at the desire of the promisor.

– between parties standing in near relation

13. Legal Agreement  An agreement which can be enforced legally.

16. Voidable  It is an agreement which is binding and

19. Lunatics  As per Section 12 of the Indian Contract Act,

 Relationship where dominant position is not

 Its damages can be obtained in following

28. Transaction with  It means complete seclusion.

(ii) Agreement the meaning of which is

2008 - Dec [4] (a) Write explanatory notes on :

2009 - June [4] (a) Write explanatory note on :

(v) The aggrieved party can insist that

2010 - June [3] (a) Write short note on :

2010 - Dec [3] (a) Write short note on :

2012 - June [4] (a) Write short note on:

2012 - Dec [4] (a) Write short notes.

2017 - June [8] Write short note on the following:

deployed by a software system. They are conceptually very similar to

Where, however, a ‘Person’ lawfully does anything for “another person”

2009 - June [3] (b) A minor can be appointed as agent. —Comment.

2010 - June [2] (b) A contract without adequate consideration is not a

2011 - June [2] (f) What is 'fraud'? (4 marks)

3. It is not enforceable by law from 3. It is enforceable by law at the

2. Intention to create There must be intention of the parties

3. Lawful consideration Subject to certain exceptions, there must be

10. Writing, registration In certain cases such as gift, lease, sale or

2016 - June [2] Answer the question:

accepted in the prescribed manner, and not